SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT /X/
FILED BY A PARTY OTHER THAN THE REGISTRANT / /
CHECK THE APPROPRIATE BOX:
/ / PRELIMINARY PROXY STATEMENT
/X/ DEFINITIVE PROXY STATEMENT
/ / DEFINITIVE ADDITIONAL MATERIALS
/ / SOLICITING MATERIAL PURSUANT TO RULE 14a-11(c) OR RULE 14a-12
Strawbridge & Clothier
________________________________________________________________________________
(Name of Registrant as Specified in its Charter)
Strawbridge & Clothier
________________________________________________________________________________
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration No.:
3) Filing Party:
4) Date Filed:
<PAGE>
STRAWBRIDGE & CLOTHIER
801 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19107-3199
June 7, 1996
DEAR SHAREHOLDER OF STRAWBRIDGE & CLOTHIER:
You are cordially invited to attend the annual meeting of shareholders of
Strawbridge & Clothier on Monday, July 15, 1996, at which you will be asked to
approve, among other things, a Plan of Reorganization and Liquidation (the
"Liquidation") involving certain transactions with The May Department Stores
Company and Kimco Realty Corporation and the subsequent dissolution of the
company. The accompanying Proxy Statement/Prospectus provides you with detailed
information concerning the annual meeting, the proposed Liquidation and certain
other information. Please give this information your careful attention.
For the reasons described in the Proxy Statement/Prospectus, your Board, by
unanimous vote, has determined that the terms of the Liquidation are in the best
interests of the shareholders of Strawbridge & Clothier, and recommends that you
vote FOR the proposal to approve the Liquidation. This decision was reached only
after more than six months of extended evaluation of the strategic alternatives
available to the company. Our preferred alternative was "staying the course,"
continuing to maintain the independence of Strawbridge & Clothier. However, our
analysis indicated that even with dramatic cost reduction and consolidation
programs, in light of the economic and competitive conditions in the retail
market we serve, the proposed Liquidation will produce greater value for our
shareholders. We express our deep, heart-felt appreciation to our shareholders
for your support of the company for so many years.
Please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible.
Sincerely,
/s/ FRANCIS R. STRAWBRIDGE, III /s/ PETER S. STRAWBRIDGE
FRANCIS R. STRAWBRIDGE, III PETER S. STRAWBRIDGE
Chairman President
<PAGE>
- --------------------------------------------------------------------------------
STRAWBRIDGE & CLOTHIER
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 15, 1996
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF
STRAWBRIDGE & CLOTHIER:
The Annual Meeting of Shareholders of Strawbridge & Clothier, a Pennsylvania
corporation, will be held at 11:00 a.m., local time, on Monday, July 15, 1996,
on the 8th Floor of Strawbridge & Clothier's Main Store, 801 Market Street,
Philadelphia, Pennsylvania, for the following purposes:
(1) to approve the voluntary dissolution of Strawbridge & Clothier (the
"Liquidation") in accordance with the following resolution unanimously
adopted by the Board of Directors of Strawbridge & Clothier:
"RESOLVED, that Strawbridge & Clothier be voluntarily dissolved
pursuant to the Plan of Reorganization and Liquidation approved by
the Board of Directors and in accordance with Subchapter H of
Chapter 19 of the Pennsylvania Business Corporation Law of 1988,
as amended (the "PBCL"), and Section 368(a) of the Internal
Revenue Code of 1986, as amended; provided, however, the Board of
Directors may determine to proceed under Section 1975 of the PBCL
rather than Subchapter H prior to the time when articles of
dissolution are filed in the Pennsylvania Department of State,
notwithstanding the adoption by the shareholders of this
resolution."
A copy of the Plan of Reorganization and Liquidation of Strawbridge & Clothier
is attached to the accompanying Proxy Statement/Prospectus as Annex A (the "Plan
of Reorganization and Liquidation").
The Liquidation will be effected pursuant to the asset disposition transactions
contemplated by:
(a) the Asset Purchase Agreement, dated as of April 4, 1996,
between The May Department Stores Company, a New York
corporation ("May New York") and a wholly owned subsidiary of
The May Department Stores Company, a Delaware corporation
("May"), and Strawbridge & Clothier, a copy of which is
attached to the accompanying Proxy Statement/Prospectus as
Annex B, pursuant to which Strawbridge & Clothier will sell
and May New York will acquire the Department Store Assets and
the Disposition Proceeds (as such terms are defined in the
accompanying Proxy Statement/Prospectus), and May will issue
to Strawbridge & Clothier 4,200,000 shares of common stock,
par value $.50 per share (including the associated preferred
stock purchase rights), of May, subject to adjustment, plus,
to the extent there are Disposition Proceeds, the Second
Closing Stock Consideration (as defined in the accompanying
Proxy Statement/Prospectus), and May New York will assume the
Assumed Department Store Liabilities (as defined in the
accompanying Proxy Statement/Prospectus); and
<PAGE>
(b) the Asset Purchase Agreement, dated as of May 3, 1996, between
Kimco Realty Corporation, a Maryland corporation ("Kimco"),
and Strawbridge & Clothier, a copy of which is attached to the
accompanying Proxy Statement/Prospectus as Annex C, pursuant
to which Strawbridge & Clothier will sell and Kimco will
acquire the Clover Store Assets (as defined in the
accompanying Proxy Statement/Prospectus), and Kimco will pay
to Strawbridge & Clothier $40,000,000, subject to adjustment,
and will assume the Assumed Clover Stores Liabilities (as
defined in the accompanying Proxy Statement/Prospectus).
(2) to elect four directors.
(3) to approve the designation of the firm of Ernst & Young LLP, independent
auditors, to audit the books and accounts of Strawbridge & Clothier for
the fiscal year ending February 1, 1997.
(4) to transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement/Prospectus accompanying this Notice which you are urged to read
carefully.
Approval of the Liquidation will constitute approval by Strawbridge &
Clothier shareholders in accordance with Section 1974 of the PBCL of the
dissolution of Strawbridge & Clothier and adoption of the Plan of Reorganization
and Liquidation.
Only holders of record of Strawbridge & Clothier's Series A Common Stock and
Series B Common Stock at the close of business on June 3, 1996 will be entitled
to vote at the Annual Meeting.
Shareholders will not be entitled to dissenters' rights of appraisal in
connection with any of the matters to be voted on at the Annual Meeting.
Please sign, date and return, in the envelope provided, the enclosed form(s)
of proxy, which are being solicited by the Strawbridge & Clothier Board of
Directors. The proxies show the form in which your shares are registered. Your
signature should be in the same form.
By order of the Board of Directors.
STEVEN L. STRAWBRIDGE
Secretary
Philadelphia, PA
June 7, 1996
2
<PAGE>
THE MAY DEPARTMENT STORES COMPANY STRAWBRIDGE & CLOTHIER
PROXY STATEMENT/PROSPECTUS
-------------------
This Proxy Statement/Prospectus is being furnished to the shareholders of
Strawbridge & Clothier, a Pennsylvania corporation, in connection with the
solicitation by the Board of Directors of Strawbridge & Clothier of proxies for
use at the annual meeting of shareholders of Strawbridge & Clothier to be held
at 11:00 a.m., local time, on Monday, July 15, 1996, on the 8th Floor of
Strawbridge & Clothier's Main Store, 801 Market Street, Philadelphia,
Pennsylvania.
This Proxy Statement/Prospectus also constitutes a prospectus of The May
Department Stores Company, a Delaware corporation ("May"). In May 1996, May
effected a share exchange in which it acquired all outstanding shares of The May
Department Stores Company, a New York corporation ("May New York"), the shares
of which were listed and traded on the New York Stock Exchange, Inc. (the
"NYSE"), which resulted in changing the state of incorporation of the publicly
traded company from New York to Delaware. As used herein, except as otherwise
specified, references to May in a time period prior to May 24, 1996, the
effective date of the reincorporation transaction, mean May New York and its
consolidated subsidiaries.
At the annual meeting of shareholders (including any adjournments and
postponements thereof, the "Annual Meeting"), shareholders of Strawbridge &
Clothier will have the opportunity to consider and vote upon the following
proposals: (1) the voluntary dissolution of Strawbridge & Clothier (the
"Liquidation") pursuant to the Plan of Reorganization and Liquidation, a copy of
which is attached to this Proxy Statement/Prospectus as Annex A, and in
accordance with Subchapter H of Chapter 19 of the Pennsylvania Business
Corporation Law of 1988, as amended, and Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Liquidation Proposal"), which Liquidation will be
effected pursuant to the asset disposition transactions contemplated by (a) the
Asset Purchase Agreement, dated as of April 4, 1996, between May New York and
Strawbridge & Clothier (the "May Asset Purchase Agreement"), a copy of which is
attached to this Proxy Statement/Prospectus as Annex B, pursuant to which
Strawbridge & Clothier will sell and May New York will acquire the Department
Store Assets and the Disposition Proceeds (as such terms are hereinafter
defined) (the "Department Stores Sale"), and May will issue to Strawbridge &
Clothier 4,200,000 shares of common stock, par value $.50 per share (including
the associated preferred stock purchase rights), of May, subject to adjustment,
plus, to the extent there are Disposition Proceeds, the Second Closing Stock
Consideration (as hereinafter defined), and May New York will assume the Assumed
Department Store Liabilities (as hereinafter defined); and (b) the Asset
Purchase Agreement, dated as of May 3, 1996, between Kimco Realty Corporation, a
Maryland corporation ("Kimco"), and Strawbridge & Clothier, a copy of which is
attached to this Proxy Statement/Prospectus as Annex C, pursuant to which
Strawbridge & Clothier will sell and Kimco will acquire the Clover Store Assets
(as hereinafter defined) (the "Clover Stores Sale"), and Kimco will pay to
Strawbridge & Clothier $40,000,000, subject to adjustment, and will assume the
Assumed Clover Stores Liabilities (as hereinafter defined); (2) the election of
four directors; (3) the designation of the firm of Ernst & Young LLP,
independent auditors, to audit the books and accounts of Strawbridge & Clothier
for the fiscal year ending February 1, 1997; and (4) the transaction of such
other business as may properly come before the Annual Meeting.
As a result of the Liquidation, holders of Strawbridge & Clothier Common
Stock (as hereinafter defined) will receive shares of common stock, par value
$.50 per share, of May (together with the associated
(cover continued)
-------------------
THE SHARES OF MAY COMMON STOCK TO BE ISSUED PURSUANT TO THE MAY ASSET PURCHASE
AGREEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is June 7, 1996.
<PAGE>
preferred stock purchase rights, the "May Common Stock") in one or more
distributions, which are intended to be tax-free to Strawbridge & Clothier
shareholders. Strawbridge & Clothier presently intends to make an initial
partial distribution to its shareholders (the "Initial Distribution") of
approximately 75% of the shares of May Common Stock received in the Department
Stores Sale promptly after the final determination of the First Closing Stock
Consideration (as hereinafter defined). The remaining shares of May Common Stock
not distributed to shareholders of Strawbridge & Clothier in the Initial
Distribution will be held by Strawbridge & Clothier and may be converted to cash
for the purpose of paying or making provision for all of its remaining
outstanding liabilities and obligations to the extent that the net cash proceeds
from the disposition of all other assets of Strawbridge & Clothier, including
the Clover Store Assets, are insufficient to pay or provide for all such
liabilities and obligations. Strawbridge & Clothier intends to make a subsequent
distribution to its shareholders (the "Second Distribution") of shares of May
Common Stock at the time of the transfer to the Liquidating Trust (as
hereinafter defined) of any remaining assets of Strawbridge & Clothier and a
final distribution to shareholders (the "Final Distribution") of shares of May
Common Stock, if any, at the termination of the Liquidating Trust. See "THE
ASSET SALES AND LIQUIDATION TRANSACTIONS--The Liquidation--The Plan of
Reorganization and Liquidation." Assuming the approval of the Liquidation
Proposal by the shareholders of Strawbridge & Clothier at the Annual Meeting,
Strawbridge & Clothier currently anticipates that (i) the First Closing will
occur on or about July 18, 1996, (ii) the final determination of the First
Closing Stock Consideration and the Initial Distribution will occur by November
22, 1996, (iii) the Second Distribution will occur by July 18, 1997, and (iv)
the Final Distribution, if any, will occur by July 31, 1999.
Because the consideration to be received by Strawbridge & Clothier
shareholders in the Liquidation will be, in part, a function of the number of
shares of May Common Stock delivered to Strawbridge & Clothier in the Department
Stores Sale pursuant to the formula established in the May Asset Purchase
Agreement and, in part, a function of the adequacy of the total cash proceeds
generated by the Clover Stores Sale and the liquidation of the Other Clover
Store Assets (as hereinafter defined) and the Remaining Assets (as hereinafter
defined) to satisfy or provide for all outstanding liabilities and obligations
of Strawbridge & Clothier which are not being assumed by May New York or Kimco,
it is not possible to predict with certainty the per share amount to be
distributed to Strawbridge & Clothier shareholders in the Liquidation. The
number of shares of May Common Stock to be received by Strawbridge & Clothier in
the Department Stores Sale is primarily dependent upon the amount of net working
capital and the amount attributed to non-current assets as of the Effective Time
(as hereinafter defined) included in the Department Store Assets and the Assumed
Long-Term Liabilities Amount (as hereinafter defined).
The following table sets forth management's best estimate of the fraction of
a share of May Common Stock shareholders may receive for each share of
Strawbridge & Clothier Common Stock in the Initial Distribution, the Second
Distribution and the Final Distribution. In addition, in connection with the
preparation of the foregoing estimate, the management of Strawbridge & Clothier
performed a number of sensitivity analyses which included alternative
assumptions that would be less favorable to shareholders. Assuming such less
favorable assumptions were to occur, the table also sets forth management's
alternative estimate (the "Alternative Estimated Liquidation Ratio") of the
fraction of a share of May Common Stock shareholders may receive for each share
of Strawbridge & Clothier Common Stock in the Initial Distribution, the Second
Distribution and the Final Distribution. Management's best estimate is based in
part on the assumption that 4,781,760 shares of May Common Stock may be received
by Strawbridge & Clothier in the Department Stores Sale and that 75% of such
shares (3,586,320 shares) will be distributed to shareholders in the Initial
Distribution. The Alternative Estimated Liquidation Ratio assumes that 4,342,112
shares of May Common Stock may be received by Strawbridge & Clothier in the
Department Stores Sale and that 75% of such shares (3,256,584 shares) will be
distributed to shareholders in the Initial Distribution. The Strawbridge &
Clothier management estimates that 80% of the shares of May Common Stock
remaining after the Initial Distribution will be distributed to shareholders in
the Second Distribution and that the shares of May Common Stock remaining after
the Second Distribution will be distributed in the Final Distribution. The
foregoing estimates are forward-looking statements and are based on a number of
assumptions which are set forth under "THE ASSET SALES AND LIQUIDATION
TRANSACTIONS--The Liquidation--Strawbridge & Clothier's Estimate of Liquidation
Distributions." The actual consideration received by Strawbridge & Clothier
shareholders may be materially higher or lower than these amounts because the
(ii)
<PAGE>
assumptions underlying the estimates (many of which are outside Strawbridge &
Clothier's control) may not prove to be correct. For a discussion of the
Strawbridge & Clothier management's best estimate of the fraction of a share of
May Common Stock that will be distributed to Strawbridge & Clothier shareholders
in the Liquidation, see "THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The
Liquidation--Strawbridge & Clothier's Estimate of Liquidation Distributions."
<TABLE>
<CAPTION>
FRACTION OF SHARE OF MAY COMMON STOCK PER SHARE
OF STRAWBRIDGE & CLOTHIER COMMON STOCK
-----------------------------------------------
ESTIMATED DISTRIBUTION ALTERNATIVE ESTIMATED MANAGEMENT'S ESTIMATED
DATE LIQUIDATION RATIO LIQUIDATION RATIO
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
Initial Distribution................... By 11/22/96 0.31 0.34
Second Distribution.................... By 7/18/97 0.08 0.09
Final Distribution..................... By 7/31/99 0.02 0.02
--- ---
Total............................ 0.41 0.45
</TABLE>
BECAUSE THE PER SHARE CONSIDERATION TO BE RECEIVED BY STRAWBRIDGE & CLOTHIER
SHAREHOLDERS IN THE LIQUIDATION IS A FUNCTION OF A NUMBER OF FACTORS, INCLUDING
THOSE DISCUSSED ABOVE, ITS EXACT AMOUNT CANNOT BE DETERMINED UNTIL AFTER THE
ANNUAL MEETING. STRAWBRIDGE & CLOTHIER'S SHAREHOLDERS WILL NOT HAVE ANOTHER
OPPORTUNITY TO VOTE ON THE LIQUIDATION PROPOSAL AFTER THE NUMBER OF SHARES OF
MAY COMMON STOCK (1) TO BE RECEIVED BY STRAWBRIDGE & CLOTHIER IN THE DEPARTMENT
STORES SALE AND (2) WHICH ARE AVAILABLE FOR DISTRIBUTION TO STRAWBRIDGE &
CLOTHIER SHAREHOLDERS FOLLOWING THE SATISFACTION OF OR PROVISION FOR ALL
OUTSTANDING LIABILITIES AND OBLIGATIONS OF STRAWBRIDGE & CLOTHIER WHICH ARE NOT
BEING ASSUMED BY MAY NEW YORK OR KIMCO HAVE BEEN DETERMINED.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED LIQUIDATION AND THE TRANSACTIONS CONTEMPLATED
BY THE MAY ASSET PURCHASE AGREEMENT ARE COMPLEX TRANSACTIONS. SHAREHOLDERS ARE
STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN
ITS ENTIRETY.
The shares of May Common Stock are listed for trading on the NYSE under the
symbol "MA." The shares of Series A Common Stock, par value $1.00 per share, of
Strawbridge & Clothier (the "Series A Common Stock"), the only equity securities
of Strawbridge & Clothier that are publicly traded, are quoted on the Nasdaq
National Market under the symbol "STRWA." On October 27, 1995, the last full
trading day prior to Strawbridge & Clothier's public announcement that it had
retained Peter J. Solomon Company Limited to explore strategic alternatives,
including a possible sale of the company, the last reported sale price per share
of the Series A Common Stock on the Nasdaq National Market was $15.00. On April
3, 1996, the last full trading day prior to the execution and announcement of
the May Asset Purchase Agreement, the last reported sale prices per share of the
May Common Stock on the NYSE and the Series A Common Stock on the Nasdaq
National Market were $47.875 and $19.125, respectively. On May 4, 1996, May
distributed pro rata to May shareowners all the outstanding common stock of its
then wholly owned subsidiary Payless ShoeSource, Inc. ("Payless") on the basis
of .16 share of Payless for each outstanding share of May. In lieu of receiving
shares of common stock of Payless in the Liquidation, Strawbridge & Clothier
shareholders will receive additional shares of May Common Stock in accordance
with the terms of the May Asset Purchase Agreement. On June 6, 1996, the last
full trading day prior to the date of this Proxy Statement/Prospectus, the last
reported sale prices per share of the May Common Stock on the NYSE and the
Series A Common Stock on the Nasdaq National Market were $47.75 and $18.25,
respectively. On June 6, 1996, the last reported sale price per share of Payless
on the NYSE was $28.375.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to shareholders of Strawbridge & Clothier on or about June
11, 1996.
(iii)
<PAGE>
This Proxy Statement/Prospectus also constitutes the Prospectus of May filed
as part of a Registration Statement on Form S-4 (together with all amendments,
documents incorporated by reference and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") covering a
maximum of 4,781,760 shares of May Common Stock that may be issuable in
connection with the Department Stores Sale.
All information contained in this Proxy Statement/Prospectus relating to May
has been supplied by May, and all information relating to Strawbridge & Clothier
has been supplied by Strawbridge & Clothier.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF SO GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY MAY OR STRAWBRIDGE & CLOTHIER. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
ISSUANCE OR SALE OF THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF MAY OR STRAWBRIDGE & CLOTHIER SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR
IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATES HEREOF OR THEREOF.
AVAILABLE INFORMATION
May and Strawbridge & Clothier are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, file reports, proxy statements and other
information with the Commission. These materials can be inspected and copied at
the public reference facilities maintained by the Commission at its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of this material should also be available on-line through
EDGAR and can be obtained by mail from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, material filed by May can be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005, and material filed by Strawbridge &
Clothier can be inspected at the offices of the National Association of
Securities Dealers, Inc. (the "NASD"), 1735 K Street, N.W., Washington, D.C.
20006.
May has filed the Registration Statement under the Securities Act with the
Commission covering shares of May Common Stock issuable in connection with the
Department Stores Sale. This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement for further information
with respect to May and the securities offered hereby. Statements made in this
Proxy Statement/Prospectus or in any document incorporated by reference in this
Proxy Statement/Prospectus, as to the contents of any contract or other document
referred to herein or therein, are not necessarily complete, and in each
instance reference is hereby made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in its entirety by such reference.
(iv)
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by May and Strawbridge &
Clothier, respectively, pursuant to the Exchange Act are incorporated by
reference in this Proxy Statement/Prospectus:
<TABLE>
<C> <S>
1. May's Annual Report on Form 10-K for the fiscal year ended February 3, 1996.
2. May's Proxy Statement, dated April 22, 1996, for the 1996 Annual Meeting of
Shareowners.
3. May's Current Report on Form 8-K, dated April 24, 1996.
4. May's Current Report on Form 8-K, dated May 29, 1996.
5. The descriptions of the May Common Stock and the associated preferred stock
purchase rights set forth in the Registration Statement on Form 8-B, dated May
21, 1996.
6. Strawbridge & Clothier's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996.
</TABLE>
All documents and reports filed by May or Strawbridge & Clothier pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Proxy Statement/Prospectus and prior to the termination of the offering of
the shares of May Common Stock to which the Registration Statement relates shall
be deemed to be incorporated by reference in this Proxy Statement/Prospectus and
to be a part hereof from the date of filing of such documents or reports. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. A copy of any or all documents
incorporated by reference herein (other than exhibits thereto which are not
specifically incorporated by reference herein) will be provided without charge
to each person, including any beneficial owner, to whom this Proxy
Statement/Prospectus is delivered, upon oral or written request to, in the case
of documents relating to May: The May Department Stores Company, 611 Olive
Street, St. Louis, Missouri 63101-1799, Attention: Corporate Treasurer,
telephone number (314) 342-6300, and in the case of documents relating to
Strawbridge & Clothier: Strawbridge & Clothier, 801 Market Street, Philadelphia,
Pennsylvania 19107-3199, Attention: Steven L. Strawbridge, Secretary, telephone
number (215) 629-6000. In order to ensure timely delivery of the documents, any
such request should be made not later than June 30, 1996.
(v)
<PAGE>
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY............................................................................... 1
The Companies....................................................................... 1
The Annual Meeting.................................................................. 2
The Asset Sales and Liquidation Transactions........................................ 4
SELECTED HISTORICAL FINANCIAL INFORMATION............................................. 18
The May Department Stores Company................................................... 18
Strawbridge & Clothier.............................................................. 19
COMPARATIVE PER SHARE DATA............................................................ 20
COMPARATIVE MARKET PRICE DATA......................................................... 21
THE ANNUAL MEETING.................................................................... 23
Date, Time and Place of Meeting..................................................... 23
Matters to be Considered at the Meeting............................................. 23
Record Date; Voting at the Meeting.................................................. 23
Required Vote....................................................................... 24
THE ASSET SALES AND LIQUIDATION TRANSACTIONS.......................................... 24
General............................................................................. 24
Background of the Asset Sales and Liquidation....................................... 25
Recommendation of Strawbridge & Clothier's Board of Directors; Reasons for the Asset
Sales and Liquidation................................................................. 27
Opinions of Strawbridge & Clothier's Financial Advisors............................. 28
The Department Stores Sale.......................................................... 42
The Clover Stores Sale.............................................................. 50
The Liquidation..................................................................... 54
Strawbridge & Clothier's Estimate of Liquidation Distributions.................... 57
Certain Federal Income Tax Consequences............................................. 61
Accounting Treatment................................................................ 64
Absence of Dissenters' Rights of Appraisal.......................................... 64
Regulatory Matters.................................................................. 64
COMPARISON OF RIGHTS OF SHAREOWNERS OF MAY AND SHAREHOLDERS OF STRAWBRIDGE &
CLOTHIER.............................................................................. 66
ELECTION OF DIRECTORS................................................................. 76
THE BOARD OF DIRECTORS AND COMMITTEES................................................. 77
EXECUTIVE COMPENSATION................................................................ 78
General............................................................................. 78
Employment Agreements and Consulting Arrangement.................................... 78
Deferred Compensation Plan.......................................................... 79
Stock Option Grants and Exercises................................................... 79
Report of the Compensation Committee on Executive Compensation...................... 80
Stock Price Performance Graph....................................................... 82
BENEFICIAL OWNERSHIP OF VOTING SECURITIES............................................. 83
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.................. 84
APPROVAL OF DESIGNATION OF AUDITORS................................................... 85
EXPERTS............................................................................... 85
LEGAL OPINIONS........................................................................ 85
PROXY SOLICITATION EXPENSES........................................................... 85
SHAREHOLDER PROPOSALS................................................................. 85
OTHER MATTERS......................................................................... 86
</TABLE>
(vi)
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C> <C>
Annex A -- Strawbridge & Clothier Plan of Reorganization and Liquidation......... A-1
Annex B -- Asset Purchase Agreement, dated as of April 4, 1996, between The May
Department Stores Company and Strawbridge & Clothier.................. B-1
Annex C -- Asset Purchase Agreement, dated as of May 3, 1996, between Strawbridge
& Clothier and Kimco Realty Corporation............................... C-1
Annex D -- Opinion of Lehman Brothers Inc., dated June 6, 1996................... D-1
Annex E -- Opinion of Peter J. Solomon Company Limited, dated June 7, 1996....... E-1
Annex F -- Opinion of Houlihan, Lokey, Howard & Zukin, Inc., dated June 7,
1996..................................................................... F-1
</TABLE>
(vii)
<PAGE>
SUMMARY
The following summary includes certain information contained elsewhere in
this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained or
incorporated by reference in this Proxy Statement/Prospectus and the Annexes
hereto. Shareholders of Strawbridge & Clothier are urged to read this Proxy
Statement/Prospectus, the Annexes hereto and the documents incorporated herein
by reference in their entirety.
THE COMPANIES
THE MAY DEPARTMENT STORES COMPANY
The May Department Stores Company, a Delaware corporation ("May"), is one of
the nation's largest retailing companies. May's eight department store divisions
operate 347 department stores in 30 states and the District of Columbia under
the following trade names and headquartered in the following cities: Lord &
Taylor, New York City; Hecht's, Washington, D.C.; Foley's, Houston;
Robinsons-May, Los Angeles; Kaufmann's, Pittsburgh; Filene's, Boston;
Famous-Barr and L.S. Ayres, St. Louis; and Meier & Frank, Portland, Oregon.
Following the acquisition of the Strawbridge & Clothier department stores by
The May Department Stores Company, a New York corporation ("May New York") and a
wholly owned subsidiary of May, pursuant to the Department Stores Sale (as
hereinafter defined), May anticipates that, in addition to the acquired stores,
certain of its Hecht's stores in Philadelphia and the surrounding area
(including its stores at King of Prussia Plaza, Roosevelt Mall, Moorestown Mall,
Montgomery Mall, Springfield Mall, Lehigh Valley Mall, Deptford Mall, Berkshire
Mall and Oxford Valley Mall) will also operate under the name "Strawbridge's" as
part of the Hecht's department store division, which is May's largest division.
As of May 4, 1996, May employed approximately 106,000 people in 30 states,
the District of Columbia and eight offices overseas. May's principal office is
at 611 Olive Street, St. Louis, Missouri 63101-1799, and May's telephone number
is 314-342-6300.
STRAWBRIDGE & CLOTHIER
Strawbridge & Clothier, a Pennsylvania corporation, operates 13 department
stores and one home furnishings store in Philadelphia and in the surrounding
Delaware Valley area of Pennsylvania, New Jersey and Delaware. The stores to be
acquired by May New York pursuant to the Department Stores Sale are located in
downtown Philadelphia at Market East, in the surrounding area at Willow Grove
Park, the Court at King of Prussia Plaza, Exton Square Mall, Springfield Park,
Plymouth Meeting Mall, Neshaminy Mall and Suburban Square, in New Jersey at the
Cherry Hill Mall, Echelon Mall and Burlington Center and in New Castle County,
Delaware at the Concord Mall and Christiana Mall (collectively, the "Department
Stores").
Strawbridge & Clothier also operates 26 discount stores under the Clover
name in the same market area as its department stores as well as in the Lehigh
Valley area of Pennsylvania (collectively, the "Clover Stores").
As of February 3, 1996, Strawbridge & Clothier employed approximately 4,260
full-time employees, 2,790 part-time employees and 5,870 contingent employees
who are scheduled as needed. Strawbridge & Clothier's principal office is at 801
Market Street, Philadelphia, Pennsylvania 19107-3199, and Strawbridge &
Clothier's telephone number is 215-629-6000.
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THE ANNUAL MEETING
DATE, TIME AND PLACE OF THE MEETING
The annual meeting of shareholders of Strawbridge & Clothier will be held at
11:00 a.m., local time, on Monday, July 15, 1996, on the 8th Floor of
Strawbridge & Clothier's Main Store, 801 Market Street, Philadelphia,
Pennsylvania.
MATTERS TO BE CONSIDERED AT THE MEETING
At the annual meeting of shareholders (including any adjournments and
postponements thereof, the "Annual Meeting"), shareholders of Strawbridge &
Clothier will have the opportunity to consider and vote upon the following
proposals:
(1) The voluntary dissolution of Strawbridge & Clothier (the
"Liquidation") in accordance with the following resolution unanimously
adopted by the Board of Directors of Strawbridge & Clothier (the
"Liquidation Proposal"):
"RESOLVED, that Strawbridge & Clothier be voluntarily dissolved
pursuant to the Plan of Reorganization and Liquidation approved by the
Board of Directors and in accordance with Subchapter H of Chapter 19 of
the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL"), and Section 368(a) of the Internal Revenue Code of 1986, as
amended; provided, however, the Board of Directors may determine to
proceed under Section 1975 of the PBCL rather than Subchapter H prior to
the time when articles of dissolution are filed in the Pennsylvania
Department of State, notwithstanding the adoption by the shareholders of
this resolution."
A copy of the Plan of Reorganization and Liquidation of Strawbridge &
Clothier is attached to this Proxy Statement/Prospectus as Annex A (the
"Plan of Reorganization and Liquidation").
The Liquidation will be effected pursuant to the asset disposition
transactions contemplated by:
(a) the Asset Purchase Agreement, dated as of April 4, 1996, between
May New York and Strawbridge & Clothier (the "May Asset Purchase
Agreement"), a copy of which is attached to this Proxy
Statement/Prospectus as Annex B, pursuant to which Strawbridge & Clothier
will sell and May New York will acquire the Department Store Assets and
the Disposition Proceeds (as such terms are hereinafter defined) (the
"Department Stores Sale"), and May will issue to Strawbridge & Clothier
4,200,000 shares of common stock, par value $.50 per share (including the
associated preferred stock purchase rights), of May, subject to
adjustment, plus, to the extent there are Disposition Proceeds, the
Second Closing Stock Consideration (as hereinafter defined), and May New
York will assume the Assumed Department Store Liabilities (as hereinafter
defined); and
(b) the Asset Purchase Agreement, dated as of May 3, 1996, between
Kimco Realty Corporation, a Maryland corporation ("Kimco"), and
Strawbridge & Clothier (the "Kimco Asset Purchase Agreement"), a copy of
which is attached to this Proxy Statement/Prospectus as Annex C, pursuant
to which Strawbridge & Clothier will sell and Kimco will acquire the
Clover Store Assets (as hereinafter defined) (the "Clover Stores Sale"
and together with the Department Stores Sale, the "Asset Sales"), and
Kimco will pay to Strawbridge & Clothier $40,000,000, subject to
adjustment, and will assume the Assumed Clover Stores Liabilities (as
hereinafter defined).
If the resolution set forth above is adopted by the shareholders of
Strawbridge & Clothier, the Plan of Reorganization and Liquidation
authorizes Strawbridge & Clothier (i) to consummate the Asset Sales, (ii)
to file articles of dissolution in the Pennsylvania Department of State
as promptly as practicable after adoption of the Plan of Reorganization
and Liquidation by the shareholders of Strawbridge & Clothier, (iii) to
notify potential claimants of the dissolution, (iv) to sell, liquidate or
otherwise dispose of all assets not purchased by May
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New York or Kimco, including the Other Clover Store Assets and the
Remaining Assets (as such terms are hereinafter defined), (v) to pay any
and all existing liabilities that are not assumed by May New York or
Kimco (the "Retained Liabilities"), (vi) to post security in an agreed
amount for contingent liabilities or as ordered by the Court of Common
Pleas of Philadelphia County, and (vii) to distribute to its shareholders
as soon as practicable any Stock Consideration (as hereinafter defined)
remaining after the settlement of or provision for all Strawbridge &
Clothier liabilities not assumed by May New York in the Department Stores
Sale or Kimco in the Clover Stores Sale.
(2) The election of four directors (the "Election of Directors
Proposal").
(3) The designation of the firm of Ernst & Young LLP, independent
auditors, to audit the books and accounts of Strawbridge & Clothier for the
fiscal year ending February 1, 1997 (the "Auditors Proposal").
(4) The transaction of such other business as may properly come before
the Annual Meeting.
Approval of the Liquidation Proposal will constitute approval by Strawbridge
& Clothier shareholders in accordance with Section 1974 of the PBCL of the
dissolution of Strawbridge & Clothier and the adoption of the Plan of
Reorganization and Liquidation.
RECORD DATE; VOTING AT THE MEETING
The record date for the Annual Meeting is June 3, 1996 (the "Record Date").
Only shareholders of Strawbridge & Clothier whose names appeared on the books of
Strawbridge & Clothier at the close of business on that date will be entitled to
vote at the Annual Meeting. As of the close of business on the Record Date,
Strawbridge & Clothier had outstanding 7,709,841 shares of Series A Common
Stock, par value $1.00 per share (the "Series A Common Stock"), and 2,904,680
shares of Series B Common Stock, par value $1.00 per share (the "Series B Common
Stock" and together with the Series A Common Stock, the "Strawbridge & Clothier
Common Stock"). Each holder of Series A Common Stock will have the right to one
vote for each share held, and each holder of Series B Common Stock will have the
right to ten votes for each share held. Accordingly, the holders of the Series A
Common Stock will be entitled to cast a total of 7,709,841 votes, and the
holders of the Series B Common Stock will be entitled to cast a total of
29,046,800 votes. The total number of votes of both series of Strawbridge &
Clothier Common Stock entitled to be cast at the Annual Meeting is 36,756,641
where the Series A and Series B Common Stock vote together without regard to
series. The holders of record of shares entitled to cast a majority of such
votes must be present in person or represented by proxy in order to constitute a
quorum for the holding of the Annual Meeting.
REQUIRED VOTE
Under the PBCL and the Restated Articles of Strawbridge & Clothier (the
"Strawbridge & Clothier Charter"), approval of the Liquidation Proposal requires
the affirmative vote of a majority of the votes entitled to be cast by the
holders of the Series A Common Stock and the Series B Common Stock entitled to
vote thereon, voting separately as a series, and the affirmative vote of at
least a majority of the votes entitled to be cast by the holders of the Series A
Common Stock and the Series B Common Stock entitled to vote thereon, voting
together without regard to series. The election of directors pursuant to the
Election of Directors Proposal requires the affirmative vote of a plurality of
the votes cast by the holders of the Series A Common Stock and the Series B
Common Stock entitled to vote thereon, voting together without regard to series.
Approval of the Auditors Proposal requires the affirmative vote of a majority of
the votes cast by the holders of the Series A Common Stock and the Series B
Common Stock entitled to vote thereon, voting together without regard to series.
As of the Record Date, the directors and executive officers of Strawbridge &
Clothier beneficially owned 68,539 shares of Series A Common Stock (less than 1%
of the outstanding shares of Series A Common Stock) entitled to vote at the
Annual Meeting and 1,574,376 shares of Series B Common Stock (54.2% of the
outstanding shares of Series B Common Stock) entitled to vote at the Annual
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<PAGE>
Meeting, representing 43.0% of the outstanding shares of Strawbridge & Clothier
Common Stock entitled to vote without regard to series at the Annual Meeting.
Each of such directors and executive officers has informed Strawbridge &
Clothier that such person intends to vote all shares beneficially owned by such
holder in favor of the Liquidation Proposal, the Election of Directors Proposal
and the Auditors Proposal. For further information regarding the ownership of
Strawbridge & Clothier Common Stock, including ownership by directors and
executive officers of Strawbridge & Clothier, see "BENEFICIAL OWNERSHIP OF
VOTING SECURITIES." For information as to the effect of abstentions and broker
"non-votes" on voting results, see "THE ANNUAL MEETING--Record Date; Voting at
the Meeting."
THE ASSET SALES AND LIQUIDATION TRANSACTIONS
GENERAL
If the Liquidation Proposal is adopted by the requisite vote of Strawbridge
& Clothier shareholders, (i) as promptly as practicable after the Annual Meeting
(a) Strawbridge & Clothier will sell and May New York will acquire the
Department Store Assets, and May will deliver to Strawbridge & Clothier
4,200,000 shares of May Common Stock, subject to adjustment, and May New York
will assume the Assumed Department Store Liabilities (the date of the closing of
such sale being hereinafter referred to as the "First Closing Date"), (b)
Strawbridge & Clothier will sell and Kimco will acquire the Clover Store Assets,
and Kimco will pay to Strawbridge & Clothier $40,000,000, subject to adjustment,
and will assume the Assumed Clover Stores Liabilities, and (c) Strawbridge &
Clothier will sell, liquidate or otherwise dispose of all assets not purchased
by May New York or Kimco, including the Other Clover Store Assets and the
Remaining Assets, and will pay or provide for liabilities and obligations that
are not assumed by May New York or Kimco, (ii) to the extent there are
Disposition Proceeds, no sooner than 30 days after the First Closing Date nor
later than the business day preceding the first anniversary of the First Closing
Date, Strawbridge & Clothier will sell and May New York will acquire the Second
Closing Cash Amount (as hereinafter defined), and May will deliver to
Strawbridge & Clothier the Second Closing Stock Consideration, and (iii)
Strawbridge & Clothier will effect the Liquidation pursuant to which it will
distribute in complete liquidation in a series of distributions, subject to the
terms of the Plan of Reorganization and Liquidation, to the holders of
Strawbridge & Clothier Common Stock its assets, including the shares of May
Common Stock received from May as consideration for the Department Stores Sale,
remaining after the sale of any assets necessary to satisfy in full all Retained
Liabilities. The "Second Closing Cash Amount" will be the amount of Disposition
Proceeds Strawbridge & Clothier delivers to May New York in exchange for
additional shares of May Common Stock. For a discussion of Strawbridge &
Clothier's estimation of the amount of May Common Stock and other assets to be
distributed to holders of Strawbridge & Clothier Common Stock in the
Liquidation, see "THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The
Liquidation--Strawbridge & Clothier's Estimate of Liquidation Distributions."
RECOMMENDATION OF STRAWBRIDGE & CLOTHIER'S BOARD OF DIRECTORS; REASONS FOR THE
ASSET SALES AND LIQUIDATION
The Board of Directors of Strawbridge & Clothier has unanimously (i) adopted
the resolution providing for the Liquidation, (ii) approved the May Asset
Purchase Agreement and the Kimco Asset Purchase Agreement, and (iii) determined
that the Asset Sales and the Liquidation are advisable and fair to and in the
best interests of the shareholders of Strawbridge & Clothier. THE STRAWBRIDGE &
CLOTHIER BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE
LIQUIDATION IS IN THE BEST INTERESTS OF THE SHAREHOLDERS OF STRAWBRIDGE &
CLOTHIER AND RECOMMENDS THAT SHAREHOLDERS OF STRAWBRIDGE & CLOTHIER VOTE IN
FAVOR OF THE LIQUIDATION PROPOSAL.
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<PAGE>
The decision of the Strawbridge & Clothier Board of Directors to approve the
Liquidation, including the May Asset Purchase Agreement and the Kimco Asset
Purchase Agreement, and to recommend approval of the transactions contemplated
thereby by the shareholders of Strawbridge & Clothier, was based upon a number
of factors, including without limitation, the following:
(i) the Strawbridge & Clothier Board of Directors' understanding of
the position of the company in the present and anticipated environment in
the retail industry and in particular the department store and discount
store industry in its trading markets, the strategic options available to
Strawbridge & Clothier and the potential for further consolidation within
the industry which could adversely affect Strawbridge & Clothier's
competitive position;
(ii) the Strawbridge & Clothier Board of Directors' consideration of,
among other things, information concerning the financial condition,
results of operations, prospects and businesses of Strawbridge &
Clothier, including management's belief that over the course of the next
two years revenues and net income would increase modestly only with
dramatic cost reduction and consolidation programs;
(iii) the Strawbridge & Clothier Board of Directors' consideration
of, among other things, current industry, economic and market conditions;
(iv) the Strawbridge & Clothier Board of Directors' consideration of,
among other things, historical financial, business and dividend
information about May;
(v) the Strawbridge & Clothier Board of Directors' understanding of
management's estimate of the amount of the Liquidating Distribution (as
hereinafter defined) (see "THE ASSET SALES AND LIQUIDATION
TRANSACTIONS--The Liquidation--Strawbridge & Clothier's Estimate of
Liquidation Distributions");
(vi) the Strawbridge & Clothier Board of Directors' understanding,
based upon the opinion of its outside legal counsel, that the Liquidation
can be accomplished on a tax-free basis to shareholders of Strawbridge &
Clothier;
(vii) the Strawbridge & Clothier Board of Directors' review of
presentations from, and discussions with, senior executives of
Strawbridge & Clothier, representatives of its outside legal counsel and
representatives of Peter J. Solomon Company Limited ("PJSC") regarding
the business, financial, accounting and legal due diligence with respect
to the terms and conditions of the May Asset Purchase Agreement and the
Kimco Asset Purchase Agreement; and
(viii) the Strawbridge & Clothier Board of Directors' receipt of the
fairness opinions from Lehman Brothers Inc. ("Lehman Brothers"), PJSC and
Houlihan, Lokey, Howard & Zukin, Inc. ("HLH&Z") described herein. See
"THE ASSET SALES AND LIQUIDATION TRANSACTIONS--Opinions of Strawbridge &
Clothier's Financial Advisors."
The Strawbridge & Clothier Board of Directors did not assign relative
weights to the factors discussed above.
OPINIONS OF STRAWBRIDGE & CLOTHIER'S FINANCIAL ADVISORS
Lehman Brothers. Lehman Brothers has been retained by Strawbridge & Clothier
to render an opinion to the Strawbridge & Clothier Board of Directors with
respect to the fairness, from a financial point of view, of the consideration
that the management of Strawbridge & Clothier has estimated will be received by
the holders of Strawbridge & Clothier Common Stock pursuant to the Liquidation.
Prior to rendering its oral opinion on April 4, 1996, to the Strawbridge &
Clothier Board of Directors, the management of Strawbridge & Clothier advised
Lehman Brothers that after satisfying or making provision for all Retained
Liabilities of Strawbridge & Clothier, the management estimated that
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<PAGE>
Strawbridge & Clothier would distribute to its shareholders 0.407 share of May
Common Stock for each share of Strawbridge & Clothier Common Stock based on
management's estimate of the net amounts it would receive in the Asset Sales and
a closing per share price of the May Common Stock on April 3, 1996 of $47.875
(the "Initial Posited Exchange Ratio"). On April 4, 1996, in connection with the
evaluation of the May Asset Purchase Agreement, a draft of the Kimco Asset
Purchase Agreement and the Liquidation contemplated by the Strawbridge &
Clothier Board of Directors, Lehman Brothers delivered its oral opinion, which
was subsequently confirmed in a written opinion, dated April 4, 1996, to the
Strawbridge & Clothier Board of Directors to the effect that, as of the date of
such opinion and subject to assumptions, factors and limitations set forth in
such written opinion, the Initial Posited Exchange Ratio of shares of May Common
Stock that the management of Strawbridge & Clothier estimated at that time would
be distributed to the Strawbridge & Clothier shareholders was fair to such
shareholders from a financial point of view. On June 6, 1996, Lehman Brothers
updated its April 4 opinion to reflect, among other things, certain revisions to
the estimates of the management of Strawbridge & Clothier including, in
particular, management's Alternative Estimated Liquidation Ratio of .41 (the
"Revised Posited Exchange Ratio" and together with the Initial Posited Exchange
Ratio, the "Posited Exchange Ratios"). The full text of the Lehman Brothers'
June 6, 1996 opinion, which sets forth a description of the assumptions made,
matters considered and limitations on the review undertaken by Lehman Brothers
in rendering such opinion, is attached to this Proxy Statement/Prospectus as
Annex D and should be read carefully in its entirety. See "THE ASSET SALES AND
LIQUIDATION TRANSACTIONS--Opinions of Strawbridge & Clothier's Financial
Advisors--Lehman Brothers."
Peter J. Solomon Company Limited. PJSC acted as exclusive financial advisor
to Strawbridge & Clothier in connection with the transactions contemplated by
the May Asset Purchase Agreement and delivered its written opinion, dated April
4, 1996, to the Strawbridge & Clothier Board of Directors to the effect that,
based upon and subject to certain matters stated therein, as of the date of such
opinion, the consideration to be received by Strawbridge & Clothier from May in
respect of the Department Store Sale pursuant to the May Asset Purchase
Agreement is fair from a financial point of view to Strawbridge & Clothier. PJSC
has confirmed such opinion by delivery of a written opinion dated the date of
this Proxy Statement/Prospectus. The full text of the PJSC opinion dated the
date of this Proxy Statement/Prospectus, which sets forth a description of the
assumptions made, matters considered, limitations on and scope of the review by
PJSC in rendering such opinion, is attached to this Proxy Statement/Prospectus
as Annex E and should be read carefully in its entirety. See "THE ASSET SALES
AND LIQUIDATION TRANSACTIONS--Opinions of Strawbridge & Clothier's Financial
Advisors--Peter J. Solomon Company Limited."
Houlihan, Lokey, Howard & Zukin, Inc. HLH&Z was retained by Strawbridge &
Clothier to analyze the fairness from a financial point of view of the
consideration to be received by Strawbridge & Clothier in connection with the
Clover Stores Sale. HLH&Z delivered its written opinion, dated April 4, 1996, to
the Strawbridge & Clothier Board of Directors to the effect that, based upon and
in reliance on the matters stated therein, the consideration to be received by
Strawbridge & Clothier in connection with the Clover Stores Sale is fair from a
financial point of view. HLH&Z has confirmed such opinion by delivery of a
written opinion dated the date of this Proxy Statement/Prospectus. The full text
of the HLH&Z opinion dated the date of this Proxy Statement/Prospectus, which
sets forth a description of the assumptions made, matters considered and
limitations on the review undertaken by HLH&Z in rendering such opinion, is
attached to this Proxy Statement/Prospectus as Annex F and should be read
carefully in its entirety. See "THE ASSET SALES AND LIQUIDATION
TRANSACTIONS--Opinions of Strawbridge & Clothier's Financial Advisors--Houlihan,
Lokey, Howard & Zukin, Inc."
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<PAGE>
THE DEPARTMENT STORES SALE
THE MAY ASSET PURCHASE AGREEMENT. The May Asset Purchase Agreement provides
for the acquisition by May New York, subject to the satisfaction or waiver of
all of the conditions thereto, of the Department Store Assets and some or all of
the Disposition Proceeds in exchange for the assumption by May New York of the
Assumed Department Store Liabilities and the issuance and delivery by May of the
Stock Consideration (as hereinafter defined).
The May Asset Purchase Agreement provides that the Department Stores Sale
will be completed in two steps. First, at the initial closing (the "First
Closing"), Strawbridge & Clothier will sell to May New York all of the
Department Store Assets in exchange for the assumption by May New York of the
Assumed Department Store Liabilities and the issuance and delivery by May to
Strawbridge & Clothier of 4,200,000 shares of May Common Stock, subject to
adjustment (as so adjusted, the "First Closing Stock Consideration"). For a
description of the calculation of the First Closing Stock Consideration, see
"THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The Department Stores Sale--The
May Asset Purchase Agreement--The Stock Consideration." The "Department Store
Assets" include, among other things, the amount of cash actually held in the
Department Stores at the Effective Time (as hereinafter defined), customer
accounts receivable, all equipment, machinery, fixtures and files and records of
the Department Stores, all intellectual property associated with the Department
Stores, all inventory for the Department Stores (other than damaged merchandise,
inventory held for return or on lay-away and merchandise owned by third
parties), all rights to $9.2 million relating to a condemnation award, the good
will of the business and all other property and assets reflected in the pro
forma balance sheet of the Department Stores division of Strawbridge & Clothier
as of February 3, 1996 or that are acquired in the ordinary course of business
after February 3, 1996 and prior to the Effective Time other than the Excluded
Assets (as defined in the May Asset Purchase Agreement). The "Assumed Department
Store Liabilities" include, among other things, Strawbridge & Clothier's 9.2%
Series A Senior Notes due 2004, 9.0% Series B Senior Notes due 1999, 7.04%
Senior Notes due 1997, 10.0% Mortgage Note due 2007, 8.75% S&C Echelon Mortgage
Note due 1997, 6.625% Notes due 2003, the amount of any payment necessary to
cause the customer accounts receivable to be transferred to May New York free
and clear of all liens, the present value of all rental payments under the
leases for the Department Stores and certain other liabilities associated with
the Department Stores division of Strawbridge & Clothier including certain
accounts payable, accrued occupancy costs, accrued interest in respect of all
assumed long-term liabilities, liabilities associated with the redemption of
gift certificates and similar media and customer returns, and certain
liabilities in respect of accrued vacation pay, the employee pension benefit
plan and the supplemental employee retirement plan (the"Rabbi Trust"). The
"Assumed Department Store Liabilities" will also include, if required by
Strawbridge & Clothier, liabilities in respect of consulting contracts, the
retiree medical plan and prefunding of the Rabbi Trust. The "Effective Time" of
the Department Stores Sale is the close of business of the First Closing Date.
Strawbridge & Clothier has notified May New York that it will not require May
New York to assume liabilities under the retiree medical plan or to prefund the
Rabbi Trust and that none of the 18 current executive officers of Strawbridge &
Clothier have indicated that they will enter into consulting agreements with May
New York. See "THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The Department
Store Sale--The May Asset Purchase Agreement--Employees and Employee Plans." The
May Asset Purchase Agreement provides that May New York will not assume or
otherwise be liable for any liabilities or obligations of Strawbridge &
Clothier, the Department Stores division or the Clover Stores division other
than the Assumed Department Store Liabilities.
Subject to the continued satisfaction of the conditions to the obligations
of May New York and Strawbridge & Clothier under the May Asset Purchase
Agreement and the existence of any Disposition Proceeds, a second closing (the
"Second Closing") will occur no sooner than 30 days following the First Closing
Date nor later than the business day preceding the first anniversary of the
First Closing Date (the "Second Closing Date"), at which time Strawbridge &
Clothier will sell to May New York that
7
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amount of the cash proceeds (the Second Closing Cash Amount) generated from the
sale (the "Disposition") of the properties and assets of Strawbridge & Clothier
not constituting the Department Store Assets (the "Disposition Proceeds")
determined by Strawbridge & Clothier not to be required to satisfy the Retained
Liabilities, and in consideration therefor May will deliver to Strawbridge &
Clothier that number of shares of May Common Stock (the "Second Closing Stock
Consideration") determined by dividing the Second Closing Cash Amount by the
average of the daily per share closing prices of the May Common Stock on the 20
consecutive trading days immediately preceding the Second Closing Date. The
First Closing Stock Consideration and the Second Closing Stock Consideration are
referred to herein as the "Stock Consideration."
Conditions to Consummation of the Department Stores Sale. The respective
obligations of each party to effect the Department Stores Sale shall be subject
to the fulfillment at or prior to the First Closing Date of the following
conditions, among others: (i) the shareholders of Strawbridge & Clothier shall
have approved the Department Stores Sale and the Liquidation by the requisite
vote, (ii) all waiting periods applicable to the consummation of the Department
Stores Sale under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), shall have expired or been earlier terminated, (iii) no
preliminary or permanent injunction or other governmental order or any statute,
rule or regulation shall be in effect which would prevent the consummation of
the Department Stores Sale, (iv) the Registration Statement shall be effective
under the Securities Act, and no "stop order" shall have been issued with
respect to the Registration Statement, and no proceeding for such purpose shall
have been commenced, (v) the Stock Consideration shall have been approved for
listing by the NYSE, subject to official notice of issuance, (vi) all licenses,
permits, consents, waivers and orders in respect of any contracts or leases of
Strawbridge & Clothier or any of its subsidiaries necessary in connection with
the consummation of the Department Stores Sale shall have been obtained, and
(vii) Strawbridge & Clothier shall have received the written opinion of Morgan,
Lewis & Bockius LLP to the effect that the transactions contemplated in the May
Asset Purchase Agreement qualify as a tax-free reorganization under Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (a
"Reorganization"). See "THE ASSET SALES AND LIQUIDATION TRANSACTIONS--Certain
Federal Income Tax Consequences." All of the conditions to the parties'
obligations must also be satisfied or waived prior to the Second Closing. For a
description of the respective conditions to May New York's and Strawbridge &
Clothier's obligations to consummate the Department Stores Sale, see "THE ASSET
SALES AND LIQUIDATION TRANSACTIONS--The Department Stores Sale-- The May Asset
Purchase Agreement." The waiting period under the HSR Act expired at 11:59 p.m.
on May 19, 1996, with respect to the transactions contemplated under the May
Asset Purchase Agreement and the Option Agreement (as hereinafter defined).
THE OPTION AGREEMENT. As a condition to May New York's willingness to enter
into the May Asset Purchase Agreement, May New York required Strawbridge &
Clothier and two of its subsidiaries (collectively, the "Option Sellers") to
enter into the Asset Option Agreement, dated as of April 4, 1996 (the "Option
Agreement"), a copy of which is attached as Exhibit A to the May Asset Purchase
Agreement. Pursuant to the Option Agreement the Option Sellers have granted May
New York an irrevocable option (the "Option") to purchase the assets (the
"Option Store Assets") of any or all of four stores--the Strawbridge & Clothier
department stores at Willow Grove Park, the Cherry Hill Mall and the Concord
Mall and the home furnishings store at the Concord Mall (individually, an
"Option Store" and collectively, the "Option Stores"). In consideration for
purchasing the Option Store Assets, May New York is obligated to deliver to the
Option Sellers, if the Option is exercised in full, $56,240,000 less the present
value (using an annual discount rate of 9%) of all rental payments required
under the leases for two of the Option Stores. If the Option is not exercised in
full, May New York is obligated to deliver to the Option Sellers the amounts
specified in the Option Agreement with respect to the individual stores as to
which the Option is exercised (such amount in the aggregate or as to each Option
Store separately is referred to herein as the "Purchase Price"). For a
discussion of the respective Purchase Prices for the Option Stores, see "THE
ASSET SALES AND LIQUIDATION TRANSACTIONS--The Department Stores Sale--The Option
Agreement--General." In addition, May New
8
<PAGE>
York will assume the liabilities, obligations and duties of the Option Sellers
arising after the closing of the purchase of the Option Store(s) pursuant to the
Option (the "Option Store Closing") under the Department Store Contracts (as
defined in the May Asset Purchase Agreement) relating to the particular Option
Store(s) purchased (the "Option Store Liabilities").
Exercise of Option. May New York is entitled to exercise the Option as to
any or all of the Option Stores upon the occurrence of one or more of the
following events: (i) the acquisition of the beneficial ownership by any person,
entity or group (as such terms are used in the Exchange Act) other than May New
York or any of its affiliates of 25% or more of the voting power of the
outstanding shares of Strawbridge & Clothier Common Stock on a fully diluted
basis; or (ii) the execution by the Option Sellers of an agreement relating to,
or the consummation of, a merger, consolidation or other similar business
combination of the Option Sellers; or (iii) the termination of the May Asset
Purchase Agreement pursuant to clauses (ii), (v) or (vi) set forth under "THE
ASSET SALES AND LIQUIDATION TRANSACTIONS--The Department Stores Sale--The May
Asset Purchase Agreement-- Termination."
Termination. The Option expires on the earlier of the Effective Time, the
date the May Asset Purchase Agreement is terminated by mutual consent of
Strawbridge & Clothier and May New York or by Strawbridge & Clothier due to a
material violation or breach by May New York or at certain other specified times
following certain other events or following the termination of the May Asset
Purchase Agreement as a result of other occurrences.
THE CLOVER STORES SALE
The Kimco Asset Purchase Agreement provides for the acquisition by Kimco,
subject to the satisfaction or waiver of all of the conditions thereto, of the
Clover Store Assets in exchange for the assumption by Kimco of the Assumed
Clover Stores Liabilities and the payment by Kimco to Strawbridge & Clothier of
$40,000,000, subject to adjustment. Kimco is a publicly traded company which has
specialized in shopping center acquisitions, development and management during
the past 30 years.
The Kimco Asset Purchase Agreement allows Kimco to assign its right to
acquire ownership of one or more of the Clover Store Properties to certain
Permitted Designees (as defined therein). Kimco has thus far elected to assign
to Kohl's Department Stores, Inc., a Delaware corporation ("Kohl's"), Kimco's
right to acquire five Clover Store Properties, and Kimco presently intends to
lease or sublease six additional Clover Store Properties to Kohl's
(collectively, the "Kohl's Properties"). Kohl's currently operates 136
department stores in 13 states and is headquartered in Menomonee Falls,
Wisconsin.
The Kimco Asset Purchase Agreement provides that the Clover Stores Sale may
be completed in multiple closings based on the satisfaction of certain closing
conditions with respect to each Clover Store Property (as hereinafter defined)
to be sold. An initial closing (the "First Clover Closing") will take place on
the later of July 15, 1996 or the first business day following the approval of
the Liquidation Proposal by the shareholders of Strawbridge & Clothier (the
"First Clover Closing Date"); provided, however, that the First Clover Closing
Date will be adjourned until a date five business days after all closing
conditions have been met or waived with respect to at least two-thirds of the
Clover Store Properties (including at least all but two of the Kohl's
Properties) as to which no third party has exercised a valid right of first
refusal or other right with respect to the sale of the property. Subsequent
closings (the date of each such closing a "Clover Closing Date") will occur on a
property-by-property basis on the fifth business day following the date on which
the closing conditions are met or waived as to each Clover Store Property unless
such property is a Kohl's Property and such fifth business day occurs after
October 15, 1996, then the closing will occur on the 30th day following the
satisfaction or waiver of all such conditions. The "Clover Store Assets" consist
of (i) the Clover Store Properties, (ii) the leases of space by Strawbridge &
Clothier to third parties (the "Clover Space Leases"), and (iii) certain
fixtures, licenses, permits, guaranties and warranties associated with the
Clover Store Properties. The
9
<PAGE>
Clover Store Assets constitute substantially all of the real estate and related
rights used in connection with the Clover Stores division of Strawbridge &
Clothier other than the real estate and related rights pertaining to the
warehouse and distribution center located in Howell Township, New Jersey and a
parcel of land in Burlington Township, New Jersey, and also exclude the
inventory and merchandise associated with the Clover Stores and cash, customer
accounts receivable, certain furniture and fixtures, tax refunds and certain
insurance policies associated with the Clover Stores division (all of such
excluded assets being referred to herein as the "Other Clover Store Assets").
The Clover Store Properties consist of (i) the Clover Stores sites owned in fee
simple by Strawbridge & Clothier (the "Clover Fee Properties") and (ii) the
Clover Stores sites leased from third parties (the "Clover Leased Properties").
The "Assumed Clover Stores Liabilities" consist of the liabilities and
obligations of Strawbridge & Clothier arising from and after each Clover Closing
Date under (i) the leases establishing Strawbridge & Clothier's tenancy for the
Clover Leased Properties (the "Clover Leases"), (ii) the Clover Space Leases and
(iii) certain contracts, agreements and commitments of Strawbridge & Clothier in
respect of the Clover Store Assets and the Assumed Clover Stores Liabilities set
forth in the Kimco Asset Purchase Agreement. The Kimco Asset Purchase Agreement
provides that Kimco will not assume or otherwise be liable for any obligations
of Strawbridge & Clothier other than the Assumed Clover Stores Liabilities.
Strawbridge & Clothier and Kimco have agreed that until June 12, 1996 Kimco
will have a due diligence period (the "Due Diligence Period"), during which it
will be entitled to conduct surveys, environmental assessments and other
evaluations of the Clover Store Properties that Kimco deems necessary. Kimco has
the right to terminate the Kimco Asset Purchase Agreement in the event that the
cost to cure all of the defects in the Clover Store Properties identified during
the Due Diligence Period exceeds $1,000,000, as reasonably determined by Kimco
and Strawbridge & Clothier, unless Strawbridge & Clothier agrees in writing to a
reduction in the purchase price equal to the excess of the total cost of such
cure over $1,000,000.
Conditions to the Consummation of the Clover Stores Sale. The obligation of
Kimco to consummate the Clover Stores Sale is subject to the fulfillment at or
prior to the Clover Closing Date (as to each Clover Store Property) of the
following conditions, among others: (i) the representations and warranties of
Strawbridge & Clothier shall be true and correct in all material respects at the
Clover Closing Date, (ii) the absence of any preliminary or permanent injunction
or other order, decree or ruling issued by a court or governmental entity and
any statute, rule or regulation that would prevent the consummation of the
transactions contemplated by the Kimco Asset Purchase Agreement, (iii) the
receipt of a legal opinion of Strawbridge & Clothier's counsel, (iv) Kimco's
receipt of (a) consents, authorizations, waivers and estoppels from landlords
under the Clover Leases and from other parties to reciprocal easement and
operating or similar agreements, (b) consents and waivers required to permit
Kimco to suspend operations at certain designated Clover Store Properties, (c)
releases of any third party rights of first refusal, recapture or other options
on the Clover Store Properties, and (d) a title insurance policy for each Clover
Store Property, (v) the absence of any termination of any Clover Space Leases,
and (vi) the expiration or earlier termination of all applicable waiting periods
under the HSR Act. The parties to the Kimco Asset Purchase Agreement have
determined that the HSR Act is not applicable to the Clover Stores Sale.
The obligation of Strawbridge & Clothier to consummate the Clover Stores
Sale is subject to the fulfillment at or prior to the Clover Closing Date (as to
each Clover Store Property) of the following conditions: (i) the representations
and warranties of Kimco shall be true and correct in all material respects at
the Clover Closing Date, (ii) the absence of any preliminary or permanent
injunction or other order, decree or ruling issued by a court or governmental
entity and any statute, rule or regulation that would prevent the consummation
of the transactions contemplated by the Kimco Asset Purchase Agreement, (iii)
the receipt of a legal opinion of Kimco's counsel, (iv) the approval by
Strawbridge & Clothier's shareholders of the Liquidation in conformity with the
requirements of the PBCL, the Strawbridge & Clothier Charter and the Strawbridge
& Clothier By-Laws (as hereinafter defined), (v) the closing of the Department
Stores Sale, and (vi) the expiration or earlier termination of all applicable
waiting periods under the HSR Act.
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<PAGE>
There can be no assurance that all necessary consents, authorizations,
waivers and estoppels can be obtained with respect to each of the Clover Store
Properties. Kimco has the right to terminate the Kimco Asset Purchase Agreement
with respect to any Clover Store Property for which a required consent,
authorization, waiver or estoppel has not been obtained, in which case there
will be an adjustment to the aggregate purchase price for the Clover Store
Assets. Certain landlords and parties to reciprocal easement and similar
agreements have raised questions with respect to the requested consents and
Strawbridge & Clothier and Kimco are conducting discussions with these parties.
There can be no assurance that necessary consents will be obtained from all such
parties.
SALE OF OTHER CLOVER STORE ASSETS
Strawbridge & Clothier intends to sell, liquidate or otherwise dispose of
all the Other Clover Store Assets, and in connection with the disposition of the
inventory included in the Other Clover Store Assets, Strawbridge & Clothier is
currently in negotiations to engage the services of one or more liquidators to
effect such sale. Pursuant to the Kimco Asset Purchase Agreement, at each Clover
Closing Date, Kimco or a Permitted Designee of Kimco will enter into a
short-term lease (each, an "Interim Lease") with Strawbridge & Clothier to
enable Strawbridge & Clothier to sell the Other Clover Store Assets at the
Clover Stores. Each Interim Lease shall commence on the respective Clover
Closing Date and shall expire on October 1, 1996, subject to Strawbridge &
Clothier's right to extend such term for a limited period in certain
circumstances.
THE LIQUIDATION
THE PLAN OF REORGANIZATION AND LIQUIDATION. Pursuant to the Plan of
Reorganization and Liquidation, Strawbridge & Clothier will effect the
Liquidation in accordance with and pursuant to the provisions of the PBCL and
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Under Subchapter H of Chapter 19 of the PBCL ("Subchapter H"), Strawbridge &
Clothier will file Articles of Dissolution in the Pennsylvania Department of
State at which time the corporate existence of Strawbridge & Clothier will cease
except for the continuation of the company to wind up its affairs.
During the winding up period, Strawbridge & Clothier will sell, liquidate or
otherwise dispose of all assets not purchased by May New York or Kimco and not
included in the Other Clover Store Assets (the "Remaining Assets"). The proceeds
from the Clover Stores Sale, the sale of the Remaining Assets and the sale of
the Other Clover Store Assets (the Disposition Proceeds) will first be used to
pay all existing liabilities of Strawbridge & Clothier that are not assumed by
May New York or Kimco. Any cash proceeds remaining after the payment or other
satisfaction of all such liabilities and obligations will be delivered by
Strawbridge & Clothier to May New York (the Second Closing Cash Amount) in
consideration for the Second Closing Stock Consideration.
The Plan of Reorganization and Liquidation provides that Strawbridge &
Clothier shall distribute pro rata to the holders of Series A Common Stock and
Series B Common Stock that portion of the shares of May Common Stock remaining
after making provision for all of its known or ascertainable liabilities (the
"Liquidating Distribution"). It is currently anticipated that the Liquidating
Distribution will be made in a series of distributions and is intended to be
made in shares of May Common Stock but may be in cash or other assets, or any
combination thereof, in such manner and at such time or times as the Board of
Directors in its absolute discretion may determine.
Strawbridge & Clothier presently intends to make an initial partial
distribution of approximately 75% of the shares of May Common Stock received in
the Department Stores Sale promptly after the final determination of the amount
of the First Closing Stock Consideration (the "Initial Distribution"). The
remaining shares of May Common Stock not distributed to Strawbridge & Clothier
shareholders in the Initial Distribution will be held by Strawbridge & Clothier
and may be converted to cash for the
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<PAGE>
purpose of paying or making provision for all of its remaining known or
ascertainable liabilities to the extent that the Disposition Proceeds are
insufficient to pay or provide for all such liabilities. Strawbridge & Clothier
intends to make a subsequent distribution to shareholders (the "Second
Distribution") of shares of May Common Stock at the time of the transfer to the
Liquidating Trust (as hereinafter defined) of any remaining assets of
Strawbridge & Clothier, as described below, and a final distribution (the "Final
Distribution") of the remaining shares of May Common Stock, if any, and the
remaining cash or other assets, if any, at the termination of the Liquidating
Trust. See "THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The Liquidation--The
Plan of Reorganization and Liquidation." Assuming the approval of the
Liquidation Proposal, Strawbridge & Clothier currently anticipates that (i) the
First Closing will occur on or about July 18, 1996, (ii) the final determination
of the First Closing Stock Consideration and the Initial Distribution will occur
by November 22, 1996, (iii) the Second Distribution will occur by July 18, 1997,
and (iv) the Final Distribution, if any, will occur by July 31, 1999. See "THE
ASSET SALES AND LIQUIDATION TRANSACTIONS--The Department Stores Sale--The May
Asset Purchase Agreement--The Stock Consideration" and "THE ASSET SALES AND
LIQUIDATION TRANSACTIONS--The Liquidation--Strawbridge & Clothier's Estimate of
Liquidation Distributions."
The Liquidating Distribution will be made in complete redemption and
cancellation of all outstanding shares of Strawbridge & Clothier Common Stock.
The Plan of Reorganization and Liquidation provides that the Strawbridge &
Clothier Board of Directors may direct that the Strawbridge & Clothier stock
transfer books be closed at the close of business on the record date for the
Initial Distribution or any subsequent installment of any Liquidating
Distribution. It is the present intention of the Strawbridge & Clothier Board of
Directors that the stock transfer books will not be closed until the Second
Distribution. At that time, Strawbridge & Clothier shareholders will be required
to deliver their stock certificates in exchange for receipt of that
distribution. Prior to that time, the shares of Strawbridge & Clothier Common
Stock will continue to be transferable, and the Series A Common Stock will be
traded on the Nasdaq National Market, so long as the listing requirements of the
Nasdaq National Market are met.
Subchapter H provides that if, after distributions to the Strawbridge &
Clothier shareholders, the assets of Strawbridge & Clothier are insufficient to
pay all of its liabilities, a Strawbridge & Clothier shareholder will be liable
for any claim in an amount equal to the lesser of such shareholder's pro rata
share of such claim or the amount distributed to such shareholder.
The liquidation of Strawbridge & Clothier must be completed within one year
from the First Closing Date. Accordingly, prior to the expiration of this
period, the remaining assets of Strawbridge & Clothier will be transferred,
subject to the remaining liabilities, to the Liquidating Trust.
THE LIQUIDATING TRUST AGREEMENT. If it is necessary in order to complete the
liquidation and distribution of Strawbridge & Clothier's assets to its
shareholders, the Board of Directors of Strawbridge & Clothier may at any time
transfer to the Liquidating Trust under a Liquidating Trust Agreement
(substantially in the form attached as Annex 1 to the Plan of Reorganization and
Liquidation) any remaining assets of Strawbridge & Clothier which are held as a
contingency reserve. The Liquidating Trust, if any, will succeed to all of the
then remaining assets of Strawbridge & Clothier, including such contingency
reserve, and any liabilities of Strawbridge & Clothier. The sole purpose of the
Liquidating Trust will be to liquidate on terms satisfactory to the liquidating
trustee(s) and to distribute the assets formerly owned by Strawbridge &
Clothier, if any, to the Beneficiaries (as hereinafter defined) after paying any
remaining liabilities of Strawbridge & Clothier.
The Liquidating Trust Agreement provides for two individual trustees, who
may be directors or officers of Strawbridge & Clothier. The powers, duties and
authority of the trustees will include holding title to the assets of the
Liquidating Trust, the disposition or preservation of such assets, the
prosecution or collection of any claim or contingent right of the Liquidating
Trust, the collection of proceeds and
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<PAGE>
income from time to time accruing to or otherwise payable in respect of the
assets of the Liquidating Trust and the payment of debts, liabilities and
expenses. The trustees will be required to distribute a report to the
Beneficiaries as soon as practicable after the end of each fiscal year,
providing them with information concerning Liquidating Trust income for use in
preparation of their tax returns.
The "Beneficiaries" of the Liquidating Trust will be the shareholders of
Strawbridge & Clothier at the time of the establishment of the Liquidating Trust
as they appear in the records of the Liquidating Trust from time to time. The
beneficial interests in the Liquidating Trust will be evidenced only by the
trust's records, and there will be no certificates representing such interests.
The beneficial interests will not be transferable except pursuant to the laws of
descent and distribution or by operation of law.
No Beneficiary shall be liable for any claim against the Liquidating Trust,
and a Beneficiary shall be entitled to pro rata indemnity from the trust corpus
if, contrary to the provisions of the Liquidating Trust Agreement, the
Beneficiary shall be held to any such personal liability.
The Liquidating Trust will continue until the first to occur of (i) the
complete distribution of the Liquidating Trust's assets or (ii) the expiration
of two years from the date of transfer of Strawbridge & Clothier's assets to the
Liquidating Trust. At the end of such period, the Liquidating Trust will be
terminated and any remaining assets will be distributed to the Beneficiaries
after payment of, or provision for, any remaining debts, liabilities and
expenses. After the termination of the Liquidating Trust and for the purpose of
liquidating and winding up the affairs of the Liquidating Trust, the trustees
shall continue as such until their duties have been fully performed.
STRAWBRIDGE & CLOTHIER'S ESTIMATE OF LIQUIDATION DISTRIBUTIONS
The table below sets forth management's best estimate of the calculations
that will be necessary to determine the fraction of a share of May Common Stock
that will be distributed to Strawbridge & Clothier shareholders in the
Liquidation in exchange for each share of Strawbridge & Clothier Common Stock
they own. Because the number of shares of May Common Stock that a Strawbridge &
Clothier shareholder will receive in the Liquidation will be, in part, a
function of the number of shares of May Common Stock delivered to Strawbridge &
Clothier in the Department Stores Sale pursuant to a formula established in the
May Asset Purchase Agreement and, in part, a function of the adequacy or
inadequacy of the total cash proceeds generated by the Clover Stores Sale and
the liquidation of the Other Clover Store Assets and the Remaining Assets to
satisfy or provide for all outstanding liabilities and obligations of
Strawbridge & Clothier which are not being assumed by May New York or Kimco, it
is not possible to predict the per share amount to be distributed to Strawbridge
& Clothier shareholders in the Liquidation with certainty. If such cash proceeds
exceed the amount of the liabilities and obligations to be satisfied, then the
excess will be available to be exchanged for additional shares of May Common
Stock (the Second Closing Stock Consideration). If the Disposition Proceeds are
less than the amount of the liabilities and obligations required to be
satisfied, then prior to distributing all the Stock Consideration to
shareholders, Strawbridge & Clothier will need to sell enough shares of May
Common Stock in the market at then current market prices to obtain the cash
necessary to satisfy the shortfall.
The number of shares of May Common Stock to be received by Strawbridge &
Clothier in the Department Stores Sale is primarily dependent upon the amount of
net working capital (i.e., certain short-term assets minus certain short-term
liabilities and certain other specified obligations) and the amount attributed
to non-current assets as of the Effective Time included in the Department Store
Assets and the Assumed Long-Term Liabilities Amount (the amount of the specified
long-term liabilities being assumed as of the Effective Time). Accordingly, the
number of shares of May Common Stock delivered at the First Closing for the
Department Store Assets will be based upon an estimate of the number of shares
of May Common Stock issuable by May, and it is currently anticipated that the
actual number of shares of May Common Stock required to be delivered by May
pursuant to the May
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<PAGE>
Asset Purchase Agreement (the First Closing Stock Consideration) will be
determined by November 22, 1996. For a description of the calculation of the
First Closing Stock Consideration, see "THE ASSET SALES AND LIQUIDATION
TRANSACTIONS--The Department Stores Sale--The May Asset Purchase Agreement--The
Stock Consideration." Strawbridge & Clothier intends to make the Initial
Distribution of approximately 75% of the shares of May Common Stock received in
the Department Store Sale promptly after the final determination of the First
Closing Stock Consideration. Strawbridge & Clothier intends to make the Second
Distribution at the time of the transfer to the Liquidating Trust of any
remaining assets of Strawbridge & Clothier which is anticipated to occur by July
18, 1997 and the Final Distribution, if any, at the termination of the
Liquidating Trust which is anticipated to occur by July 31, 1999.
The table below sets forth (i) the contractual formula for determining the
total number of shares of May Common Stock to be issued by May in exchange for
the Department Store Assets and the Second Closing Cash Amount (the Stock
Consideration) (followed in such case by a parenthetical reference to the
section or sections of, or schedule or schedules to, the May Asset Purchase
Agreement in which such item is set forth or established), (ii) the calculation
that will estimate whether cash proceeds from other asset sales will be adequate
to discharge the Retained Liabilities, and (iii) the calculation necessary to
ascertain the fraction of a share of May Common Stock Strawbridge & Clothier has
estimated to be received by a Strawbridge & Clothier shareholder in exchange for
one share of Strawbridge & Clothier Common Stock in the Liquidation (the
"Estimated Liquidation Ratio"). As explained in the notes to the table below,
the amounts used to prepare these calculations are subject to assumptions and
variables which may prove to be more or less favorable to the Strawbridge &
Clothier shareholders.
The figures in the right-hand column of the table have been provided by
management of Strawbridge & Clothier and represent its best estimate of the
range of such figures likely to exist as of the Effective Time. It is
Strawbridge & Clothier management's best estimate that shareholders may receive
0.45 share of May Common Stock for each share of Strawbridge & Clothier Common
Stock in the Liquidation (the Estimated Liquidation Ratio). In connection with
the preparation of this estimate, the management of Strawbridge & Clothier
performed a number of sensitivity analyses in order to assess what effect
fluctuations in the items identified in footnote (1), interest rates, the net
cash proceeds received from the Clover Stores Sale and the disposition of the
Other Clover Store Assets and the Remaining Assets, the amount of the Retained
Liabilities and the amount of the costs and expenses incurred in connection with
winding up the business and operations of Strawbridge & Clothier in connection
with the Liquidation could have on management's best estimate. The left-hand
column of the table sets forth alternative assumptions for the Estimated
Liquidation Ratio which are less favorable to shareholders than management's
best estimate indicated in the right-hand column of the table. These alternative
assumptions are not intended to indicate a "worst case" but rather the relative
volatility of the variables and assumptions described above and, taken together,
would indicate an Alternative Estimated Liquidation Ratio of 0.41 share of May
Common Stock for each share of Strawbridge & Clothier Common Stock.
The table below and other information set forth herein include
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. There are a number of important factors
that could cause actual results to differ materially from those set forth in the
table including (i) the failure of Strawbridge & Clothier to achieve its
business plan for operations up to the First Closing Date due to economic and
weather conditions, (ii) the level and valuation of the inventory and customer
accounts receivable to be acquired by May New York in the case of the Department
Stores and the inventory to be liquidated in the case of the Clover Stores,
(iii) the amounts of liabilities to be paid in the Liquidation, and (iv) the
amount to be received with respect to the assets not being sold to May or Kimco.
Accordingly, there can be no assurance that the figures included in the table
below will actually reflect the amount of May Common Stock which Strawbridge &
Clothier shareholders will ultimately be entitled to receive.
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<PAGE>
<TABLE>
<CAPTION>
ALTERNATIVE ESTIMATED MANAGEMENT'S BEST ESTIMATED
LIQUIDATION RATIO LIQUIDATION RATIO
--------------------- ---------------------------
($ IN MILLIONS, EXCEPT SHARE AMOUNTS)
DEPARTMENT STORES SALE
<S> <C> <C> <C>
Add: Closing Balance Sheet Net Working
Capital Amount at Effective Time
(Sec. 1.15)(1)....................... $ 161.6 $ 167.6
Plus: Consideration attributable to non-
current assets (Sec. 1.56)........... 301.5 301.5
----------- -----------
Subtotal............................. 463.1 469.1
Deduct: Assumed Long-Term Liabilities Amount
(Sec.Sec. 1.6, 1.56)(2).............. (271.0) (263.5)
Equals: Aggregate Net Consideration Payable
(Sec. 1.56).......................... $ 192.1 $ 205.6
----------- -----------
----------- -----------
Divide by: Signing date May Common Stock price
(Sec. 1.56).......................... $ 47.875 $ 47.875
Equals: Shares issuable by May (Sec. 1.56)... 4,012,533 4,294,517
Plus: Additional Payless Spin-off
Equivalent Shares (Sec. 1.56)(3)..... 385,538 412,632
----------- -----------
Equals: (A) Estimated number of May shares
issuable for the Department Store
Assets (Sec. 1.56)............... 4,398,071 4,707,149
----------- -----------
----------- -----------
<CAPTION>
OTHER CASH SOURCES (USES)
<S> <C> <C> <C>
Estimated net cash proceeds from disposition of all
other assets (including Clover Stores division)..... $ 140.0 $ 142.8
Deduct: Payment or provision for all
liabilities not assumed by May New
York or Kimco(4)(5).................. (142.7) (139.2)
----------- -----------
Equals: (Liabilities to be satisfied by sale
of May Common Stock)/Additional cash
to exchange for May Common Stock
(Sec.Sec.1.17, 1.79)(4)(6)........... $ (2.7) $ 3.6
----------- -----------
----------- -----------
Divide by: May Common Stock price for additional
shares (Sec. 1.81)(7)................ $ 48.25 $ 48.25
Equals: (B) Estimated number of shares of May
Common Stock (to be sold to
satisfy liabilities)/to be issued
for Second Closing Cash Amount at
the Second Closing(4)............ (55,959) 74,611
----------- -----------
<CAPTION>
ESTIMATED PER SHARE CONSIDERATION
<S> <C> <C> <C>
(A)+(B)(4): Estimated total number of shares of
May Common Stock issuable............ 4,342,112 4,781,760
----------- -----------
----------- -----------
Divide by: Shares of Strawbridge & Clothier
Common Stock estimated to be
outstanding at the Effective Time.... 10,614,521 10,614,521
Equals: Fraction of one share of May Common
Stock estimated to be issuable in
exchange for each outstanding share
of Strawbridge & Clothier Common
Stock (Estimated Liquidation
Ratios).............................. 0.41 0.45
</TABLE>
(Footnotes on following page)
15
<PAGE>
(Footnotes for preceding page)
- ------------
(1) Represents Strawbridge & Clothier management's estimates of the Closing
Balance Sheet Net Working Capital Amount at the Effective Time as defined in
Section 1.15 of the May Asset Purchase Agreement as adjusted to reflect
certain obligations to be assumed by May New York. The actual Closing
Balance Sheet Net Working Capital Amount will fluctuate with Strawbridge &
Clothier's operating performance through the Effective Time, the age of the
inventory and the aging and collectability of the customer accounts
receivable. The value of inventory and customer accounts receivable will be
calculated in accordance with the May Asset Purchase Agreement based upon a
physical inventory and analysis of customer accounts receivable at the
Effective Time.
(2) Includes Strawbridge & Clothier management's estimates of the aggregate
principal amount as of the Effective Time of certain long-term debt and
other amounts to be assumed by May New York, any payment necessary to
transfer customer accounts receivable to May New York free and clear of all
liens and the net present value of the operating leases for the Department
Stores. The actual Assumed Long-Term Liabilities Amount will fluctuate with
interest rate changes and operating performance.
(3) Represents the adjustment to the number of shares of May Common Stock
issuable by May to Strawbridge & Clothier to account for May's spin-off of
Payless on May 4, 1996. The adjustment consists of the spin-off ratio (.16)
multiplied by the "Shares issuable by May" which is then valued at the last
reported sales price per share of Payless on the first day of regular way
trading ($28.75) and then converted into May shares at the signing date May
Common Stock price ($47.875).
(4) If net cash proceeds received from the disposition of the assets not being
purchased by May New York or Kimco are insufficient to pay all liabilities
and obligations not assumed by May New York or Kimco, then Strawbridge &
Clothier will have to sell enough shares of May Common Stock in the market
at then current market prices to obtain the cash necessary to satisfy the
shortfall. The Alternative Estimated Liquidation Ratio assumes that all such
shares of May Common Stock are sold, in which event no Second Closing would
occur.
(5) This amount includes Strawbridge & Clothier management's estimates of the
costs and expenses to be incurred in connection with winding up the business
and operations of Strawbridge & Clothier in connection with the Liquidation.
(6) Represents Strawbridge & Clothier management's estimates of its portion of
the Disposition Proceeds that will constitute the Closing Cash Transfer
(Sec.1.17) and the Second Closing Cash Amount (Sec.1.79). The actual portion
of the Disposition Proceeds so used will fluctuate with (a) the finalization
of amounts received in the Clover Stores Sale and the disposition of the
Other Clover Store Assets and the Remaining Assets and (b) the final
satisfaction of and provision for all outstanding liabilities and
obligations of Strawbridge & Clothier which are not being assumed by May New
York or Kimco. (Also see note (4) above.)
(7) This is an assumed stock price. The actual per share price that would be
used in determining additional shares of May Common Stock that may be issued
would be the average daily per share closing prices for the May Common Stock
on the NYSE Composite Tape for the 20 consecutive trading days immediately
preceding the Second Closing Date. The price in the table is the closing
sales price on the NYSE on June 5, 1996.
---------------------------
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is a condition to the consummation of the Department Stores Sale that
Strawbridge & Clothier receive an opinion from its tax counsel, Morgan, Lewis &
Bockius LLP, that, among other things, the Department Stores Sale and the
Liquidation will constitute a Reorganization within the meaning of Section
368(a)(1)(C) of the Code, and therefore, generally no gain or loss will be
recognized for U.S. federal income tax purposes by Strawbridge & Clothier or any
holder of Strawbridge & Clothier Common Stock upon the consummation of the
Department Stores Sale and the Liquidation, except to the extent that a
Strawbridge & Clothier shareholder receives, or is deemed to receive, property
other than May Common Stock in the Liquidation. See "THE ASSET SALES AND
LIQUIDATION TRANSACTIONS--Certain Federal Income Tax Consequences."
16
<PAGE>
ACCOUNTING TREATMENT
The Department Stores Sale, if consummated, will be treated as a purchase of
the Department Store Assets by May under generally accepted accounting
principles ("GAAP") under which the identifiable net assets and liabilities
would be recorded in the consolidated financial statements of May at their
respective fair market values at the time of consummation of the Department
Stores Sale.
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL
Under the PBCL, the holders of Strawbridge & Clothier Common Stock are not
entitled to dissenters' rights of appraisal in connection with any of the
matters to be voted on at the Annual Meeting.
REGULATORY MATTERS
May and Strawbridge & Clothier are not aware of any governmental or
regulatory requirements relating to the consummation of the Department Stores
Sale or the Clover Stores Sale other than compliance with the applicable federal
and state securities laws and the HSR Act. On April 18, 1996, May New York filed
a notification and report form under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice (the "Antitrust Division"). Strawbridge & Clothier filed
its notification and report form with the FTC and the Antitrust Division on
April 19, 1996. The waiting period under the HSR Act with respect to the
Department Stores Sale expired at 11:59 p.m. on May 19, 1996. The parties to the
Kimco Asset Purchase Agreement have determined that the HSR Act is not
applicable to the Clover Stores Sale. See "THE ASSET SALES AND LIQUIDATION
TRANSACTIONS--Regulatory Matters."
17
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
THE MAY DEPARTMENT STORES COMPANY
The selected historical financial information presented below for the fiscal
years ended February 3, 1996, January 28, 1995, January 29, 1994, January 30,
1993 and February 1, 1992 and as of the end of each such fiscal year is derived
from the consolidated financial statements of May, which have been audited by
Arthur Andersen LLP, independent public accountants, and should be read in
conjunction with the information and audited consolidated financial statements
contained in May's Annual Report on Form 10-K for the fiscal year ended February
3, 1996, which is incorporated by reference herein. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." All of the financial information presented
below has been restated to reflect the distribution by May on May 4, 1996 of all
of the shares of common stock of its then wholly owned subsidiary Payless to
owners of May Common Stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
-----------------------------------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues............................. $10,952 $10,107 $ 9,562 $ 9,362 $ 9,068
Net Earnings from Continuing
Operations.......................... 700 650 578 472 404
FINANCIAL POSITION
Total Assets(2)...................... $ 9,369 $ 8,443 $ 7,953 $ 7,805 $ 8,035
Long-Term Debt, Preferred and
Preference Stock.................... 3,701 3,240 3,192 3,256 4,299
PER SHARE OF COMMON STOCK
Net Earnings per Share from
Continuing Operations............... $ 2.61 $ 2.43 $ 2.15 $ 1.76 $ 1.52
Cash Dividends per Share............. 1.115 1.01 0.898 0.825 0.805
Book Value per Share(3).............. 15.40 13.45 11.99 10.52 9.11
</TABLE>
- ------------
(1) May's fiscal year ends on the Saturday closest to January 31. Fiscal year
ended February 3, 1996 included 53 weeks.
(2) Total Assets before the restatement to reflect the distribution of the
shares of Payless to the owners of May Common Stock are: $10,122, $9,237,
$8,614, $8,376 and $8,566 as of February 3, 1996, January 28, 1995, January
29, 1994, January 30, 1993 and February 1, 1992, respectively.
(3) Book Value per Share before the restatement to reflect the distribution of
the shares of Payless to the owners of May Common Stock are: $18.42, $16.65,
$14.65, $12.82 and $11.26 as of February 3, 1996, January 28, 1995, January
29, 1994, January 30, 1993 and February 1, 1992, respectively.
18
<PAGE>
STRAWBRIDGE & CLOTHIER
The selected historical financial information presented below for the fiscal
years ended February 3, 1996, January 28, 1995, January 29, 1994, January 30,
1993 and February 1, 1992 and as of the end of each such fiscal year is derived
from the consolidated financial statements of Strawbridge & Clothier, which have
been audited by Ernst & Young LLP, independent auditors, and should be read in
conjunction with the information and audited consolidated financial statements
contained in Strawbridge & Clothier's Annual Report on Form 10-K for the fiscal
year ended February 3, 1996, which is incorporated by reference herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
-----------------------------------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net Sales............................ $ 981 $ 1,004 $ 985 $ 968 $ 968
Net Earnings (Loss) from Continuing
Operations.......................... (9) 20 18 1(2) 14
FINANCIAL POSITION
Total Assets......................... $ 576 $ 640 $ 663 $ 654 $ 632
Long-Term Debt, Long-Term Capital
Lease Obligations and Redeemable
Preferred Stock...................... 165 202 206 224 212
PER SHARE OF COMMON STOCK
Net Earnings (Loss) per Share from
Continuing Operations............... $ (0.83) $ 1.92 $1.71 $0.11(2) $1.34
Cash Dividends per Share of Series A
Common Stock........................ 1.10 1.10 1.09 1.07 1.03
Cash Dividends per Share of Series B
Common Stock........................ 1.00 1.00 0.99 0.96 0.92
Book Value per Share................. 23.09 25.08 24.28 23.68 24.66
</TABLE>
- ------------
(1) Strawbridge & Clothier's fiscal year ends on the Saturday closest to January
31. Fiscal year ended February 3, 1996 included 53 weeks.
(2) Includes cumulative effect adjustments relating to accounting changes for
income taxes (an increase in net earnings of $10; $0.95 per share) and
retiree health care benefits ($27 after-tax charge; $2.60 per share) and
reduced cost of sales of $4 as a result of a change in LIFO accounting
method, resulting in an after-tax benefit of $3 or $.26 per share.
19
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth historical per share data for May and
Strawbridge & Clothier, pro forma per share data for May giving effect to the
Department Stores Sale as a purchase of the Department Store Assets under GAAP
and equivalent pro forma per share data for Strawbridge & Clothier. The
information presented should be read in conjunction with the historical
financial statements and related notes thereto of May and Strawbridge & Clothier
and the selected historical financial data including the notes thereto, each
incorporated in or included elsewhere in this Proxy Statement/Prospectus.
Comparative pro forma data have been included for comparative purposes only and
do not purport to be indicative of (i) the results of operations or financial
position which actually would have been obtained if the Department Stores Sale
had been completed at the beginning of the period or as of the date indicated or
(ii) the results of operations or financial position which may be obtained in
the future.
<TABLE>
<CAPTION>
EQUIVALENT
STRAWBRIDGE &
MAY CLOTHIER
STRAWBRIDGE & PRO FORMA PRO FORMA
MAY(1) CLOTHIER(2) COMBINED(3) COMBINED(4)
------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
NET EARNINGS (LOSS) PER COMMON SHARE FROM
CONTINUING OPERATIONS
Year ended February 3, 1996(5)............. $ 2.61 $ (0.83) $ 2.56 $1.15
CASH DIVIDENDS PER COMMON SHARE
Year ended February 3, 1996................ $1.115 $ 1.10(6) $ 1.115 $0.50
1.00(7)
BOOK VALUE PER COMMON SHARE(8)
As of February 3, 1996..................... $15.40 $ 23.09 $ 16.02 $7.21
</TABLE>
- ------------
(1) Reflects the historical operations of May as restated to adjust for the
distribution on May 4, 1996 by May of all of the shares of common stock of
its then wholly owned subsidiary Payless to owners of May Common Stock.
(2) Reflects Strawbridge & Clothier's consolidated per share data at February 3,
1996 and for the fiscal year then ended.
(3) Reflects the historical operations of May (restated as indicated in note (1)
above) and the Strawbridge & Clothier Department Stores division adjusted to
reflect the impact of purchase accounting by May and the issuance of the
Stock Consideration (assumed to be 4,781,760 shares of May Common Stock
based on the Strawbridge & Clothier management's estimate. See "THE ASSET
SALES AND LIQUIDATION TRANSACTIONS--The Liquidation--Strawbridge &
Clothier's Estimate of Liquidation Distributions.").
(4) The equivalent Strawbridge & Clothier pro forma per share amounts are
calculated by multiplying the May pro forma combined per share amounts by
the Estimated Liquidation Ratio (0.45). Using the Alternative Estimated
Liquidation Ratio (0.41), the pro forma per share amounts for net earnings
from continuing operations, cash dividends and book value would be $1.05,
$0.46, $6.57, respectively. For a discussion of Strawbridge & Clothier's
calculation of the Estimated Liquidation Ratio and the Alternative Estimated
Liquidation Ratio, see "THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The
Liquidation--Strawbridge & Clothier's Estimate of Liquidation
Distributions."
(5) Fiscal year ended February 3, 1996 included 53 weeks.
(6) Reflects the amount of the annual dividend paid on the Series A Common
Stock.
(7) Reflects the amount of the annual dividend paid on the Series B Common
Stock.
(8) Book value per share is computed by dividing common shareholders' equity by
the number of shares of common stock outstanding at February 3, 1996. Pro
forma book value per share is computed by dividing pro forma shareholders'
equity by the pro forma number of shares of common stock outstanding at
February 3, 1996.
20
<PAGE>
COMPARATIVE MARKET PRICE DATA
The shares of May Common Stock are listed on the NYSE under the symbol "MA."
The shares of Series A Common Stock are quoted on the Nasdaq National Market
under the symbol "STRWA." The following tables set forth for the periods
indicated, the reported high and low per share sale prices of shares of May
Common Stock on the NYSE and shares of Series A Common Stock on the Nasdaq
National Market and dividends paid on such shares. The information has been
derived from published financial sources.
THE MAY DEPARTMENT STORES COMPANY
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------- ------- ---------
<S> <C> <C> <C>
Fiscal Year Ended January 28, 1995
First Quarter........................................... $ 45.13 $ 38.00 $ 0.23
Second Quarter.......................................... 41.88 37.38 $ 0.26
Third Quarter........................................... 42.00 36.50 $ 0.26
Fourth Quarter.......................................... 39.88 32.25 $ 0.26
Fiscal Year Ended February 3, 1996
First Quarter........................................... $ 38.00 $ 33.50 $ 0.26
Second Quarter.......................................... 44.25 35.25 $ 0.285
Third Quarter........................................... 45.38 37.00 $ 0.285
Fourth Quarter.......................................... 46.25 38.38 $ 0.285
Fiscal Year Ended February 1, 1997
First Quarter........................................... $ 51.88 $ 43.38 $ 0.285
Second Quarter (through June 6, 1996)................... 52.25 45.25(1) $ 0.29(2)
</TABLE>
STRAWBRIDGE & CLOTHIER
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------- ------- ---------
<S> <C> <C> <C>
Fiscal Year Ended January 28, 1995
First Quarter........................................... $ 23.50 $ 20.00 $ 0.275
Second Quarter.......................................... 21.75 19.50 $ 0.275
Third Quarter........................................... 23.50 20.75 $ 0.275
Fourth Quarter.......................................... 23.25 20.75 $ 0.275
Fiscal Year Ended February 3, 1996
First Quarter........................................... $ 22.75 $ 19.00 $ 0.275
Second Quarter.......................................... 21.50 18.50 $ 0.275
Third Quarter........................................... 19.75 14.13 $ 0.275
Fourth Quarter.......................................... 25.25 18.00 $ 0.275
Fiscal Year Ended February 1, 1997
First Quarter........................................... $ 28.25 $ 17.75 $ 0.275
Second Quarter (through June 6, 1996)................... 18.69 17.75 --
</TABLE>
- ------------
(1) On May 4, 1996, May distributed pro rata to May shareowners all the
outstanding common stock of its then wholly owned subsidiary Payless on the
basis of .16 share of Payless for each outstanding share of May Common
Stock. Regular way trading of the Payless common stock began on May 9, 1996,
on which date the reported high and low per share sale prices of the Payless
common stock were $30.25 and $28.50, respectively, and the reported high and
low per share sale prices of the May Common Stock were $46.75 and $45.25,
respectively.
(2) On February 26, 1996, the Board of Directors of May declared the second
quarter cash dividend of $.29 per share payable on June 15, 1996 to
shareowners of record on June 1, 1996.
21
<PAGE>
On October 27, 1995, the last full trading day prior to Strawbridge &
Clothier's public announcement that it had retained PJSC to explore strategic
alternatives, including a possible sale of the company, the last reported sale
price per share of the Series A Common Stock on the Nasdaq National Market was
$15.00. On April 3, 1996, the last full trading day prior to the first public
announcement by May and Strawbridge & Clothier of the execution of the May Asset
Purchase Agreement, the last reported sale prices per share of the May Common
Stock on the NYSE and the Series A Common Stock on the Nasdaq National Market
were $47.875 and $19.125, respectively, and the equivalent per share market
value for Series A Common Stock, reflecting the Estimated Liquidation Ratio and
the Alternative Liquidation Ratios, was $21.54 and $19.63, respectively. See
"THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The Liquidation--Strawbridge &
Clothier's Estimate of Liquidation Distributions." On June 6, 1996, the last
full trading day prior to the date of this Proxy Statement/Prospectus, the last
reported sale prices per share of the May Common Stock on the NYSE and the
Series A Common Stock on the Nasdaq National Market were $47.75 and $18.25,
respectively, and the equivalent per share market value for the Series A Common
Stock, reflecting the Estimated Liquidation Ratio and the Alternative Estimated
Liquidation Ratio, was $21.49 and $19.58, respectively. On June 6, 1996, the
last reported sale price per share of Payless on the NYSE was $28.375.
22
<PAGE>
THE ANNUAL MEETING
DATE, TIME AND PLACE OF MEETING
The Annual Meeting will be held at 11:00 a.m., local time, on Monday, July
15, 1996, on the 8th Floor of Strawbridge & Clothier's Main Store, 801 Market
Street, Philadelphia, Pennsylvania.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Annual Meeting, shareholders of Strawbridge & Clothier will have the
opportunity to consider and vote upon (i) the Liquidation Proposal; (ii) the
Election of Directors Proposal; (iii) the Auditors Proposal; and (iv) such other
business as may properly come before the Annual Meeting.
RECORD DATE; VOTING AT THE MEETING
The Board of Directors has fixed the close of business on June 3, 1996 as
the Record Date for the Annual Meeting. Only holders of Strawbridge & Clothier
Common Stock whose names appeared on the books of Strawbridge & Clothier at the
close of business on the Record Date will be entitled to vote at the Annual
Meeting. As of the close of business on the Record Date, Strawbridge & Clothier
had outstanding 7,709,841 shares of Series A Common Stock and 2,904,680 shares
of Series B Common Stock.
The Series A Common Stock and the Series B Common Stock are the only
securities entitled to vote at the Annual Meeting. Each holder of Series A
Common Stock will have the right to one vote for each share held, and each
holder of Series B Common Stock will have the right to ten votes for each share
held. Accordingly, the holders of the Series A Common Stock will be entitled to
cast a total of 7,709,841 votes, and the holders of the Series B Common Stock
will be entitled to cast a total of 29,046,800 votes. The total number of votes
of both series of Strawbridge & Clothier Common Stock entitled to be cast at the
Annual Meeting is 36,756,641 where the Series A Common Stock and the Series B
Common Stock vote together without regard to series. The holders of record of
shares entitled to cast a majority of such votes must be present in person or
represented by proxy in order to constitute a quorum for the holding of the
Annual Meeting.
Under the rules of the NASD, brokers who hold shares in "street name" for
customers who are beneficial owners of such shares have the authority to vote on
certain matters when they do not receive instructions from beneficial owners.
Brokers that do not receive such instructions are entitled to vote on the
Election of Directors Proposal and the Auditors Proposal. With respect to the
Election of Directors Proposal and the Auditors Proposal, abstentions and broker
non-votes will be disregarded and will have no effect on the outcome of the
vote. With respect to the Liquidation Proposal, abstentions and broker non-votes
will be considered present and will have the effect of a vote against the
Liquidation Proposal.
Any proxy given pursuant to the solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Strawbridge & Clothier, before the polls are closed with
respect to a vote, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a subsequent proxy relating to the same shares of
Strawbridge & Clothier Common Stock and delivering it to the Secretary of
Strawbridge & Clothier, or (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice revoking a proxy in
accordance with clause (i) above should be sent to Strawbridge & Clothier, 801
Market Street, Philadelphia, Pennsylvania 19107-3199, Attention: Mr. Steven L.
Strawbridge, Secretary. In addition, both proxies and revocations may be given
by facsimile transmission to Georgeson & Co. (212/440-9009) of both sides of an
executed form of proxy or a notice of revocation bearing a later date than the
proxy, before the close of business on the day before the Annual Meeting.
23
<PAGE>
REQUIRED VOTE
Under the PBCL and the Strawbridge & Clothier Charter, approval of the
Liquidation Proposal requires the affirmative vote of a majority of the votes
entitled to be cast by the holders of the Series A Common Stock and the Series B
Common Stock entitled to vote thereon, voting separately as a series, and the
affirmative vote of at least a majority of the votes entitled to be cast by the
holders of the Series A Common Stock and the Series B Common Stock entitled to
vote thereon, voting together without regard to series. The election of
directors pursuant to the Election of Directors Proposal requires the
affirmative vote of a plurality of the votes cast by the holders of the Series A
Common Stock and the Series B Common Stock entitled to vote thereon, voting
together without regard to series. Approval of the Auditors Proposal requires
the affirmative vote of a majority of the votes cast by the holders of the
Series A Common Stock and the Series B Common Stock entitled to vote thereon,
voting together without regard to series.
The executive officers and directors of Strawbridge & Clothier beneficially
owned as of the Record Date 68,539 shares of Series A Common Stock (less than 1%
of the outstanding shares of Series A Common Stock) entitled to vote at the
Annual Meeting and 1,574,376 shares of Series B Common Stock (54.2% of the
outstanding shares of Series B Common Stock) entitled to vote at the Annual
Meeting, representing 43.0% of the outstanding shares of Strawbridge & Clothier
Common Stock entitled to vote without regard to series at the Annual Meeting.
Each of such executive officers and directors has informed Strawbridge &
Clothier that such person intends to vote all shares beneficially owned by such
holder in favor of the Liquidation Proposal, the Election of Directors Proposal
and the Auditors Proposal. For further information regarding the ownership of
Strawbridge & Clothier Common Stock, including ownership by directors and
executive officers of Strawbridge & Clothier, see "BENEFICIAL OWNERSHIP OF
VOTING SECURITIES."
THE ASSET SALES AND LIQUIDATION TRANSACTIONS
GENERAL
If the Liquidation Proposal is adopted by the requisite vote of Strawbridge
& Clothier shareholders, (i) as promptly as practicable after the Annual Meeting
(a) Strawbridge & Clothier will sell and May New York will acquire the
Department Store Assets, and May will deliver to Strawbridge & Clothier
4,200,000 shares of May Common Stock, subject to adjustment and May New York
will assume the Assumed Department Store Liabilities, (b) Strawbridge and
Clothier will sell and Kimco will acquire the Clover Store Assets, and Kimco
will pay to Strawbridge & Clothier $40,000,000, subject to adjustment, and will
assume the Assumed Clover Stores Liabilities, and (c) Strawbridge & Clothier
will sell, liquidate or otherwise dispose of all assets not purchased by May New
York or Kimco, including the Other Clover Store Assets and the Remaining Assets,
and will pay or provide for existing liabilities and obligations that are not
assumed by May New York or Kimco, (ii) to the extent there are Disposition
Proceeds, no sooner than 30 days after the First Closing Date nor later than the
business day preceding the first anniversary of the First Closing Date,
Strawbridge & Clothier will sell and May New York will acquire the Second
Closing Cash Amount, and May will deliver to Strawbridge & Clothier the Second
Closing Stock Consideration, and (iii) Strawbridge & Clothier will effect the
Liquidation pursuant to which it will distribute in complete liquidation in a
series of distributions, subject to the terms of the Plan of Reorganization and
Liquidation, to the holders of Strawbridge & Clothier Common Stock its assets,
including the shares of May Common Stock received from May as consideration for
the Department Stores Sale, remaining after the sale of any assets necessary to
satisfy in full all Retained Liabilities. Strawbridge & Clothier currently
anticipates that (i) the First Closing will occur on or about July 18, 1996,
(ii) the final determination of the First Closing Stock Consideration and the
Initial Distribution will occur by November 22, 1996, (iii) the Second
Distribution will occur by July 18, 1997, and (iv) the Final Distribution, if
any, will occur by July 31, 1999. For a discussion of Strawbridge & Clothier's
estimation of the amount of May Common Stock to be
24
<PAGE>
distributed to holders of Strawbridge & Clothier Common Stock in the
Liquidation, see "THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The
Liquidation--Strawbridge & Clothier's Estimate of Liquidation Distributions."
BACKGROUND OF THE ASSET SALES AND LIQUIDATION
In the past several years Strawbridge & Clothier has experienced periods of
general softness in the retail environment as well as steadily increasing
competition in its trading area, including from major national department store
companies. In light of these factors as well as anticipated further increases in
competition, Strawbridge & Clothier's management and Board of Directors has
periodically reviewed the company's strategic alternatives and investigated
efforts to increase sales, stem the loss of gross margin and reduce expenses.
Management's preferred alternative was to remain a successful independent
retailer. As a result of its search for strategic alternatives, in August 1995
the company participated in a group bid to purchase the assets of Woodward &
Lothrop, Incorporated ("Woodward & Lothrop") in a bankruptcy court-sponsored
auction. Strawbridge & Clothier's participation in the group bid contemplated
that it would acquire six John Wanamaker, Philadelphia department stores (the
"John Wanamaker stores") owned by Woodward & Lothrop in the Philadelphia
metropolitan area. The group in which Strawbridge & Clothier participated was
not successful, however, and another group that included May acquired certain
assets of Woodward & Lothrop, including the John Wanamaker stores. In September
1995 two of the major debt rating services, Moody's Investors Service and
Standard & Poor's, downgraded the company's senior debt.
At Strawbridge & Clothier's regularly scheduled Board of Directors meeting
on September 20, 1995, representatives of PJSC were invited to address the Board
on the subject of possible strategic alternatives available to the company in
light of the unsuccessful bid for the John Wanamaker stores. The Board also
reviewed and discussed the senior debt downgrade by the two rating agencies. In
the course of its discussion the Board reflected on a number of matters,
including trends and conditions in the department store and discount store
industries, continued softness in the retail industry in general and economic
uncertainty in the Strawbridge & Clothier trading market. The Board was
especially concerned about the implications of, and accordingly discussed at
length with PJSC, the recent bankruptcy filings of Bradlees, Inc. and The Caldor
Corporation and outside factors that contributed to them. The Board of Directors
requested PJSC to make a further presentation at the October Board meeting.
PJSC's presentation at the October Board meeting outlined various strategic
alternatives available to Strawbridge & Clothier. These included maintaining its
independence as a public company through an internal program of cost-cutting,
margin improvement and sales increases to improve the status quo, through
pursuit of an acquisition strategy or through divestiture of one of the two
divisions of the company. The alternatives included surrendering independence in
order to maximize shareholder value through a sale of control of the company or
a merger with a comparable company. These alternatives were thoroughly discussed
with the Board, and at the conclusion of the meeting the Board authorized
management to engage PJSC as a financial advisor to pursue the strategic
alternatives outlined in their presentation.
Late in October 1995 a representative of May visited a representative of
Strawbridge & Clothier and suggested that May might be willing to propose a
business combination transaction with Strawbridge & Clothier. The May
representative proposed that the two companies promptly commence substantive
discussions concerning such a transaction and mentioned some of the benefits
that May believed could result therefrom. The Strawbridge & Clothier
representative informed the May representative that the proposal would be
reported to the Board of Directors.
On Monday, October 30, 1995, the Strawbridge & Clothier Board of Directors
held a special meeting to discuss May's invitation to negotiate a business
combination, as well as the preceding
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Friday's heavy trading volume and share price drop which had precipitated an
inquiry from the NASD. The Board authorized a press release announcing that
Strawbridge & Clothier had engaged PJSC to help it explore strategic
alternatives, including a possible sale of the company, and that it was
expecting to report a third quarter loss due to continued softening in the
retail market.
During the course of the next five months, PJSC held discussions with third
parties, including May, with respect to possible strategic alternatives
involving the Department Stores division, the Clover Stores division and
Strawbridge & Clothier as a whole. Potential strategic and financial buyers were
contacted to determine whether such parties would be interested in merging with,
being acquired by, acquiring or forming a joint venture with Strawbridge &
Clothier or one or both of its divisions. PJSC contacted more than 20 potential
parties, of which 20 executed confidentiality agreements with Strawbridge &
Clothier and received confidential information about the company. Approximately
ten of these parties subsequently submitted preliminary indications of interest
in transactions of various types involving Strawbridge & Clothier or a portion
of its assets. Throughout this period, PJSC worked closely with management in
this process and reported to the Board of Directors at each of the monthly board
meetings. During this period, Strawbridge & Clothier engaged Ernst & Young LLP
as consultants to assist Strawbridge & Clothier in implementing expense
reduction measures in both divisions.
On December 13, 1995, May and its financial advisor Gleacher NatWest, Inc.
("Gleacher NatWest") communicated May's initial indication of interest to PJSC
regarding a transaction to acquire the assets of the Department Stores division.
For several weeks thereafter, PJSC held discussions from time to time with
Gleacher NatWest, as well as other potential parties, about a possible
transaction.
On January 23, 1996, officers, financial advisors and legal representatives
of Strawbridge & Clothier and May met to discuss, among other things, the
possible structure of a purchase of the assets of the Department Stores division
by May in a tax-free transaction and related legal issues. The structure
contemplated a first closing relating to the sale of the assets of the
Department Stores division, followed by the sale of the company's remaining
assets, the satisfaction of liabilities and ultimate dissolution of the company.
Subsequent meetings were held by the parties' representatives to refine a
structure for the proposed transaction and to negotiate forms of agreement.
On February 9, 1996, Kimco indicated an initial interest in acquiring the
real estate utilized in the Clover Stores division. In the meantime and
thereafter, PJSC continued to meet with other parties to discuss various
alternative transactions and possible transactions that could complement the May
proposal, including a transaction with Kimco.
On March 22, 1996, May submitted to Strawbridge & Clothier a revised
proposal to acquire the assets of the Department Stores division. Meetings
occurred at this time between the managements of Strawbridge & Clothier and May
as well as financial, accounting and legal advisors of each company.
At the regularly scheduled meeting of the Strawbridge & Clothier Board of
Directors on March 27, 1996, a presentation by PJSC and management was made to
the Board regarding a possible sale of the assets of the Department Stores
division to May pursuant to the terms of May's revised proposal. Representatives
of legal counsel and Strawbridge & Clothier's outside auditors were also present
and participated. The presentation to and discussion by the Board of Directors
was wide ranging and included, among other things, a review of (a) management's
current view of the financial condition and prospects of Strawbridge & Clothier
over the period encompassed by the company's planning process; (b) the strategic
alternatives available to Strawbridge & Clothier and their possible implications
in light of management's objectives; and (c) the current state of the retail
industry consolidation and local opportunities and trends in the foreseeable
future. A review of May's organization, businesses, management and financial
statements was provided to the Board of Directors, together with a discussion of
the potential benefits to shareholders of an asset sale to May. In addition, the
Board of Directors
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approved the engagement of Lehman Brothers and HLH&Z to provide the fairness
opinions discussed herein.
Discussions continued by Strawbridge & Clothier management and PJSC with
each of May and Kimco during the following week, and the Board of Directors held
special meetings on April 3rd and 4th where the foregoing matters were fully
discussed. At the special meetings, management reviewed with the Board the
strategic alternative reviews which had occurred since the early fall of 1995,
the chronology of the discussions with May and Kimco and other parties and the
reasons for and benefits of a tax-free transaction with May. Management also
reviewed with the Board certain issues relating to the proposed transactions
with May and Kimco. Representatives of PJSC and outside legal counsel reviewed
with the Board of Directors the status of the negotiations with May and
separately with Kimco and the provisions of the proposed agreements, including
but not limited to the ultimate dissolution of the company. Each of Lehman
Brothers, PJSC and HLH&Z reviewed the financial analysis and valuation it
conducted with respect to the proposed transactions. On the basis of these and
other analyses, the financial advisors delivered their opinions, confirmed later
by written opinions, with respect to the Liquidation and the Asset Sales that
are described elsewhere herein. See "THE ASSET SALES AND LIQUIDATION
TRANSACTIONS--Opinions of Strawbridge & Clothier's Financial Advisors." After
extended discussion, the Strawbridge & Clothier Board of Directors unanimously
approved the May Asset Purchase Agreement, the principal terms of the Clover
Stores Sale which were included in the Kimco Asset Purchase Agreement and the
Liquidation.
RECOMMENDATION OF STRAWBRIDGE & CLOTHIER'S BOARD OF DIRECTORS; REASONS FOR THE
ASSET SALES AND LIQUIDATION
The Board of Directors of Strawbridge & Clothier has unanimously (i) adopted
the resolution providing for the Liquidation, (ii) approved the May Asset
Purchase Agreement and the Kimco Asset Purchase Agreement, and (iii) determined
that the Asset Sales and the Liquidation are advisable and fair to and in the
best interests of the shareholders of Strawbridge & Clothier. THE STRAWBRIDGE &
CLOTHIER BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE
LIQUIDATION IS IN THE BEST INTERESTS OF THE SHAREHOLDERS OF STRAWBRIDGE &
CLOTHIER AND RECOMMENDS THAT SHAREHOLDERS OF STRAWBRIDGE & CLOTHIER VOTE IN
FAVOR OF THE LIQUIDATION PROPOSAL.
The decision of the Strawbridge & Clothier Board of Directors to approve the
Liquidation, including the May Asset Purchase Agreement and the Kimco Asset
Purchase Agreement, and to recommend approval of the transactions contemplated
thereby by the shareholders of Strawbridge & Clothier, was based upon a number
of factors, including without limitation, the following:
(i) the Strawbridge & Clothier Board of Directors' understanding of the
position of the company in the present and anticipated environment in the
retail industry and in particular the department store and discount store
industry in its trading markets, the strategic options available to
Strawbridge & Clothier and the potential for further consolidation within
the industry which could adversely affect Strawbridge & Clothier's
competitive position;
(ii) the Strawbridge & Clothier Board of Directors' consideration of,
among other things, information concerning the financial condition, results
of operations, prospects and businesses of Strawbridge & Clothier, including
management's belief that over the course of the next two years revenues and
net income would increase modestly only with dramatic cost reduction and
consolidation programs;
(iii) the Strawbridge & Clothier Board of Directors' consideration of,
among other things, current industry, economic and market conditions;
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(iv) the Strawbridge & Clothier Board of Directors' consideration of,
among other things, historical financial, business and dividend information
about May;
(v) the Strawbridge & Clothier Board of Directors' understanding of
management's estimate of the amount of the Liquidating Distribution (see
"THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The Liquidation--Strawbridge
& Clothier's Estimate of Liquidation Distributions");
(vi) the Strawbridge & Clothier Board of Directors' understanding, based
upon the opinion of its outside legal counsel, that the Liquidation can be
accomplished on a tax-free basis to shareholders of Strawbridge & Clothier;
(vii) the Strawbridge & Clothier Board of Directors' review of
presentations from, and discussions with, senior executives of Strawbridge &
Clothier, representatives of its outside legal counsel and representatives
of PJSC regarding the business, financial, accounting and legal due
diligence with respect to the terms and conditions of the May Asset Purchase
Agreement and the Kimco Asset Purchase Agreement; and
(viii) the Strawbridge & Clothier Board of Directors' receipt of the
fairness opinions from Lehman Brothers, PJSC and HLH&Z described herein. See
"THE ASSET SALES AND LIQUIDATION TRANSACTIONS--Opinions of Strawbridge &
Clothier's Financial Advisors."
The Strawbridge & Clothier Board of Directors did not assign relative
weights to the factors discussed above.
OPINIONS OF STRAWBRIDGE & CLOTHIER'S FINANCIAL ADVISORS
LEHMAN BROTHERS
Strawbridge & Clothier has engaged Lehman Brothers to render its opinion
with respect to the fairness, from a financial point of view, to Strawbridge &
Clothier's shareholders of the Posited Exchange Ratios of shares of May Common
Stock that the management of Strawbridge & Clothier has estimated will be
distributed to such shareholders in the Liquidation.
On April 4, 1996, in connection with the evaluation of the May Asset
Purchase Agreement, the Kimco Asset Purchase Agreement, the Liquidation and the
transactions contemplated thereby by the Board of Directors of Strawbridge &
Clothier, Lehman Brothers delivered its oral opinion, which opinion was
subsequently confirmed in a written opinion dated April 4, 1996, that, as of the
date of such opinion, and subject to the assumptions, factors and limitations
set forth in such written opinion as described below, the Initial Posited
Exchange Ratio of shares of May Common Stock that the management of Strawbridge
& Clothier estimated at that time would be distributed to the Strawbridge &
Clothier shareholders in the Liquidation was fair, from a financial point of
view, to the shareholders of Strawbridge & Clothier.
Subsequently, on June 6, 1996, Lehman Brothers delivered an updated opinion
in writing that, as of the date of such opinion, and subject to the assumptions,
facts and limitations set forth in such opinion as described below, the Revised
Posited Exchange Ratio of shares of May Common Stock that the management of
Strawbridge & Clothier estimated at that time would be distributed to the
Strawbridge & Clothier shareholders in the Liquidation was fair, from a
financial point of view, to the shareholders of Strawbridge & Clothier.
THE FULL TEXT OF THE WRITTEN OPINION OF LEHMAN BROTHERS DATED JUNE 6, 1996,
WHICH SETS FORTH THE ASSUMPTIONS MADE, FACTORS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING SUCH OPINION, IS ATTACHED TO
THIS PROXY STATEMENT/PROSPECTUS AS ANNEX D AND IS INCORPORATED BY REFERENCE
HEREIN. THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
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Except as described below, no limitations were imposed by Strawbridge &
Clothier on the scope of Lehman Brothers' investigation or the procedures to be
followed by Lehman Brothers in rendering its opinions. Lehman Brothers was not
requested to and did not make any recommendation to the Board of Directors of
Strawbridge & Clothier as to the form or amount of the consideration to be
received by Strawbridge & Clothier in the Department Stores Sale, which was
determined through arm's-length negotiations between Strawbridge & Clothier and
May, or in the Clover Stores Sale, which was determined through arm's-length
negotiations between Strawbridge & Clothier and Kimco, in both cases upon advice
of Strawbridge & Clothier's other financial advisors and legal advisors. Lehman
Brothers was also not requested to and did not render any advice to Strawbridge
& Clothier as to the form or amount of consideration which management of
Strawbridge & Clothier has estimated would be distributed to Strawbridge &
Clothier's shareholders in the Liquidation. In arriving at its opinions, Lehman
Brothers did not ascribe a specific range of values to Strawbridge & Clothier,
but made its determination as to the fairness, from a financial point of view,
in the case of the April 4, 1996 opinion, of the Initial Posited Exchange Ratio
and, in the case of the June 6, 1996 opinion, of the Revised Posited Exchange
Ratio, of shares of May Common Stock that the management of Strawbridge &
Clothier estimated would be received by the shareholders of Strawbridge &
Clothier on the basis of the financial and comparative analyses described below.
Lehman Brothers' opinions are addressed to the Board of Directors of Strawbridge
& Clothier and were rendered to the Board of Directors in connection with its
consideration of the Liquidation and do not constitute a recommendation to any
shareholder of Strawbridge & Clothier as to how such shareholder should vote
with respect to the Liquidation Proposal at the Annual Meeting. Lehman Brothers
was not requested to opine as to, and its opinions do not in any manner address,
Strawbridge & Clothier's underlying business decision to proceed with or effect
the Department Stores Sale, the Clover Stores Sale or the Liquidation or the
number or value of the shares of May Common Stock or the amount or value of any
other consideration that actually will be distributed to Strawbridge &
Clothier's shareholders in the Liquidation.
In arriving at its opinions, Lehman Brothers reviewed and analyzed: (i) the
May Asset Purchase Agreement, the Kimco Asset Purchase Agreement (a draft which
was reviewed at the time of the April 4, 1996 opinion), the proposals regarding
the discount store inventory and the specific terms of the transactions
contemplated thereby and the proposed Liquidation, (ii) publicly available
information concerning Strawbridge & Clothier which Lehman Brothers believed to
be relevant to its inquiry, (iii) financial and operating information with
respect to the businesses, operations and prospects of Strawbridge & Clothier
(including financial projections for the years 1996 through 1998) furnished to
Lehman Brothers by Strawbridge & Clothier, (iv) the trading history of the
Series A Common Stock from January 1991 to the date of the relevant opinion and
a comparison of that trading history with those of other companies that Lehman
Brothers deemed relevant, (v) a comparison of the historical financial results
and present financial condition of Strawbridge & Clothier and its divisions with
those of other companies that Lehman Brothers deemed relevant, (vi) publicly
available information concerning May which Lehman Brothers believed to be
relevant to its inquiry, (vii) financial and operating information with respect
to the business, operations and prospects of May (including financial
projections for the years 1996 through 1998 furnished to Lehman Brothers by
May), (viii) the trading history of the May Common Stock from January 1991 to
the date of the relevant opinion and a comparison of the May Common Stock price
and valuation multiples with those of other companies that Lehman Brothers
deemed relevant, (ix) research analysts' reports and earnings estimates
regarding the business, financial condition and future financial performance of
May, (x) a comparison of the financial terms of the Liquidation with the
financial terms of certain other recent transactions that Lehman Brothers deemed
relevant, (xi) an analysis prepared by the management of Strawbridge & Clothier
regarding the manner in which the amount of the Retained Liabilities and, in the
case of the April 4, 1996 opinion, the Initial Posited Exchange Ratio and, in
the case of the June 6, 1996 opinion, the Revised Posited Exchange Ratio had
been estimated, and (xii) real estate appraisals performed by an independent
third party valuing the real estate assets of Strawbridge & Clothier's Clover
Stores division. In addition, Lehman Brothers had discussions with the
management of Strawbridge & Clothier concerning its
29
<PAGE>
business, operations, assets, liabilities, financial condition, credit and
liquidity situation and prospects, and with the managements of May and Kimco
concerning their respective businesses, operations, financial conditions and
prospects. Lehman Brothers also had discussions with representatives of PJSC
regarding the market testing process undertaken by such representatives on
behalf of Strawbridge & Clothier to solicit indications of interest or proposals
from third parties with respect to an acquisition of Strawbridge & Clothier, the
Department Stores division of Strawbridge & Clothier or the Clover Stores
division of Strawbridge & Clothier or its real estate properties and with
respect to the results of such process. Lehman Brothers also undertook such
other studies, analyses and investigations as it deemed appropriate.
In arriving at its opinions, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinions without assuming any responsibility for independent
verification of such information and further relied upon the assurances of
management of Strawbridge & Clothier that they were not aware of any facts that
would make such information inaccurate or misleading. Lehman Brothers also
assumed and relied upon the accuracy of the estimates of the management of
Strawbridge & Clothier as to the amount of each Retained Liability, the amount
of the Posited Exchange Ratios and the timing of the distribution of the shares
of May Common Stock to Strawbridge & Clothier's shareholders without assuming
any responsibility for independent verification or calculation thereof, and
further assumed that the foregoing were reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of Strawbridge & Clothier. With respect to the financial projections
of Strawbridge & Clothier provided to Lehman Brothers by the management of
Strawbridge & Clothier, upon advice of Strawbridge & Clothier, Lehman Brothers
assumed that such projections were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of
Strawbridge & Clothier as to the future financial performance of Strawbridge &
Clothier and that Strawbridge & Clothier would perform substantially in
accordance with such projections. With respect to the financial projections of
May provided to Lehman Brothers by the management of May, Lehman Brothers
assumed that such projections were reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of May as to
the future financial performance of May and that May would perform substantially
in accordance with such projections. In arriving at its opinion, Lehman Brothers
did not conduct a physical inspection of the properties and facilities of
Strawbridge & Clothier and did not make or obtain any evaluation or appraisal of
the assets or liabilities of Strawbridge & Clothier other than the appraisal of
the real estate assets of the Clover Stores division referred to above. In
addition, Lehman Brothers was not authorized to and did not solicit any
indications of interest from any third party with respect to the purchase of all
or a part of Strawbridge & Clothier's businesses or assets and relied entirely
on the results of the process conducted by representatives of PJSC in this
regard. Upon advice of Strawbridge & Clothier and its legal and accounting
advisors, Lehman Brothers assumed that the Liquidation will qualify as a "C"
reorganization within the meaning of Section 368(a) of the Code and therefore as
a tax-free transaction to Strawbridge & Clothier and its shareholders. Each
Lehman Brothers' opinion states that it was necessarily based upon market,
economic and other conditions as they existed on, and could be evaluated as of,
the date of such opinion.
In arriving at its opinions, Lehman Brothers assumed at Strawbridge &
Clothier's direction that in the case of the April 4, 1996 opinion, shareholders
of Strawbridge & Clothier would receive 0.407 share of May Common Stock and, in
the case of the June 6, 1996 opinion, shareholders would receive 0.41 share of
May Common Stock, in each case in exchange for each share of Strawbridge &
Clothier Common Stock in the Liquidation, that such shares would be distributed
to Strawbridge & Clothier's shareholders by the dates estimated by the
management of Strawbridge & Clothier, and that the amount of such distribution
would not be reduced by the claims of creditors of Strawbridge & Clothier.
However, Lehman Brothers' opinions note that the exact number of shares of May
Common Stock that will be distributed to Strawbridge & Clothier's shareholders
and the specific timing of the distributions
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will be affected by the amount and timing of the resolution of the Retained
Liabilities, and there can be no assurance that Strawbridge & Clothier's
shareholders will actually receive 0.407 or 0.41 share of May Common Stock for
each share of Strawbridge & Clothier Common Stock in the Liquidation or that the
distributions of such shares will occur by such estimated dates. Lehman Brothers
expressed no opinion as to (i) the number of shares of May Common Stock that
actually will be distributed to Strawbridge & Clothier's shareholders in the
Liquidation or when such shares of May Common Stock actually will be distributed
to Strawbridge & Clothier's shareholders or (ii) whether the receipt of any
lesser number of shares of May Common Stock for each share of Strawbridge &
Clothier Common Stock or the receipt of such shares at a later date would be
fair, from a financial point of view, to Strawbridge & Clothier's shareholders.
Lehman Brothers also expressed no opinion as to the prices at which May Common
Stock will trade at any time prior to or following the distribution of the
shares of May Common Stock to Strawbridge & Clothier's shareholders in the
Liquidation.
In connection with its presentation to Strawbridge & Clothier's Board of
Directors on April 4, 1996, advising Strawbridge & Clothier's Board of Directors
of its opinion on April 4, 1996, Lehman Brothers performed certain financial and
comparative analyses as described below. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its fairness
opinion, Lehman Brothers did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and of the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying its opinion. In its analyses, Lehman Brothers
made numerous assumptions with respect to industry performance, general business
and economic conditions, the markets in which Strawbridge & Clothier operates
and other matters, many of which are beyond the control of Strawbridge &
Clothier. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
Based upon initial estimates of management of Strawbridge & Clothier that
holders of Strawbridge & Clothier Common Stock would receive 0.407 share of May
Common Stock for each share of Strawbridge & Clothier Common Stock in the
Liquidation, management's estimate of the timing of the distributions of such
shares and using the three-year Treasury rate of 5.89% at April 3, 1996 as the
discount rate, Lehman Brothers estimated that the exchange ratio implied by
calculating the present value of the future distributions of such shares would
be 0.396 share of May Common Stock for each share of Strawbridge & Clothier
Common Stock.
Based upon revised alternative estimates of management of Strawbridge &
Clothier that holders of Strawbridge & Clothier Common Stock would receive 0.41
share of May Common Stock for each share of Strawbridge & Clothier Common Stock
in the Liquidation, management's estimate of the timing of the distributions of
such shares and using the three-year Treasury rate of 6.30% at June 6, 1996 as
the discount rate, Lehman Brothers estimated that the exchange ratio implied by
calculating the present value of the future distributions of such shares would
be 0.39 share of May Common Stock for each share of Strawbridge & Clothier
Common Stock.
The analyses described below, which were performed prior to the April 4,
1996 opinion, were updated by Lehman Brothers prior to the June 6, 1996 opinion.
Analysis of Selected Publicly Traded Comparable Companies. Using publicly
available information, Lehman Brothers compared selected financial data of
Strawbridge & Clothier with similar data of
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selected publicly-traded department and discount stores engaged in businesses
considered by Lehman Brothers to be comparable to those of Strawbridge &
Clothier. Specifically, Lehman Brothers included in its review of department
stores Bon-Ton Stores Inc., Carson, Pirie Scott & Company ("Carson, Pirie"),
Gottschalks, Inc., Jacobson Stores Inc. and Proffitt's Inc. ("Proffitt's")
(collectively, the "Department Store Group"). Lehman Brothers also reviewed
selected publicly-traded discount stores which included Ames Department Stores
Inc., Bradlees Inc., The Caldor Corporation, Hills Stores Co., ShopKo Stores
Inc., Value City Department Stores Inc. and Venture Stores Inc. (collectively,
the "Discount Store Group").
For each of the companies identified above, Lehman Brothers analyzed the
current market price per share as a multiple of (i) latest twelve months ("LTM")
earnings per share ("EPS"), (ii) 1996 estimated EPS, (iii) 1997 estimated EPS
and (iv) book value, which, for the Department Store Group, yielded median
multiples of 15.1x, 13.8x, 11.8x and 0.90x, respectively, and mean multiples of
15.1x, 12.7x, 11.1x and 1.04x, respectively, and for the Discount Store Group,
yielded median multiples of 11.9x, 10.6x, 10.1x and 0.50x, respectively, and
mean multiples of 10.6x, 11.4x, 9.7x and 0.65x, respectively. Lehman Brothers
also calculated total equity market value plus net debt ("Firm Value") as
multiples of (i) net sales, (ii) earnings before interest and taxes ("EBIT"),
(iii) earnings before interest, taxes, depreciation and amortization ("EBITDA")
and (iv) assets less cash, which, for the Department Store Group, yielded median
multiples of 0.44x, 9.4x, 7.1x and 0.67x, respectively, and mean multiples of
0.49x, 9.4x, 7.1x and 0.73x, respectively, and for the Discount Store Group,
yielded median multiples of 0.18x, 10.0x, 5.5x and 0.48x, respectively, and mean
multiples of 0.25x, 9.7x, 5.5x and 0.52x, respectively. The 1996 and 1997
earnings estimates were based on the mean of publicly available earnings
estimates made by research analysts as provided by First Call Investor Service.
The multiples resulting from the analysis of the Department Store Group and the
Discount Store Group were applied to the corresponding results (and estimated
1996 and 1997 results) of Strawbridge & Clothier, and, based on both the
quantitative results of this analysis and qualitative judgments as further
described below, implied a range of values for the shares of Strawbridge &
Clothier Common Stock of approximately $11.00 to $16.00 per share.
Because of the lack of truly comparable companies due to the two separate
lines of business of Strawbridge & Clothier and the inherent differences between
the businesses, operations and prospects of Strawbridge & Clothier and the
businesses, operations and prospects of the companies included in the respective
comparable groups, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, and
accordingly also made qualitative judgments concerning differences between the
financial and operating characteristics of Strawbridge & Clothier and the
companies in each of the respective comparable groups that would affect the
public trading values of Strawbridge & Clothier and such other companies.
Analysis of Selected Comparable Transactions. Using publicly available
information, Lehman Brothers compared selected financial data (including total
equity market value ("Equity Value")) as a multiple of LTM net income and book
value, and Firm Value as a multiple of LTM revenues, LTM EBIT, LTM EBITDA and
assets less cash for Strawbridge & Clothier with similar data for six selected
transactions in the department store industry and one in the discount store
industry. Transactions reviewed by Lehman Brothers in the department store
industry included the acquisition of Younkers, Inc. by Proffitt's, the
acquisition of Woodward & Lothrop by May and J.C. Penney Company, the
acquisition of Broadway Stores, Inc. by Federated Department Stores Inc.
("Federated"), the acquisition of certain stores of Carson, Pirie by Dayton
Hudson Corporation, the acquisition of Joseph Horne Company by Federated and the
acquisition of McRae Industries, Inc. by Proffitt's and, in the discount store
industry, the proposed acquisition by Fred's, Inc. of Rose's Stores, Inc. Such
analysis yielded the following multiples with respect to department store
transactions: (i) a range of 10.7x to 22.3x with a median of 16.4x for the ratio
of Equity Value to LTM net income; (ii) a range of 1.20x to 2.24x with a median
of 1.37x for the ratio of Equity Value to book value; (iii) a range of 0.53x to
0.87x with a median of 0.74x for the ratio of Firm Value to LTM revenues; (iv) a
range of 8.1x to 10.6x with a median of 8.7x
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for the ratio of Firm Value to LTM EBIT; (v) a range of 6.2x to 8.2x with a
median of 7.1x for the ratio of Firm Value to LTM EBITDA; and (vi) a range of
0.9x to 1.0x with a median of 0.9x for the ratio of Firm Value to assets less
cash. With respect to the Discount Store transaction, the analysis yielded
multiples of 0.56x for the ratio of Equity Value to Book Value, 0.12x for the
ratio of Firm Value to LTM revenues, 13.0x for the ratio of Firm Value to LTM
EBIT and 0.37x for the ratio of Firm Value to assets less cash.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
Strawbridge & Clothier and the acquired businesses analyzed, including, in
particular, the two separate lines of business of Strawbridge & Clothier and the
existence of only one comparable discount store transaction, Lehman Brothers
believed that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of the Liquidation. Lehman Brothers
believed that an appropriate use of a comparable transaction analysis in this
instance would involve qualitative judgments concerning differences between the
characteristics of these transactions and the Liquidation that would affect the
acquisition values of Strawbridge & Clothier and such acquired companies.
Discounted Cash Flow Analysis. Lehman Brothers calculated the present value
of the future streams of unleveraged after-tax cash flows that each of
Strawbridge & Clothier, as a whole on a consolidated basis, and the Department
Stores and Clover Stores divisions, both separately and combined, could be
expected to produce over a three-year period. The analysis of Strawbridge &
Clothier utilized projections provided by management of Strawbridge & Clothier.
Lehman Brothers calculated terminal values of Strawbridge & Clothier based on
different multiple ranges ("Terminal Value Multiples") of projected fiscal 1998
EBITDA. Lehman Brothers used Terminal Value Multiples of 5.0x to 7.0x (total
Strawbridge & Clothier valuation), 4.0x to 6.0x (Clover Stores division) and
6.0x to 8.0x (Department Stores division) fiscal 1998 EBITDA and discount rates
ranging from 9% to 13%, 10% to 14% and 9% to 13%, respectively. Such multiples
and rates were determined on the basis of an analysis of comparable companies
and on several assumptions regarding factors such as the inflation rate,
interest rates, the inherent business risks of Strawbridge & Clothier and the
cost of capital. Based on Lehman Brothers' judgment as to the appropriate
multiples and discount rates to be applied to Strawbridge & Clothier, the
foregoing analyses implied a range of values for the Strawbridge & Clothier
Common Stock of approximately $14.00 to $19.00 per share.
Leveraged Buyout Analysis. Lehman Brothers estimated the purchase price of
Strawbridge & Clothier assuming that Strawbridge & Clothier was purchased by an
investor in a hypothetical leveraged acquisition seeking a target return on its
equity investment in the range of 25% to 30% through a resale of the entity
after five and seven years, respectively. This analysis used the same financial
operating assumptions for Strawbridge & Clothier that were used in the
discounted cash flow analysis described above and extrapolations of the
projections prepared by the management of Strawbridge & Clothier. In addition,
the analysis was performed in a manner which satisfied a number of conditions
determined by Lehman Brothers to represent the current market requirements for
such a transaction. These conditions included (i) a targeted capital structure
with at least 25% equity; (ii) the repayment of bank debt within seven years;
and (iii) targeted financial ratios, specifically the ratio of EBITDA to total
interest of at least 2.5x and total debt to EBITDA of not more than 4.0x. Using
the financial projections provided by management of Strawbridge & Clothier,
Lehman Brothers selected a series of assumed purchase prices for Strawbridge &
Clothier using a targeted capital structure with at least 25% equity. Lehman
Brothers then tested each scenario to determine whether the hypothetical
leveraged acquisition met the constraints outlined above for the target equity
return, debt repayment and financial ratios. Based on a series of calculations
using extrapolations of the projections prepared by management of Strawbridge &
Clothier and purchase prices necessary to generate five and seven year equity
returns of 25% to 30%, respectively, Lehman Brothers arrived at an implied range
of values for the Strawbridge & Clothier Common Stock of approximately $6.00 to
$11.00 per share.
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Share Price Analysis. Lehman Brothers calculated the present value of the
shares of Strawbridge & Clothier Common Stock based on the present value of EPS
in 2000 at discount rates of 12% to 16% and price earnings ratios of 11.0x to
15.0x, using management estimates for 1996 through 1998, and growth rates for
Strawbridge & Clothier for 1999 through 2000 provided by Institutional Broker
Estimate System ("IBES"). The foregoing analyses implied a range of values for
Strawbridge & Clothier's share price of approximately $9.00 to $15.00.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Board of Directors of
Strawbridge & Clothier selected Lehman Brothers because of its expertise,
reputation and familiarity with the merchandising industry in general.
As compensation for its services in connection with the Liquidation,
Strawbridge & Clothier has paid Lehman Brothers a fee of $750,000, and will pay
Lehman Brothers an additional $400,000 prior to the Liquidation. In addition,
Strawbridge & Clothier has agreed to reimburse Lehman Brothers for reasonable
out-of-pocket expenses incurred in connection with its engagement and to
indemnify Lehman Brothers for certain liabilities that may arise out of its
engagement by Strawbridge & Clothier and the rendering of its opinions.
PETER J. SOLOMON COMPANY LIMITED
PJSC acted as exclusive financial advisor to Strawbridge & Clothier in
connection with the transactions contemplated by the May Asset Purchase
Agreement and delivered its written opinion, dated April 4, 1996, to the
Strawbridge & Clothier Board of Directors with respect to the fairness to
Strawbridge & Clothier from a financial point of view of the consideration to be
received by Strawbridge & Clothier from May in respect of the Department Store
Sale and the transfer to and assumption (the "Assumption") by May New York of
the Assumed Department Store Liabilities, in each case pursuant to the May Asset
Purchase Agreement. PJSC has confirmed such opinion by delivery of a written
opinion dated the date of this Proxy Statement/Prospectus.
In addition to the Assumption, May will pay to Strawbridge & Clothier, as
consideration in respect of the Department Stores Sale, shares of May Common
Stock, the number of which shares (such shares, together with the Assumption,
the "Consideration") will be calculated, pursuant to the May Asset Purchase
Agreement, in the manner described under "THE ASSET SALES AND LIQUIDATION
TRANSACTIONS--The Department Stores Sale--The May Asset Purchase Agreement--The
Stock Consideration."
On April 4, 1996, in connection with the evaluation of the May Asset
Purchase Agreement and the transactions contemplated thereby by the Board of
Directors of Strawbridge & Clothier, PJSC made a presentation to the Board with
respect to such transactions and delivered its opinion that, as of the date of
such opinion, based upon and subject to assumptions, factors and limitations as
described below, the Consideration to be received by Strawbridge & Clothier from
May in respect of the Department Store Sale is fair from a financial point of
view to Strawbridge & Clothier. THE FULL TEXT OF THE WRITTEN OPINION OF PJSC
DATED THE DATE OF THIS PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON AND SCOPE OF THE
REVIEW BY PJSC IN RENDERING SUCH OPINION, IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS ANNEX E AND IS INCORPORATED BY REFERENCE HEREIN. THE
SUMMARY OF SUCH OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. STRAWBRIDGE & CLOTHIER SHAREHOLDERS
ARE ENCOURAGED TO READ THIS OPINION IN ITS ENTIRETY.
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No limitations were imposed by Strawbridge & Clothier on the scope of PJSC's
investigation or the procedures to be followed by PJSC in rendering its opinion.
PJSC was not requested to and did not make any recommendation to the Board of
Directors of Strawbridge & Clothier as to the form or amount of the
Consideration to be paid to Strawbridge & Clothier by May for the Department
Stores Sale, which was determined through arm's-length negotiations between
Strawbridge & Clothier and May, in which PJSC assisted. In arriving at its
opinion, PJSC did not ascribe a specific range of values to the Department Store
Assets or the Assumed Department Store Liabilities, but made its determination
as to the fairness, from a financial point of view, of the Consideration to be
received by Strawbridge & Clothier from May in respect of the Department Store
Sale on the basis of the financial and comparative analyses summarized below.
PJSC's opinion is addressed to the Board of Directors of Strawbridge & Clothier
and does not constitute a recommendation to any Strawbridge & Clothier
shareholder as to how such shareholder should vote with respect to the
Liquidation Proposal at the Annual Meeting. PJSC did not express an opinion
concerning the Option Agreement. In addition, PJSC was not requested to opine as
to, and its opinion does not in any manner address, the transactions
contemplated by the Kimco Asset Purchase Agreement, the Liquidation or
Strawbridge & Clothier's underlying business decision to proceed with or effect
the transactions contemplated by the May Asset Purchase Agreement.
In arriving at its opinion, PJSC: (i) reviewed the May Asset Purchase
Agreement; (ii) analyzed certain publicly available financial statements and
other information of Strawbridge & Clothier and May, respectively; (iii)
reviewed certain internal financial statements and other financial and operating
data concerning Strawbridge & Clothier prepared by the management of Strawbridge
& Clothier; (iv) reviewed certain financial projections for Strawbridge &
Clothier and May prepared by the management of Strawbridge & Clothier and May,
respectively; (v) reviewed with Strawbridge & Clothier management its estimates
(the "Estimates") of (a) the Closing Balance Sheet Net Working Capital Amount
(as defined in the May Asset Purchase Agreement) and the Assumed Long-Term
Liabilities Amount (as hereinafter defined) and (b) the amount of the Assumed
Department Store Liabilities; (vi) reviewed with Strawbridge & Clothier
management its calculation of the Payless Spin-Off Equivalent Shares (as defined
in the May Asset Purchase Agreement); (vii) discussed the past and current
operations and financial condition and the prospects of Strawbridge & Clothier
and May with senior executives of Strawbridge & Clothier and May, respectively;
(viii) reviewed the reported prices and trading activity for the May Common
Stock; (ix) compared the financial performance of Strawbridge & Clothier and May
and the prices and trading activity of the May Common Stock with that of certain
other comparable publicly traded companies and their securities; and (x)
reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions deemed relevant by PJSC. In addition, PJSC
participated in discussions with management of Strawbridge & Clothier, May and
their respective representatives and legal advisors, and performed such other
analyses as PJSC deemed appropriate.
PJSC assumed and relied without independent verification upon the accuracy
and completeness of the information reviewed by it for the purposes of its
opinion. PJSC also assumed and relied upon the accuracy of the Estimates without
assuming any responsibility for independent verification or calculation thereof.
The Estimates of the Closing Balance Sheet Net Working Capital Amount and the
Assumed Long-Term Liabilities Amount and the number of Payless Spin-Off
Equivalent Shares taken into account by PJSC for purposes of its opinion are the
same as the corresponding figures included in the right-hand column of the table
set forth under "THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The
Liquidation--Strawbridge & Clothier's Estimate of Liquidation Distributions."
With respect to the Estimates and with respect to financial projections for
Strawbridge & Clothier, PJSC assumed that such Estimates and projections were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of Strawbridge & Clothier. With respect to
financial projections for May, PJSC assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
management of May. In arriving at its opinion, PJSC did not make any independent
valuation or appraisal of the
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Department Store Assets or the Assumed Department Store Liabilities or the
assets or liabilities of May. PJSC's opinion was necessarily based on economic,
market and other conditions as in effect on, and the information made available
to PJSC as of, the date of its opinion.
In connection with its presentation to the Board of Directors of Strawbridge
& Clothier and advising the Board of its opinion on April 4, 1996, PJSC
performed certain financial and comparative analyses, as described below. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Furthermore, in arriving at its
fairness opinion, PJSC did not attribute any particular weight to any analysis
and factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, PJSC
believes that its analyses must be considered as a whole and that considering
any portion of such analyses and of the factors considered, without considering
all analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. Any estimates contained in these analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
Analysis of Selected Publicly Traded Comparable Companies. Using publicly
available information, PJSC compared selected financial data of Strawbridge &
Clothier with similar data of selected publicly traded companies engaged in
businesses considered by PJSC to be comparable to those of the operations of the
Department Stores division of Strawbridge & Clothier. Specifically, PJSC
included in its review Bon-Ton Stores, Inc., Carson, Pirie, Gottschalks, Inc.,
Jacobson Stores Inc. and Proffitt's (the "Comparable Regional Department Store
Group"). PJSC also included in its review, for reference purposes, similar data
with respect to selected publicly traded companies with national department
store operations, although such national businesses were not considered by PJSC,
in its analysis, to be comparable to those of the operations of the Department
Stores division of Strawbridge & Clothier. PJSC calculated and compared various
financial multiples and ratios, including, among other things, the market price
per share as of April 3, 1996 (the "Market Price") as a multiple of the LTM EPS,
and fiscal year 1996 and 1997 estimated EPS. The 1996 and 1997 EPS estimates
were based on the median of publicly available earnings estimates made by
research analysts as of April 3, 1996, as provided by IBES. PJSC also calculated
Equity Value as a multiple of tangible book value, as well as enterprise value
(which represents total equity value plus book values of total debt, preferred
stock and minority interests less cash) ("Enterprise Value") as a multiple of
each of LTM net sales, EBIT and EBITDA. The results of these calculations were
used to impute a range of values for the operations of the Department Stores
division of Strawbridge & Clothier by applying the multiples derived from such
calculations to Strawbridge & Clothier's financial data.
With respect to the Comparable Regional Department Store Group, the analysis
yielded the following: (i) a range of 11.3x to 13.6x with a median of 12.5x and
a mean of 12.5x for the ratio of Market Price to LTM EPS; (ii) a range of 10.5x
to 24.4x with a median of 13.1x and a mean of 15.3x for the ratio of Market
Price to 1996 EPS estimate; (iii) a range of 9.3x to 14.8x with a median of
11.9x and a mean of 12.0x for the ratio of Market Price to 1997 EPS estimate;
(iv) a range of 0.7x to 1.8x with a median of 0.9x and a mean of 1.1x for the
ratio of Equity Value to tangible book value; (v) a range of 36.6% to 68.2% with
a median of 44.7% and a mean of 48.0% for the ratio of Enterprise Value to LTM
net sales; (vi) a range of 6.9x to 26.4x with a median of 10.2x and a mean of
14.5x for the ratio of Enterprise Value to LTM EBIT; and (vii) a range of 6.0x
to 16.1x with a median of 11.0x and a mean of 11.6x for the ratio of Enterprise
Value to LTM EBITDA.
The above multiples were applied to certain of the corresponding results of
the operations of the Department Stores division of Strawbridge & Clothier. In
particular, among other things, PJSC applied (i) a range of multiples (40%-70%)
based on the range of multiples of Enterprise Value to LTM net sales derived for
the Comparable Regional Department Store Group and (ii) a range of multiples
(7.0x to
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12.0x) based on the range of multiples of Enterprise Value to LTM EBIT derived
for the Comparable Regional Department Store Group, to the 1995 net sales and
1995 EBIT, respectively, for the operations of the Department Stores division of
Strawbridge & Clothier in order to calculate a range of values for such
operations based on such multiples. PJSC's analysis yielded: (i) a range of $225
million to $375 million, based on 1995 net sales of $545.1 million; and (ii) a
range of $50 million to $90 million, based on 1995 EBIT of $7.4 million. PJSC
also recalculated such value ranges by adding a 35% control premium to such
values (which control premium reflects the median premium to market prices one
week prior to the announcement of a control-acquisition transaction paid over
the past five years by acquirors of public companies in transactions with equity
values in excess of $100 million and with enterprise valuations between $200
million and $1,000 million). The control premium data was compiled by Securities
Data Company. Based on the application of a 35% control premium, PJSC's analysis
yielded: (i) a range of $304 million to $506 million, based on 1995 net sales of
$545.1 million; and (ii) a range of $68 million to $122 million, based on 1995
EBIT of $7.4 million.
Because of the lack of a sufficient number of independent comparable
companies and the inherent difference between the business, operations and
prospects of Strawbridge & Clothier and the businesses, operations and prospects
of the companies included in the Comparable Regional Department Store Group,
PJSC believed that it was inappropriate to, and therefore did not, rely solely
on the quantitative results of the analysis, and accordingly also made
qualitative judgments concerning differences between the financial and operating
characteristics of Strawbridge & Clothier and the companies included in the
Comparable Regional Department Store Group that would affect the valuations of
Strawbridge & Clothier and such comparable companies.
Analysis of Selected Comparable Transactions. Using publicly available
information, PJSC compared selected financial data (including Equity Value as a
multiple of LTM net income and tangible book value, and Enterprise Value as a
multiple of LTM net sales, LTM EBIT and LTM EBITDA) for Strawbridge & Clothier
with similar data for 19 selected transactions involving department store
companies (both regional and national) (the "Comparable Transactions"). Using
the same methodology as that which was utilized in the analysis of the
Comparable Regional Department Store Group, the multiples derived from this
analysis were used to impute a range of values for the operations of the
Department Stores division of Strawbridge & Clothier by applying the multiples
derived from such calculations to Strawbridge & Clothier's financial data.
The analysis yielded the following: (i) a range of 5.9x to 17.3x with a
median of 10.6x and a mean of 11.3x for the ratio of Equity Value to LTM net
income; (ii) a range of 1.0x to 3.8x with a median of 1.4x and a mean of 1.8x
for the ratio of Equity Value to tangible book value; (iii) a range of 21.9% to
120.6% with a median of 73.1% and a mean of 66.4% for the ratio of Enterprise
Value to LTM net sales; (iv) a range of 5.3x to 15.9x with a median of 10.5x and
a mean of 10.3x for the ratio of Enterprise Value to LTM EBIT; and (v) a range
of 4.2x to 29.4x with a median of 12.3x and a mean of 13.5x for the ratio of
Enterprise Value to LTM EBITDA.
The above multiples were applied to certain of the corresponding results of
the operations of the Department Stores division of Strawbridge & Clothier. In
particular, among other things, PJSC applied (i) a range of multiples (50%-85%)
based on the range of multiples of Enterprise Value to LTM net sales derived for
the Comparable Transactions; and (ii) a range of multiples (8.0x to 15.0x) based
on the range of multiples of Enterprise Value to LTM EBIT derived for the
Comparable Transactions, to the 1995 net sales and 1995 EBIT, respectively, for
the Department Stores operations of Strawbridge & Clothier in order to calculate
a range of values for such operations based on such multiples. PJSC's analysis
yielded: (i) a range of $275 million to $465 million, based on 1995 net sales of
$545.1 million; and (ii) a range of $60 million to $110 million, based on 1995
EBIT of $7.4 million.
Because the reasons for the circumstances surrounding each of the Comparable
Transactions were specific to each transaction and because of the inherent
differences between the business, operations and prospects of Strawbridge &
Clothier and the businesses, operations and prospects of the selected
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acquired companies in the Comparable Transactions, PJSC believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, and accordingly also made qualitative judgments concerning
differences between the characteristics of the Comparable Transactions and the
Department Stores Sale and the assumption by May New York of the Assumed Depart-
ment Store Liabilities that would affect the acquisition values of Strawbridge &
Clothier's Department Store Assets and such acquired companies.
Discounted Cash Flow Analysis. PJSC calculated the present value of the
future streams of unleveraged after-tax cash flows that the operations of the
Department Stores division of Strawbridge & Clothier could be expected to
produce over a three-year period. The analysis utilized financial projections
through 1998 provided by management of Strawbridge & Clothier and relied on
certain assumptions with respect to Strawbridge & Clothier's future business and
operations beyond such date reviewed by and discussed with management of
Strawbridge & Clothier. After-tax cash flows were calculated as the after-tax
EBIT plus depreciation and amortization less capital expenditures plus (or less)
changes in net working capital. PJSC calculated terminal values ("Terminal
Value") for the operations of the Department Stores division of Strawbridge &
Clothier by applying to projected sales a range of multiples based on the
analysis of the trading multiples of the Comparable Regional Department Store
Group, analysis of the Comparable Transactions and on PJSC's general experience
in mergers and acquisitions. The cash flow streams and Terminal Values were then
discounted to present values using a range of discount rates of 8.0% to 12.0%,
which were chosen based on several assumptions including the weighted average
cost of capital of Strawbridge & Clothier. PJSC's analysis yielded values
ranging from (i) $341.1 million (based on an assumed ratio of Terminal Value to
1998 projected sales of 60.0% and an assumed 12.0% discount rate) to (ii) $437.4
million (based on an assumed ratio of Terminal Value to 1998 projected sales of
80.0% and an assumed 8.0% discount rate).
Historical May Common Stock Price and Operating Data Analysis. PJSC
considered various data concerning historical trading prices and volumes for the
May Common Stock for the period from March 29, 1991 to March 29, 1996 (the
latest week ended prior to PJSC's presentation to the Board of Directors of
Strawbridge & Clothier) and the relationship between price and volume movements
of the May Common Stock and the relative price performance of May as compared to
the composite index (the "National Department Store Index") comprised of Dayton
Hudson Corporation, Dillard Department Stores, Inc., Federated, Mercantile
Stores Company, Inc. and Nordstrom, Inc. and the S&P 400 Index. During this
period, the closing price of the May Common Stock increased by 81.2% as compared
to an increase of 71.5% for the S&P 400 and an increase of 41.1% for the
National Department Store Index. The closing stock price data was compiled by
IDD Information Services.
PJSC also considered various other financial information and operating data
of May as well as capital stock ownership of May's significant shareowners.
As part of its investment banking activities, PJSC is regularly engaged in
the evaluation of businesses and their securities in connection with mergers and
acquisitions, restructurings and valuations for corporate and other purposes.
The Board of Directors of Strawbridge & Clothier selected PJSC because of its
expertise, reputation and familiarity with Strawbridge & Clothier and the
department store industry in general.
Pursuant to an engagement letter dated October 30, 1995 (the "PJSC
Engagement Letter"), PJSC was retained by Strawbridge & Clothier as its
exclusive financial advisor in connection with strategic planning, long range
financial advice, financing and capital alternatives and similar matters,
including transactions of the type contemplated by the May Asset Purchase
Agreement. Under the PJSC Engagement Letter, Strawbridge & Clothier has paid
PJSC a retainer fee of $175,000 and is required to pay PJSC quarterly in advance
from and after February 1, 1996, additional retainer fees of $75,000 until such
time as the PJSC Engagement Letter is terminated. Pursuant to the PJSC
Engagement Letter, Strawbridge & Clothier has agreed to pay PJSC an additional
fee upon consummation of the Department Stores Sale in an amount equal to 1% of
the aggregate consideration (including debt) paid
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or payable in respect thereof (calculated as provided in the PJSC Engagement
Letter), which will be paid at the closing of the Department Stores Sale.
Strawbridge & Clothier will be entitled to credit the amount of the retainer
fees which it paid against the additional fee to be paid to PJSC in connection
with the Department Stores Sale. Strawbridge & Clothier has also agreed to
reimburse PJSC for reasonable expenses incurred by PJSC and to indemnify PJSC
against certain liabilities, including liabilities under the federal securities
law.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
HLH&Z delivered its written opinion, dated April 4, 1996, to the Strawbridge
& Clothier Board of Directors with respect to the fairness to Strawbridge &
Clothier from a financial point of view of the consideration to be received by
Strawbridge & Clothier in connection with the Clover Stores Sale. HLH&Z has
confirmed such opinion by delivery of a written opinion dated the date of this
Proxy Statement/Prospectus.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
following is a brief summary and general description of the valuation
methodologies followed by HLH&Z. The summary does not purport to be a complete
statement of the analyses and procedures applied, the judgments made or the
conclusion reached by HLH&Z or a complete description of its presentation. HLH&Z
believes, and so advised Strawbridge & Clothier, that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all factors and analyses, could
create an incomplete view of the process underlying its analyses and opinions.
In connection with its opinions HLH&Z has, among other things, (i) reviewed
Strawbridge & Clothier's annual reports to shareholders and Forms 10-K for the
fiscal years ended January 30, 1993, January 29, 1994, January 28, 1995, and
February 3, 1996, including all financial statements contained therein; (ii)
reviewed unaudited internal financial statements of the Clover Stores division
for the fiscal year ended February 3, 1996, which Strawbridge & Clothier
management identified as being the most current financial statements then
available; (iii) reviewed the Kimco Asset Purchase Agreement; (iv) met with
certain members of the senior management of Strawbridge & Clothier and the
Clover Stores division to discuss the operations, financial condition, future
prospects and projected operations and performance of the Clover Stores
division, and met with representatives of Strawbridge & Clothier's financial
advisors, accountants and counsel to discuss certain matters; (v) visited
certain facilities and business offices of Strawbridge & Clothier and the Clover
Stores division; (vi) reviewed forecasted financial statements prepared by
Strawbridge & Clothier's management with respect to the Clover Stores division
for the fiscal years 1996 through 1998; (vii) reviewed certain publicly
available financial data for certain companies that HLH&Z deemed comparable to
the Clover Stores division and publicly available prices and premiums paid in
transactions that HLH&Z considered similar to the Clover Stores Sale; and (viii)
conducted such other studies, analyses and inquiries as it deemed appropriate.
The core of HLH&Z's fairness analysis involved determining an appropriate
range of value for the Clover Stores division and comparing this range to the
consideration Strawbridge & Clothier is expected to receive in the Clover
Stores Sale. HLH&Z applied the following valuation methodologies in determining
an appropriate range of value for the Clover Stores division.
Selected Company Analysis. HLH&Z reviewed selected financial and operating
information for the Clover Stores division on a stand alone basis in comparison
with corresponding information for a group of selected public companies. The
selected companies used for comparison with the Clover Stores division were:
Ames Department Stores, Inc., Bradlees, Inc., The Caldor Corporation, Hills
Stores Company, ShopKo Stores, Inc., Value City Department Stores, Inc. and
Venture Stores, Inc. HLH&Z advised Strawbridge & Clothier that there are no
companies directly comparable to the Clover Stores division and that its
analyses had to be considered in light of that qualification. The purpose of
these analyses was to ascertain how the Clover Stores division compared to
respective peers in relation to
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certain financial indicators and based on this comparison to multiply various
measures of the Clover Stores division's earnings and cash flow by appropriate
risk-adjusted multiples to arrive at valuation indications. The financial
indicators and multiples for each of the selected companies were based on the
most recent publicly available information and selected analysts' earnings
estimates for fiscal years 1995 and 1996. With respect to the selected
companies, HLH&Z considered, among other measures, Total Invested Capital
("TIC," the summation of the current trading market value of common equity plus
the book value of the last reported preferred equity and funded debt) as a
multiple of fiscal year 1995, and estimated fiscal year 1996 EBITDA. The
analyses indicated TIC multiples of fiscal year 1995 EBITDA of 3.2x - 8.7x and
estimated fiscal year 1996 EBITDA of 2.5x - 6.1x for the selected companies.
HLH&Z applied a range of multiples of 5.5x to 6.0x to the fiscal year 1995
EBITDA for the Clover Stores division (resulting in TIC valuation indications of
$43.9 million to $47.9 million) and 3.0x - 3.5x to the estimated fiscal year
1996 EBITDA for the Clover Stores division (resulting in valuation indications
of $66.6 million to $77.7 million). HLH&Z also considered TIC as a multiple of
fiscal year 1995 revenue. The analysis indicated TIC multiples of fiscal year
1995 revenue of 0.06x - 0.46x for the selected companies. HLH&Z applied a range
of multiples of 0.10x to 0.15x to the fiscal year 1995 revenue for the Clover
Stores division (resulting in TIC valuation indications of $42.9 million to
$64.4 million). In evaluating these valuation indications HLH&Z considered,
among other things, that the Clover Stores division is materially smaller and
less geographically diversified than the selected companies.
Discounted Cash Flow Analysis. HLH&Z also utilized a discounted cash flow
approach, based on projections for the Clover Stores division on a stand alone
basis prepared by Strawbridge & Clothier's and the Clover Stores division's
management. The cash flows projected were analyzed on a "debt-free" basis
(before cash payments to equity and interest bearing debt investors) in order to
develop TIC value indications for the Clover Stores division on a stand alone
basis. A provision for the value of the Clover Stores division at the end of the
forecast period, or terminal value, was also made based on the multiples
observed for the selected companies in the Selected Company Analysis set forth
above. The present value of the cash flows and the terminal value were
determined using an appropriate range of risk-adjusted rates of return or
discount rates. The range of discount rates was developed through an analysis of
rates of return on alternative investment opportunities on investments in
companies with similar risk characteristics to the Clover Stores division on a
stand alone basis. HLH&Z applied a range of terminal multiples of 3.5x - 4.5x
terminal EBITDA and a range of discount rates of 12.0% to 16.0% which produced
TIC valuation indications of $91.5 million to $119.9 million for the Clover
Stores division. The valuation indications produced by a discounted cash flow
analysis are largely driven by the projected financial results upon which the
analysis is based. In evaluating these valuation indications HLH&Z considered
that the Clover Stores division's projected results are predicated upon
achieving substantial revenue growth and material improvement in profitability
in the excessively competitive discount sector of the retail industry, which is
dominated by multi-billion dollar national operators.
Selected Combination Analysis. HLH&Z performed analyses of certain recent
transactions involving the acquisition of discount retailers. Due to the lack of
publicly available information regarding many of the transactions reviewed,
HLH&Z determined that there was only one transaction which was relevant for
comparison with the Clover Stores division on a stand alone basis, and accord-
ingly, these analyses were not applied to arrive at a separate valuation
indication for the Clover Stores division, and were not presented to the Board
of Directors of Strawbridge & Clothier. The one transaction which was deemed
relevant was the proposed acquisition by Fred's Inc.'s of Rose's Stores Inc.
which, based on the proposed purchase price, would result in a multiple of
Rose's Stores Inc.'s fiscal year 1995 revenues of approximately 0.12x. Applying
the 0.12x revenue multiple to the fiscal year 1995 revenue of the Clover Stores
division of $429.4 million yields a TIC valuation indication of $51.5 million.
Due to the applicability and recent date of this transaction, HLH&Z weighted
this valuation indication heavily in its analysis.
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Break Up Analysis. HLH&Z also performed an analysis of the value which could
be achieved by the Clover Stores division if it were to (i) liquidate its
working capital and (ii) sell its real estate assets. With respect to the
liquidation of the Clover Stores division's working capital, HLH&Z reviewed
several proposals for the purchase of the Clover Stores division's inventory and
fixtures which were obtained by Strawbridge & Clothier in connection with its
review of strategic alternatives and assumed all accounts receivables, accounts
payable and accrued liabilities would be settled at their carrying value. In
determining an appropriate range of value for the Clover Stores division's real
estate assets, HLH&Z relied on analyses similar to the Discounted Cash Flow
Analysis and Selected Combination Analysis set forth above used in the valuation
of the Clover Stores division on a stand alone basis. In the discounted cash
flow analysis HLH&Z calculated the present value of the Clover Store Properties'
expected future cash flows. The expected future cash flows for the Clover Store
Properties were based on estimates provided by Strawbridge & Clothier's
management. In determining a range of value for the Clover Store Properties
HLH&Z considered several scenarios whereby the vacancy period for the Clover
Store Properties and the discount rates used to present value the expected cash
flows were varied. In applying the Selected Combination Analysis HLH&Z
considered the price paid per square foot in several recent real estate
transactions and then determined an appropriate range of price per square foot
for the Clover Store Properties. By multiplying this range of price per square
foot by the total square footage of the Clover Store Properties, HLH&Z arrived
at a range of value for a fee simple ownership position in the Clover Store
Properties. HLH&Z then subtracted the present value of the Clover Stores
division's mortgage and lease obligations to arrive at the net value of the
Clover Stores division's ownership position in the Clover Store Properties.
These analyses were prepared solely for the purposes of HLH&Z providing its
opinion and are not appraisals or representations of prices at which the Clover
Stores division may actually be sold. Analyses based on forecasts of future
results are not necessarily indicative of actual future results, which may be
more or less favorable than suggested by such analyses. These analyses are based
upon numerous factors and events that are beyond the control of the parties and
their respective advisors.
HLH&Z has not independently verified the accuracy and completeness of the
information supplied to it with respect to the Clover Stores division and does
not assume responsibility with respect to such information. HLH&Z has not made
any detailed physical inspection or independent appraisal of any of the
properties or assets of the Clover Stores division. HLH&Z's opinion is
necessarily based on business, economic, market and other conditions as they
existed and could be evaluated by it at the date of its opinion.
HLH&Z is a nationally recognized investment banking firm with special
expertise in, among other things, valuing businesses and securities and
rendering fairness opinions. HLH&Z is continually engaged in the valuation of
businesses and securities in connection with mergers and acquisitions, corporate
reorganizations, leveraged buyouts, private placements of debt and equity,
employee stock ownership plans, corporate and other purposes. Strawbridge &
Clothier selected HLH&Z because of its experience with analyzing distressed and
discount retailers and expertise in performing valuation and fairness analysis.
HLH&Z does not beneficially own nor has it ever beneficially owned any interest
in Strawbridge & Clothier.
THE FULL TEXT OF THE OPINION OF HLH&Z DATED THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITS ON THE REVIEW UNDERTAKEN BY HLH&Z IN RENDERING ITS OPINION, IS
ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX F AND IS INCORPORATED BY
REFERENCE HEREIN. SHAREHOLDERS ARE ENCOURAGED TO READ THE OPINION OF HLH&Z IN
ITS ENTIRETY. HLH&Z'S OPINION IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW, OF THE CLOVER STORES SALE AND DOES NOT CONSTITUTE A
RECOMMENDATION CONCERNING THE CLOVER STORES SALE. THE SUMMARY OF THE OPINION OF
HLH&Z SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
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HLH&Z was retained by Strawbridge & Clothier to analyze the fairness of the
consideration to be received by Strawbridge & Clothier in connection with the
Clover Stores Sale from a financial point of view. Strawbridge & Clothier has
paid HLH&Z a fee of $65,000 plus its reasonable out-of-pocket expenses incurred
in connection with the rendering of a fairness opinion. Strawbridge & Clothier
has further agreed to provide for the indemnification of HLH&Z against certain
liabilities and expenses in connection with the rendering of its services.
THE DEPARTMENT STORES SALE
THE MAY ASSET PURCHASE AGREEMENT. The following is a summary of the material
provisions of the May Asset Purchase Agreement, a copy of which is attached to
this Proxy Statement/Prospectus as Annex B and incorporated by reference herein.
Capitalized terms which are not otherwise defined in this summary have the
meanings set forth in the May Asset Purchase Agreement. The following
description of the May Asset Purchase Agreement is qualified in its entirety by
reference to the full text of the May Asset Purchase Agreement.
General. The May Asset Purchase Agreement provides for the acquisition by
May New York, subject to the satisfaction or waiver of all of the conditions
specified therein, of the Department Store Assets and some or all of the
Disposition Proceeds in exchange for the assumption by May New York of the
Assumed Department Store Liabilities and the issuance and delivery by May of the
Stock Consideration.
On the First Closing Date, Strawbridge & Clothier will sell to May New York
all of the Department Store Assets, May will deliver to Strawbridge & Clothier
4,200,000 shares of May Common Stock, subject to adjustment (the First Closing
Stock Consideration), and May New York will assume the Assumed Department Store
Liabilities. May New York will not assume or otherwise be liable or responsible
for any liabilities or obligations of Strawbridge & Clothier except to the
extent provided with respect to the Assumed Department Store Liabilities.
Subject to the continued satisfaction of the conditions to the respective
obligations of May New York and Strawbridge & Clothier and to the existence of
the Second Closing Cash Amount, a Second Closing will occur on the Second
Closing Date (to be no sooner than 30 days following the First Closing Date nor
later than the business day preceding the first anniversary of the First Closing
Date), at which time Strawbridge & Clothier will sell to May New York the Second
Closing Cash Amount and in consideration therefor May will deliver to
Strawbridge & Clothier the Second Closing Stock Consideration.
The Stock Consideration. Pursuant to the terms of the May Asset Purchase
Agreement, the First Closing Stock Consideration will be a number of shares of
May Common Stock calculated to be:
The sum of
(i) the quotient determined by dividing
(a) the sum of:
(I) the net working capital amount of the Department Stores
division as of the Effective Time (see "THE ASSET SALES AND
LIQUIDATION TRANSACTIONS--The Liquidation--Strawbridge &
Clothier's Estimate of Liquidation Distributions"), and
(II) the amount attributed to non-current assets,
minus the Assumed Long-Term Liabilities Amount, by
(b) $47.875 (the closing price per share of May Common Stock as
reported on the NYSE Consolidated Tape on April 3, 1996), and
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(ii) the quotient determined by dividing
(a) the product of the number of shares of Payless which would have
been distributed in respect of the number of shares of May Common
Stock determined pursuant to clause (i) multiplied by $28.75 (the
closing price per share of Payless common stock as reported on
the NYSE Consolidated Tape on May 9, 1996), by
(b) $47.875.
On the First Closing Date, May will issue and deliver (i) 3,570,000 shares
of May Common Stock (the "First Closing Estimated Stock Delivery") to
Strawbridge & Clothier and (ii) 630,000 shares of May Common Stock (the
"Escrowed Stock Consideration") to an escrow agent to be held in escrow pending
the determination of the First Closing Stock Consideration. The May Asset
Purchase Agreement requires Strawbridge & Clothier to prepare and deliver to May
New York, within 60 days following the First Closing Date, a preliminary balance
sheet for the Department Stores division of Strawbridge & Clothier as of the
Effective Time and certain other calculations, including schedules setting forth
the Closing Balance Sheet Net Working Capital Amount and the Assumed Long-Term
Liabilities Amount. After the acceptance by May New York of such schedules, or
the resolution of all disputes in connection therewith, the First Closing Stock
Consideration shall be jointly calculated by May New York and Strawbridge &
Clothier and compared to the sum of the First Closing Estimated Stock Delivery
and the Escrowed Stock Consideration. If the First Closing Stock Consideration
is: (a) greater than such sum, then all of the Escrowed Stock Consideration
shall be delivered to Strawbridge & Clothier and May shall issue directly to
Strawbridge & Clothier the balance of the undelivered First Closing Stock
Consideration; (b) exceeds the First Closing Estimated Stock Delivery by a
number of shares that is less than the Escrowed Stock Consideration, then a
portion of the Escrowed Stock Consideration equal to such excess, if any, shall
be delivered to Strawbridge & Clothier with the balance of the Escrowed Stock
Consideration delivered to May; or (c) less than the First Closing Estimated
Stock Delivery, then all of the Escrowed Stock Consideration shall be delivered
to May and Strawbridge & Clothier shall return to May a number of shares of May
Common Stock equal to the difference between the First Closing Estimated Stock
Delivery and the First Closing Stock Consideration.
The "Assumed Long-Term Liabilities Amount" includes (i) the outstanding
principal amounts as of the Effective Time of Strawbridge & Clothier's 9.2%
Series A Senior Notes due 2004, 9.0% Series B Senior Notes due 1999, 7.04%
Senior Notes due 1997, 10.0% Mortgage Note due 2007, 8.75% S&C Echelon Mortgage
Note due 1997, in each case increased by any prepayment penalties or charges
that would be required if May New York were to elect to prepay such obligations
as of the Effective Time, (ii) the amount required to be deposited to defease
Strawbridge & Clothier's 6.625% Notes due 2003, including all fees, costs and
expenses of the trustee, plus $40,000, (iii) the amount of any payment necessary
to cause the customer accounts receivable to be transferred to May New York free
and clear of all liens, and (iv) the present value (at an annual discount rate
of 9%) of all rental payments under the leases for the Department Stores.
On the Second Closing Date, to the extent there are Disposition Proceeds,
May will issue and deliver the Second Closing Stock Consideration to Strawbridge
& Clothier.
Representations and Warranties. The May Asset Purchase Agreement contains
various representations and warranties of the parties thereto. The May Asset
Purchase Agreement includes representations and warranties by Strawbridge &
Clothier as to, among other things, (i) its corporate organization, standing and
power, (ii) the due authorization and enforceability of the May Asset Purchase
Agreement and the Escrow Agreement, (iii) the capitalization of the Department
Store Subsidiaries, (iv) the absence of any conflict with its organizational
documents or with certain contracts or with applicable law, (v) the accuracy of
Strawbridge & Clothier's financial statements and information contained in
certain filings of Strawbridge & Clothier with the Commission, (vi) the conduct
of Strawbridge & Clothier's business in the ordinary course and the absence of
certain changes since February 3, 1996, (vii) the absence of any undisclosed
liabilities or obligations that are Assumed
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Department Store Liabilities, (viii) the absence of any pending or threatened
litigation, (ix) payment of taxes, (x) validity of title and certain other
matters relating to the Department Store Real Property, the Department Store
Assets and the Department Store Leases, (xi) the validity of, and absence of
defaults with respect to, the Other Department Store Contracts, (xii) certain
matters relating to the Department Store Inventory, (xiii) intellectual property
matters, (xiv) employee benefit plans and employee related agreements of
Strawbridge & Clothier, (xv) accounts receivable, (xvi) the assets necessary to
the business of the Department Stores, (xvii) the accuracy of any information
provided by Strawbridge & Clothier for inclusion or incorporation by reference
in this Proxy Statement/Prospectus, the Registration Statement or certain other
documents, (xviii) brokers and finders retained by Strawbridge & Clothier, (xix)
the inapplicability of the PBCL anti-takeover provisions to the transactions
contemplated by the May Asset Purchase Agreement, (xx) the voting requirement
necessary for Strawbridge & Clothier shareholders to approve the transactions
contemplated by the May Asset Purchase Agreement, (xxi) labor matters, (xxii)
the validity, enforceability and sufficiency of insurance policies, (xxiii)
environmental matters relating to the Department Store Assets, and (xxiv) the
accuracy of, and absence of any material undisclosed fact in, the
representations and warranties made in the May Asset Purchase Agreement and
statements made in certain other documents by Strawbridge & Clothier.
The May Asset Purchase Agreement also includes representations and
warranties by May New York as to, among other things, (i) its corporate
organization, standing and power, (ii) its capitalization, (iii) the ownership
of shares of May New York's subsidiaries and the corporate organization,
standing and power of May New York's Significant Subsidiaries, (iv) the due
authorization and enforceability of the May Asset Purchase Agreement and the
Escrow Agreement, (v) the absence of any conflict with its organizational
documents or with certain contracts or with applicable law, (vi) the accuracy of
May New York's financial statements and information contained in certain filings
of May New York with the Commission, (vii) the conduct of May New York's
business in the ordinary course and the absence of certain changes since January
28, 1995, (viii) the absence of any undisclosed liabilities or obligations, (ix)
the absence of any pending or threatened litigation, (x) payment of taxes, (xi)
employee benefit plans of May New York, (xii) the accuracy of any information
provided by May New York for inclusion or incorporation by reference in this
Proxy Statement/Prospectus or the Registration Statement, (xiii) brokers and
finders retained by May New York, and (xiv) the ownership of Strawbridge &
Clothier Common Stock.
Mutual Covenants. The May Asset Purchase Agreement requires that both May
New York and Strawbridge & Clothier, among other things, (i) cooperate with each
other and use all reasonable efforts to have the Proxy Statement/Prospectus
prepared, filed and cleared with the Commission as promptly as practicable after
filing, (ii) use all reasonable efforts to have the Registration Statement
declared effective under the Securities Act, (iii) mail this Proxy
Statement/Prospectus to the shareholders of Strawbridge & Clothier as of the
Record Date as promptly as practicable after this Proxy Statement/Prospectus has
been cleared by the Commission and the Registration Statement has been declared
effective under the Securities Act, (iv) take such actions as reasonably may be
required to be taken under applicable "blue sky" laws in connection with the
issuance of the Stock Consideration, (v) use their respective reasonable best
efforts to obtain all consents and approvals required in connection with, and
waivers of any violations, breaches and defaults that may be caused by, the
consummation of the transactions contemplated by the May Asset Purchase
Agreement or the Escrow Agreement, (vi) cooperate with each other to make any
required filings and any other submissions required by applicable laws and
regulations with respect to the transactions contemplated by the May Asset
Purchase Agreement or the Escrow Agreement, (vii) use their respective
reasonable best efforts to take all actions necessary, proper or advisable under
applicable laws and regulations, including the PBCL, to consummate the
transactions contemplated by the May Asset Purchase Agreement and the Escrow
Agreement, to continue to take any such further action if necessary or desirable
after the Effective Time, and to provide assurance that neither party will
knowingly take any action (or knowingly fail to take any action) to jeopardize
the Department Stores Sale and the Liquidation to qualify as a Reorganization,
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and (viii) consult with each other prior to the issuance or publication of any
press release with respect to the May Asset Purchase Agreement, the Escrow
Agreement or the transactions contemplated thereby.
Covenants of Strawbridge & Clothier. Pursuant to the May Asset Purchase
Agreement, Strawbridge & Clothier has agreed, among other things, (i) to cause
the Department Stores division to conduct its business and operations according
to its ordinary and usual course of business, from the date of the May Asset
Purchase Agreement to the Effective Time, (ii) to use its best efforts to
consummate the Disposition from the date of the May Asset Purchase Agreement
until the Second Closing Date, (iii) to pay or satisfy any liabilities or
obligations arising from or otherwise attributable to the Disposition that
become due on or prior to either the First Closing Date or the Second Closing
Date, as provided in the May Asset Purchase Agreement, (iv) to establish an
adequate reserve for any known, actual or contingent liabilities or obligations
of Strawbridge & Clothier or any of its Subsidiaries arising from or
attributable to the Disposition, which reserve shall become part of the
Liquidating Trust, (v) from the date of the May Asset Purchase Agreement to the
Effective Time, to allow May New York to locate one or more representatives at
the headquarters of the Department Stores division, cause the representatives of
Strawbridge & Clothier and the Department Stores division to consult as
requested by May New York with such representatives of May New York, allow
representatives of May New York to investigate the business and operations of
the Department Stores division, the Department Store Assets and the Assumed
Department Store Liabilities, and permit representatives of May New York to have
access to the Department Store Records and Files, and all other books and
records of Strawbridge & Clothier, (vi) to take all action necessary in
accordance with applicable law and the Strawbridge & Clothier Charter and the
By-Laws of Strawbridge & Clothier (the "Strawbridge & Clothier By-Laws"), to
promptly hold a shareholder meeting for the purpose of obtaining shareholder
approval of the Liquidation, and use its reasonable best efforts to solicit from
its shareholders proxies in favor of its recommended proposal to approve the
Liquidation, (vii) not to initiate or solicit any Acquisition Proposal, (viii)
to effect the Liquidation within 12 months after the First Closing Date and
establish the Liquidating Trust in accordance with the terms contained in the
May Asset Purchase Agreement, (ix) to file all necessary Tax Returns and other
documentation with respect to, and pay, all sales and transfer taxes and fees
incurred in connection with the transactions contemplated by the May Asset
Purchase Agreement, except as otherwise provided therein, (x) to maintain the
contract with Retail Distributors, Inc. between the Effective Time and January
15, 1997, (xi) to take all necessary actions relating to the condemnation of
Strawbridge & Clothier's distribution center, and (xii) to cause the termination
of certain Department Stores Space Leases prior to the First Closing Date.
Covenants of May New York. Pursuant to the May Asset Purchase Agreement, May
New York has agreed, among other things, (i) to use all reasonable efforts to
prepare and submit to the NYSE a listing application covering the Stock
Consideration in order to obtain approval for the listing of such shares, upon
official notice of issuance, prior to the Effective Time, (ii) to use a trade
name consisting of or containing the word "Strawbridge" following the Effective
Time to identify its traditional department store operations in the Philadelphia
area, (iii) to grant Strawbridge & Clothier a license for a period of 12 months
after the Effective Time to continue to use portions of the Main Store of
Strawbridge & Clothier for the purpose of winding up Strawbridge & Clothier's
business and (iv) to pay 50% of the first $3.4 million of transfer taxes.
Employees and Employee Plans. Pursuant to the May Asset Purchase Agreement,
May New York will, among other things, (i) extend an offer of employment to
certain of Strawbridge & Clothier's employees, including its sales associates
and their supervisory personnel in the Department Stores, effective as of the
Effective Time, upon such terms and conditions as May New York shall determine,
(ii) not assume nor have any responsibility for any collective bargaining
agreements, and (iii) not adopt nor have any responsibility for any of
Strawbridge & Clothier's severance plans nor assume any obligations with respect
to any Multiemployer Plan.
Pursuant to the May Asset Purchase Agreement, Strawbridge & Clothier will,
among other things, (i) retain responsibility for any and all obligations under
Strawbridge & Clothier's Employee Welfare
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Benefit Plan, any and all claims for worker's compensation, unemployment
compensation and other government mandated benefits, and for "continuation
coverage" obligations under its group health plans, (ii) maintain Strawbridge &
Clothier's current 401(k) Retirement Savings Plan and Employee Pension Benefit
Plan until the First Closing, (iii) administer and be liable for the payment of
benefits under the Strawbridge & Clothier Deferred Compensation Plan (as
hereinafter defined) that are accrued prior to the Effective Time and that are
due before the Effective Time, and (iv) administer and be liable for the payment
of claims for benefits "incurred" before the Effective Time under the Retiree
Health Plan.
Pursuant to the May Asset Purchase Agreement, Strawbridge & Clothier may
elect to cause May New York, upon notice delivered 20 business days prior to the
First Closing, (i) to fund the trust for the Strawbridge & Clothier Deferred
Compensation Plan at the Effective Time, in which event "other current
liabilities" for purposes of the calculation of the net working capital amount
of the Department Stores division as of the Effective Time shall be increased by
an additional $2,500,000 and (ii) to assume the administration and the liability
for the payment of claims for benefits "incurred" under the Retiree Health Plan
after the Effective Time, in which event "other current liabilities" for
purposes of the calculation of the net working capital amount of the Department
Stores division as of the Effective Time shall be increased by $34,500,000.
Strawbridge & Clothier has notified May New York that it will not make either
such election. In addition, "other current liabilities" will also be increased
for purposes of such calculation by the total compensation of 18 current
executive officers who have employment contracts with Strawbridge & Clothier and
who elect to terminate such contracts and execute consulting contracts with May
New York for a like term and compensation amounts. Strawbridge & Clothier has
notified May New York that none of such executive officers has indicated that
they will terminate such contracts and enter into consulting agreements with May
New York. See "EXECUTIVE COMPENSATION--Employment Agreements and Consulting
Arrangement."
Conditions to the Obligations of Each Party. The respective obligations of
each party to effect the transactions contemplated by the May Asset Purchase
Agreement are subject to the fulfillment at or prior to the First Closing Date
and the Second Closing Date, as applicable, of each of the following conditions:
(i) the Department Stores Sale and the Liquidation shall have been
approved by the shareholders of Strawbridge & Clothier by the vote required
by the PBCL and by Strawbridge & Clothier's Charter and By-Laws;
(ii) all waiting periods (and any extension thereof) applicable to the
consummation of the transactions contemplated to occur at the First Closing
and the Second Closing under the HSR Act shall have expired or been earlier
terminated;
(iii) no preliminary or permanent injunction or other order, decree or
ruling issued by a Government nor any statute, rule, regulation or executive
order promulgated or enacted by a Government shall be in effect which would
prevent the consummation of the transactions contemplated by the May Asset
Purchase Agreement or the Escrow Agreement;
(iv) the Registration Statement shall be effective under the Securities
Act, and no "stop order" shall have been issued with respect to the
Registration Statement, and no proceeding for such purpose shall have been
commenced;
(v) the May Common Stock constituting the Stock Consideration shall have
been approved for listing by the NYSE, subject to official notice of
issuance;
(vi) all licenses, permits, consents, approvals, waivers,
authorizations, qualification and orders of any Government and parties to
any contracts and leases with Strawbridge & Clothier as are necessary in
connection with the consummation of the transactions contemplated by the May
Asset Purchase Agreement or the Escrow Agreement shall have been obtained;
and
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(vii) Strawbridge & Clothier shall have received the written opinion of
Morgan, Lewis & Bockius LLP to the effect that the transactions contemplated
in the May Asset Purchase Agreement qualify as a Reorganization.
The waiting period under the HSR Act with respect to the Department Stores
Sale expired at 11:59 p.m. on May 19, 1996.
Conditions to Strawbridge & Clothier's Obligations. In addition, the
obligation of Strawbridge & Clothier to effect the transactions contemplated to
occur at the First Closing is also subject to each of the following conditions:
(i) May New York shall in all material respects have performed each obligation
to be performed by it under the May Asset Purchase Agreement on or prior to the
First Closing Date, (ii) the representations and warranties of May New York set
forth in the May Asset Purchase Agreement shall be true and correct in all
material respects at and as of the First Closing Date, and (iii) May New York
shall have delivered such certificates as are reasonably requested by
Strawbridge & Clothier certifying the satisfaction of the foregoing conditions.
The obligation of Strawbridge & Clothier to effect the transactions contemplated
to occur at the Second Closing is subject to the continued satisfaction of the
foregoing conditions.
Conditions to May New York's Obligations. In addition, the obligation of May
New York to effect the transactions contemplated to occur at the First Closing
is also subject to each of the following conditions: (i) Strawbridge & Clothier
shall in all material respects have performed each obligation to be performed by
it under the May Asset Purchase Agreement on or prior to the First Closing Date,
(ii) the representations and warranties of Strawbridge & Clothier set forth in
the May Asset Purchase Agreement shall be true and correct in all material
respects at and as of the First Closing Date, (iii) Strawbridge & Clothier shall
have delivered such certificates as are reasonably requested by May New York
certifying the satisfaction of the foregoing conditions, (iv) Strawbridge &
Clothier shall have delivered to May New York estoppel certificates from all
parties to the material Department Stores Contracts that are not inconsistent
with Strawbridge & Clothier's representations and warranties set forth in the
May Asset Purchase Agreement and that do not disclose any defaults by
Strawbridge & Clothier thereunder, (v) a title company reasonably acceptable
both to May New York and Strawbridge & Clothier shall have issued to May New
York commitments for the Department Store Premises reasonably acceptable to May
New York and consistent with the provisions of the May Asset Purchase Agreement,
and (vi) prior to the First Closing Date, Strawbridge & Clothier shall have
taken all steps necessary to consummate the Department Stores Sale and the
Liquidation other than the filing of the Articles of Dissolution of Strawbridge
& Clothier in the Pennsylvania Department of State each in a form and by a
method acceptable to May New York. The obligation of May New York to effect the
transactions contemplated to occur at the Second Closing is subject to the
continued satisfaction of the foregoing conditions.
Termination. The May Asset Purchase Agreement may be terminated and the
transactions contemplated thereby may be abandoned at any time prior to the
Effective Time:
(i) by mutual consent of Strawbridge & Clothier and May New York;
(ii) by May New York, if there has been a material violation or breach
by Strawbridge & Clothier of any agreement, representation or warranty
contained in the May Asset Purchase Agreement which has rendered the
satisfaction of any condition to the obligations of May New York impossible
and such violation or breach has not been waived by May New York;
(iii) by Strawbridge & Clothier, if there has been a material violation
or breach by May New York of any agreement, representation or warranty
contained in the May Asset Purchase Agreement which has rendered the
satisfaction of any condition to the obligation of Strawbridge & Clothier
impossible and such violation or breach has not been waived by Strawbridge &
Clothier;
(iv) by either Strawbridge & Clothier or May New York, if a Government
shall have issued an order, decree or ruling or promulgated or enacted any
statute, rule, regulation or executive order, in each case, permanently
restraining, enjoining or otherwise prohibiting the transactions
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contemplated by the May Asset Purchase Agreement; provided, that any such
order, decree or ruling shall have become final and nonappealable;
(v) by either Strawbridge & Clothier or May New York, if at the Annual
Meeting the Department Stores Sale, the Liquidation or any other
transactions contemplated by the May Asset Purchase Agreement that are
required to be approved by the Strawbridge & Clothier shareholders shall
fail to be approved by such shareholders by the vote required by the PBCL
and the Strawbridge & Clothier Charter;
(vi) by May New York, if Strawbridge & Clothier shall have (a)
withdrawn, modified or amended in any respect its approval or recommendation
of the Liquidation Proposal or the other transactions contemplated by the
May Asset Purchase Agreement that are required to be approved by the
Strawbridge & Clothier shareholders, (b) failed to include in the Proxy
Statement/Prospectus such recommendation (including the recommendation that
the shareholders of Strawbridge & Clothier vote in favor of the Liquidation
Proposal), (c) taken any public position inconsistent with such
recommendation, or (d) if the Board of Directors of Strawbridge & Clothier
shall have resolved to do any of the foregoing; and
(vii) by either Strawbridge & Clothier or May New York, if through no
fault of the party electing to terminate, the Effective Time has not
occurred on or before September 30, 1996.
Survival of Representations and Warranties. None of the representations and
warranties made in the Asset Purchase Agreement shall survive the Effective Time
for a period of more than 12 months.
Costs and Expenses. All legal and other costs and expenses incurred in
connection with the May Asset Purchase Agreement and the transactions
contemplated thereby shall be paid by the party incurring such expenses.
THE OPTION AGREEMENT. The following is a summary of the material provisions
of the Option Agreement, a copy of which is attached as Exhibit A to the May
Asset Purchase Agreement and incorporated by reference herein. Capitalized terms
which are not otherwise defined in this summary have the meanings set forth in
the Option Agreement. The following description of the Option Agreement is
qualified in its entirety by reference to the full text of the Option Agreement.
General. As a condition to May New York's willingness to enter into the May
Asset Purchase Agreement, May New York required the Option Sellers to enter into
the Option Agreement with May. Pursuant to the Option Agreement, the Option
Sellers granted to May New York the Option to purchase any or all of the Option
Stores. The consideration for each of the Option Stores is the assumption by May
New York of the Option Store Liabilities relating to each such Option Store and
with respect to each such Option Store, the payment of the following amounts:
Willow Grove Park-- $18,960,000; Cherry Hill Mall--$20,640,000; Concord
Mall--$12,480,000 less the present value (using an annual discount rate of 9%)
of all rental payments under the lease for such store; and Concord Mall home
furnishings store--$4,160,000 less the present value (using an annual discount
rate of 9%) of all rental payments under the lease for such store. In connection
with the Option Agreement, May New York and the Option Sellers executed an
escrow agreement, dated as of April 19, 1996, which provides that the Option
Sellers, at the request of May New York, will deliver to the escrow agent
executed copies of the transfer documents set forth in the Option Agreement
relating to the Option Store Assets.
Exercise of Option. May New York is entitled to exercise the Option as to
any or all of the Option Stores upon the occurrence of one or more of the
following events: (i) the acquisition of the beneficial ownership by any person,
entity or group (as such terms are used in the Exchange Act) other than May New
York or any of its affiliates of 25% or more of the voting power of the
outstanding shares of the Strawbridge & Clothier Common Stock on a fully diluted
basis; or (ii) the execution by the Option Sellers of an agreement relating to,
or the consummation of, a merger, consolidation or other similar business
combination of the Option Sellers; or (iii) the termination of the May Asset
Purchase Agreement pursuant to clauses (ii), (v) or (vi) set forth herein under
"THE ASSET SALES AND
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LIQUIDATION TRANSACTIONS--The Department Stores Sale--The May Asset Purchase
Agreement--Termination." An Option Store Closing shall be subject to the
expiration or early termination of the waiting period under the HSR Act, if
applicable, and the obtaining of any other required regulatory approvals. If the
Option is exercised in full or in part, May New York shall deliver to the Option
Sellers the Purchase Price of any or all of the Option Stores as to which the
Option is exercised by May New York and the Option Sellers shall sell, transfer,
convey, assign and deliver to May New York the Option Store Assets and May New
York shall assume the Option Store Liabilities.
Representations and Warranties. The Option Agreement contains various
representations and warranties of the parties thereto. The Option Agreement
includes representations and warranties by the Option Sellers as to, among other
things, (i) the due authorization and enforceability of the Option Agreement,
(ii) its corporate organization, standing and power, (iii) the absence of any
conflict with its organizational documents or with certain contracts, (iv) the
validity of title to the Option Store Assets, and (v) the accuracy and
completeness of all environmental reports that affect any of the Option Store
Assets.
The Option Agreement also includes representations and warranties by May New
York as to, among other things, (i) the due authorization and enforceability of
the Option Agreement and (ii) its corporate organization, standing and power.
Covenants of the Option Sellers. Pursuant to the Option Agreement, the
Option Sellers have agreed that they shall, until the Option Store Closing or
the termination of the Option Agreement, and shall cause each of their
affiliates to, among other things, (i) operate and maintain the Option Stores
only in the usual, regular and ordinary course, (ii) not pledge, sell, lease,
transfer, dispose of or otherwise encumber (or enter into any agreement
therefor) all or any part of the Option Store Assets consisting of real estate
or interests in real estate or other fixed assets in a manner inconsistent with
the continued operation of the Option Stores in a manner consistent with past
practice, (iii) maintain insurance on the Option Store Assets, notify May New
York of any loss relating to the Option Store Assets which is equal to or
greater than $200,000 and name May New York as loss payee on all fire and
casualty policies that provide coverage for the Option Stores, (iv) maintain all
books, accounts and records relating to the Option Stores in the usual, regular
and ordinary manner, (v) promptly advise May New York of any material adverse
change relating to any of the Option Stores, (vi) use its reasonable best
efforts to comply in all material respects with the laws applicable to the
conduct of the Option Stores, (vii) promptly notify May New York of any legal
proceedings relating to the Option Stores, and (viii) not take or omit to take
any action nor enter into any agreement that would frustrate the purpose of the
Option Agreement or prevent or disable Strawbridge & Clothier from selling or
delivering the Option Store Assets to May New York upon exercise of the Option
or otherwise performing its obligations under the Option Agreement.
Survival of Covenants, Representations and Warranties. Under the Option
Agreement, all the covenants, representations and warranties contained therein
shall survive the Option Store Closing and shall be deemed to be made as of the
date of the execution of the Option Agreement and of the Option Store Closing.
Termination. The Option expires on the earlier of the Effective Time, the
date the May Asset Purchase Agreement has been terminated by mutual consent of
Strawbridge & Clothier and May New York or by Strawbridge & Clothier due to a
material violation or breach by May New York, or at certain other specified
times following certain other events or following the termination of the May
Asset Purchase Agreement as a result of certain other occurrences.
Costs and Expenses. All legal and other costs and expenses incurred in
connection with the Option Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses.
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THE CLOVER STORES SALE
The following is a summary of the material provisions of the Kimco Asset
Purchase Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Annex C and incorporated by reference herein.
Capitalized terms which are not otherwise defined in this summary have the
meanings set forth in the Kimco Asset Purchase Agreement. The following
description of the Kimco Asset Purchase Agreement is qualified in its entirety
by reference to the full text of the Kimco Asset Purchase Agreement.
General. The Kimco Asset Purchase Agreement provides for the acquisition by
Kimco, subject to the satisfaction or waiver of all of the conditions thereto,
of the Clover Store Assets in exchange for the assumption by Kimco of the
Assumed Clover Stores Liabilities and the payment by Kimco to Strawbridge &
Clothier of $40,000,000, subject to adjustment.
The Kimco Asset Purchase Agreement allows Kimco to assign its right to
acquire ownership of one or more of the Clover Store Properties to certain
Permitted Designees. Kimco has thus far elected to assign to Kohl's Kimco's
rights to the Kohl's Properties.
The Kimco Asset Purchase Agreement provides that the Clover Stores Sale may
be completed in multiple closings based on the satisfaction of certain closing
conditions with respect to each Clover Store Property to be sold. The First
Clover Closing will take place on the first business day following the approval
of the Liquidation by the shareholders of Strawbridge & Clothier; provided,
however, that the First Clover Closing Date shall be adjourned until a date five
business days after all closing conditions have been met or waived with respect
to at least two-thirds of the Clover Store Properties (including at least all
but two of the Kohl's Properties) as to which no third party has exercised a
valid right of first refusal or other right with respect to the sale of the
property. Thereafter, Clover Closing Dates will occur on a property-by-property
basis on the fifth business day following the date on which the closing
conditions are met or waived as to each Clover Store Property unless such
property is a Kohl's Property and such fifth business day occurs after October
15, 1996, then the closing will occur on the 30th day following the satisfaction
or waiver of all such conditions. The Kimco Asset Purchase Agreement provides
that Kimco will not assume or otherwise be liable for any obligations of
Strawbridge & Clothier other than the Assumed Clover Stores Liabilities.
Representations and Warranties. The Kimco Asset Purchase Agreement contains
representations and warranties by Strawbridge & Clothier relating to, among
other things, (i) its proper organization, powers and qualifications and similar
corporate matters, (ii) the authorization, performance and enforceability of the
Kimco Asset Purchase Agreement, (iii) governmental authorizations required to
effect the Clover Stores Sale, (iv) the absence of material adverse changes, (v)
the completeness and correctness of the schedules of Clover Store Properties and
the validity of the Clover Leases and Clover Space Leases, (vi) the condition of
title to the Clover Store Properties, (vii) the condition of the Clover Store
Assets, (viii) the absence of any notice of condemnation, of violation of any
law or of the making of any condominium assessments, (ix) the completeness and
correctness of the schedule of certain operating and reciprocal easement
agreements, as well as certain other agreements pertaining to the Clover Store
Assets or the Assumed Clover Stores Liabilities that will not be terminated by
Strawbridge & Clothier at or prior to a Clover Closing Date (the "Other Clover
Agreements"), (x) litigation and claims concerning the Clover Store Assets or
the Assumed Clover Stores Liabilities, (xi) the ownership and validity of all
franchises, licenses, permits, consents, approvals, waivers and other
authorizations, governmental or otherwise, comprising the Clover Store Assets,
(xii) the absence of employment or severance agreements binding upon Kimco,
(xiii) the absence of brokers or financial advisors owed a commission in
connection with the Kimco Asset Purchase Agreement other than PJSC, Lehman
Brothers and HLH&Z, and (xiv) known environmental reports and conditions.
The Kimco Asset Purchase Agreement contains representations and warranties
by Kimco relating to, among other things, (i) its proper organization and powers
and similar corporate matters, (ii) the authorization, performance and
enforceability of the Kimco Asset Purchase Agreement, (iii) governmental
authorizations required to effect the Clover Stores Sale, and (iv) the absence
of brokers or financial advisors owed a commission in connection with the Kimco
Asset Purchase Agreement.
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Conduct of Business Prior to the Clover Stores Sale Closing. Strawbridge &
Clothier has covenanted to Kimco that, except as otherwise approved by Kimco,
Strawbridge & Clothier will (i) conduct and operate the business of the Clover
Stores division only in the ordinary course consistent with past practice, (ii)
neither take nor omit to take any action if the result would in its reasonable
judgment have a Material Adverse Effect, (iii) maintain the Clover Store Assets
in customary repair, order and condition, except for reasonable wear and tear
and damage by fire or other insurable casualty, (iv) not encumber or permit the
encumbrance of any of the Clover Store Assets, and (v) after expiration of
Kimco's Due Diligence Period without a termination by Kimco, Strawbridge &
Clothier will, at the request of Kimco, exercise Strawbridge & Clothier's option
to purchase fee title to the Clover Store Property located in Mercerville, New
Jersey pursuant to the terms of the lease for said property.
Certain Other Covenants. Pursuant to the Kimco Asset Purchase Agreement,
Strawbridge & Clothier has agreed that it will, among other things, pay off and
discharge at or prior to a Clover Closing Date, all liens and encumbrances,
including without limitation all industrial development bond mortgages, leases,
subleases and other encumbrances on its interest in the Clover Store Properties
which are of an ascertainable amount, unless the same are encumbrances to which
Kimco has consented. Kimco has agreed to cooperate with Strawbridge & Clothier
in the Liquidation after the Clover Closing Date, in order to establish that
Strawbridge & Clothier has provided adequate security for the payment of its
unmatured contractual obligations regarding the Assumed Clover Stores
Liabilities.
Due Diligence Period. Strawbridge & Clothier and Kimco have agreed that
until June 12, 1996 Kimco will have a Due Diligence Period, during which it will
be entitled to conduct surveys, environmental assessments and other evaluations
of the Clover Store Properties that Kimco deems necessary. Kimco has the right
to terminate the Kimco Asset Purchase Agreement in the event that the cost to
cure all of the defects in the Clover Store Properties identified during the Due
Diligence Period exceeds $1,000,000, as reasonably determined by Kimco and
Strawbridge & Clothier, unless Strawbridge & Clothier agrees in writing to a
reduction in the purchase price equal to the excess of the total cost of such
cure over $1,000,000.
Conditions to the Consummation of the Clover Stores Sale Closing. The
obligation of Kimco to consummate the Clover Stores Sale is subject to the
fulfillment at or prior to the Clover Closing Date (as to each Clover Store
Property) of the following conditions, among others: (i) the representations and
warranties of Strawbridge & Clothier shall be true and correct in all material
respects at the Clover Closing Date, (ii) the absence of any preliminary or
permanent injunction or other order, decree or ruling issued by a court or other
governmental entity and any statute, rule or regulation that would prevent the
consummation of the transactions contemplated by the Kimco Asset Purchase
Agreement, (iii) the receipt of a legal opinion of Strawbridge & Clothier's
counsel, (iv) Kimco's receipt of (a) consents, authorizations, waivers and
estoppels from landlords under the Clover Leases, from other parties to
reciprocal easement and operating or similar agreements, (b) consents and
waivers required to permit Kimco to suspend operations at certain designated
Clover Store Properties, (c) releases of any third party rights of first
refusal, recapture or other options on the Clover Store Properties, and (d) a
title insurance policy for each Clover Store Property, (v) the absence of any
termination of any Clover Space Leases, and (vi) the expiration or earlier
termination of all applicable waiting periods under the HSR Act. The parties to
the Kimco Asset Purchase Agreement have determined that the HSR Act is not
applicable to the Clover Stores Sale.
The obligation of Strawbridge & Clothier to consummate the Clover Stores
Sale is subject to the fulfillment at or prior to the Clover Closing Date (as to
each Clover Store Property) of the following conditions: (i) the representations
and warranties of Kimco shall be true and correct in all material respects at
the Clover Closing Date, (ii) the absence of any preliminary or permanent
injunction or other order, decree or ruling issued by a court or governmental
entity and any statute, rule or regulation that would prevent the consummation
of the transactions contemplated by the Kimco Asset Purchase Agreement which
would in Strawbridge & Clothier's judgment be materially adverse to its
interests, (iii) the receipt of a legal opinion of Kimco's counsel, (iv) the
approval by Strawbridge & Clothier's shareholders of the Liquidation in
conformity with the requirements of the PBCL, the Strawbridge &
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Clothier Charter and the Strawbridge & Clothier By-Laws, (v) the closing of the
Department Stores Sale, and (vi) the expiration or earlier termination of all
applicable waiting periods under the HSR Act.
Interim Lease. At the Clover Closing Date (as to each Clover Store
Property), Kimco or Kohl's, as the case may be, as landlord, shall, pursuant to
a short-term lease (the "Interim Lease"), lease to Strawbridge & Clothier, as
tenant, each of the Clover Store Properties in order to provide for the sale of
certain of the Other Clover Store Assets. The Interim Lease term for properties
other than Kohl's Properties shall commence at the Clover Closing Date and
expire October 1, 1996, subject to Strawbridge & Clothier's right to extend such
term for a limited period in certain circumstances. Interim Leases for Kohl's
Properties for which a Clover Closing Date occurs on or before October 15, 1996
may extend until a date no later than October 15, 1996. In the event the Clover
Closing Date occurs after October 15, 1996, the term of the Interim Lease for
such Kohl's Property shall expire on January 31, 1996. During the term of the
Interim Lease Strawbridge & Clothier will continue to pay and perform all of the
obligations of any applicable Clover Lease or Other Clover Agreement and must
maintain casualty insurance on each Clover Store Property leased. Strawbridge &
Clothier must pay Kimco or Kohl's, as the case may be, liquidated damages if it
fails to vacate any Clover Store Property at the expiration of the term of the
Interim Lease as to that property.
Third Party Consents. Strawbridge & Clothier and Kimco have each agreed to
use diligent, good faith efforts to obtain all consents, authorizations and
waivers of third parties that may be necessary or reasonably required to
effectuate the transactions contemplated by the Kimco Asset Purchase Agreement,
including the consents of landlords under the Clover Leases, and the parties to
all reciprocal easement and operating or similar agreements included in the
Other Clover Agreements. Strawbridge & Clothier and Kimco have also each agreed
to use diligent, good faith efforts to obtain estoppel certificates in form
reasonably satisfactory to Kimco from all landlords under the Clover Leases and
from all tenants or subtenants under the Clover Space Leases, as well as from
all parties to reciprocal easement and operating agreements included in the
Other Clover Agreements.
There can be no assurance that all necessary consents, authorizations,
waivers and estoppels can be obtained with respect to each of the Clover Store
Properties. Kimco has the right to terminate the Kimco Asset Purchase Agreement
with respect to any Clover Store Property for which a required consent,
authorization, waiver or estoppel has not been obtained, in which case there
will be an adjustment to the aggregate purchase price for the Clover Store
Assets. Certain landlords and parties to reciprocal easement and similar
agreements have raised questions with respect to the requested consents and
Strawbridge & Clothier and Kimco are conducting discussions with these parties.
There can be no assurance that necessary consents will be obtained from all such
parties.
Transfer of Rights to Purchase Individual Stores. Certain Clover Store
Properties have been identified in the Kimco Asset Purchase Agreement as "Kohl's
Properties." Kimco has the right, at any time prior to June 30, 1996, to add
Clover Store Properties to, or until the Clover Closing Date, to delete such
properties from, the list of Kohl's Properties under the Kimco Asset Purchase
Agreement. The Kimco Asset Purchase Agreement grants Kimco the right to assign
its rights and obligations with respect to the Clover Store Properties to either
Kohl's or another national or regional retailer operating at not less than 40
locations, having a net worth of not less than $300,000,000 and rated not less
than Baa1 by Moody's Investors Service, Inc., provided that such an assignee (i)
assumes in writing all of Kimco's obligations under the Kimco Asset Purchase
Agreement pertaining to the specific Clover Store Properties assigned to such
assignee, and the related Assumed Clover Stores Liabilities, (ii) enters into an
Undertaking and Indemnity Agreement with Strawbridge & Clothier with respect to
the Clover Store Properties assigned and the related Assumed Department Store
Liabilities, (iii) complies with the other closing conditions of the Kimco Asset
Purchase Agreement pertaining to the Clover Store Properties assigned, (iv)
enters into an Interim Lease with Strawbridge & Clothier with respect to the
Clover Store Properties assigned, and (v) shall have all the same rights and
obligations with regard to Strawbridge & Clothier and Strawbridge & Clothier
shall have to the assignee, as if it had been Kimco under the Kimco Asset
Purchase Agreement. Kimco may assign the right to purchase any Clover Store
Property to an assignee not meeting the criteria discussed above if the assignee
(i) satisfies conditions (i)
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through (iv) above, (ii) if such assignee is an affiliate of Kimco, then Kimco
shall have unconditionally guaranteed the obligations of the assignee in the
Undertaking and Indemnity Agreement and other relevant instruments of assumption
relating to the liabilities assumed by such affiliate, and (iii) if such
assignee is not an affiliate of Kimco, then, at or prior to the Clover Closing
Date, Kimco shall deliver to Strawbridge & Clothier written evidence that
Strawbridge & Clothier has been fully and unconditionally discharged and
released from all Assumed Clover Stores Liabilities with respect to the Clover
Store Property assigned or that Kimco has unconditionally guaranteed the
obligations of such assignee for the Clover Store Properties acquired by such
assignee.
Termination. The Kimco Asset Purchase Agreement may be terminated at any
time prior to the Clover Closing Date (i) by mutual consent of Strawbridge &
Clothier and Kimco, (ii) by Strawbridge & Clothier if the May Asset Purchase
Agreement shall have been terminated prior to the First Clover Closing, (iii) by
either Strawbridge & Clothier or Kimco if any governmental authority having
jurisdiction issues an order, ruling or enactment restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Kimco Asset Purchase
Agreement, (iv) by either Strawbridge & Clothier or Kimco if the shareholders of
Strawbridge & Clothier fail to approve the Liquidation, or (v) by either party
if, through no fault of the terminating party, the Clover Closing Date is not on
or before November 30, 1996; provided that Strawbridge & Clothier may not
terminate the Kimco Asset Purchase Agreement unless at the time of such
termination either (a) Strawbridge & Clothier shall have consummated the
Department Stores Sale or (b) the May Asset Purchase Agreement shall have been
terminated or abandoned.
Termination Fee. The Kimco Asset Purchase Agreement provides for the payment
by Strawbridge & Clothier of certain amounts to Kimco in the event that the
closing of the Clover Stores Sale does not take place. If the Kimco Asset
Purchase Agreement is terminated for any reason other than the mutual consent of
Strawbridge & Clothier and Kimco, Strawbridge & Clothier shall reimburse Kimco
$350,000, plus Kimco's actual third party costs and expenses incurred following
the execution of the Kimco Asset Purchase Agreement in Kimco's furtherance of
the transactions contemplated therein (including the costs incurred by Kohl's)
up to $1,000,000 in the aggregate (together, the "Kimco Cost Reimbursement"). If
Strawbridge & Clothier terminates the Kimco Asset Purchase Agreement due to the
termination of the May Asset Purchase Agreement or the abandonment of the
Department Stores Sale, and within 225 days thereafter (the "Restricted Period")
Strawbridge & Clothier agrees to the sale of substantially all of the assets of
its Clover Stores division other than as a going concern to a third party or for
an amount equal to or greater than $50,000,000, then Strawbridge & Clothier
shall pay to Kimco an amount equal to one-third of the amount by which the
purchase price in such a sale exceeds $40,000,000, but in any event not less
than $5,000,000, minus the Kimco Cost Reimbursement. During the Restricted
Period Kimco also enjoys a right of first offer upon any proposed sale of all or
substantially all of the Clover Store Properties for the same purchase price
that Strawbridge & Clothier is willing to sell to a third party, less a
$2,000,000 credit. This right does not apply to a sale by Strawbridge & Clothier
of less than all of the Clover Store Properties, or to the sale of the Clover
Store Properties as an ongoing business, or to any sale after the expiration of
the Restricted Period.
SALE OF OTHER CLOVER STORE ASSETS
Strawbridge & Clothier intends to sell, liquidate or otherwise dispose of
all the Other Clover Store Assets, and in connection with the disposition of the
inventory included in the Other Clover Store Assets Strawbridge & Clothier is
currently in negotiations to engage the services of one or more liquidators to
effect such sale. Pursuant to the Kimco Asset Purchase Agreement, at each Clover
Closing Date, Kimco or a Permitted Designee of Kimco will enter into the Interim
Lease with Strawbridge & Clothier to enable Strawbridge & Clothier to sell
certain of the Other Clover Store Assets at the Clover Stores. Each Interim
Lease shall commence on the respective Clover Closing Date and shall expire on
October 1, 1996, subject to Strawbridge & Clothier's right to extend such term
for a limited period in certain circumstances.
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THE LIQUIDATION
THE PLAN OF REORGANIZATION AND LIQUIDATION
The following is a summary of the material provisions of the Plan of
Reorganization and Liquidation of Strawbridge & Clothier, a copy of which is
attached to this Proxy Statement/Prospectus as Annex A and incorporated by
reference herein. Capitalized terms which are not otherwise defined in this
summary have the meanings set forth in the Plan of Reorganization and
Liquidation. The following description of the Plan of Reorganization and
Liquidation is qualified in its entirety by reference to the full text of the
Plan of Reorganization and Liquidation.
The Plan of Reorganization and Liquidation is for the purpose of effecting
the Liquidation in accordance with and pursuant to the provisions of the PBCL
and Section 368(a) of the Code. The Plan of Reorganization and Liquidation will
become effective on the date (the "Plan Effective Date") on which the
Liquidation Proposal is adopted by the requisite vote of the holders of
Strawbridge & Clothier Common Stock. As promptly as practicable after the Plan
Effective Date and upon the filing of Articles of Dissolution in the
Pennsylvania Department of State, Strawbridge & Clothier will be dissolved
pursuant to Subchapter H.
After the Plan Effective Date, Strawbridge & Clothier may not engage in any
business activities except for the purposes of (i) consummating the Asset Sales
pursuant to the May Asset Purchase Agreement and the Kimco Asset Purchase
Agreement and the disposition of the Other Clover Store Assets and the Remaining
Assets, (ii) prosecuting or defending lawsuits by or against Strawbridge &
Clothier, (iii) enabling Strawbridge & Clothier gradually to settle its affairs
and close its business, dispose of and convey its property, discharge
liabilities and wind up its business affairs, and (iv) making the Liquidating
Distribution and distributing its remaining assets, if any, in accordance with
the Plan of Reorganization and Liquidation. Strawbridge & Clothier's Board of
Directors and, at their pleasure, its officers, shall continue in office solely
for these purposes. After Articles of Dissolution are filed in the Pennsylvania
Department of State, Strawbridge & Clothier will not hold any further annual
meetings of its shareholders.
Under Subchapter H, Strawbridge & Clothier will notify potential claimants
of the dissolution, pay existing liabilities, post adequate security for
contingent liabilities as determined by Strawbridge & Clothier or by the Court
of Common Pleas of Philadelphia County and distribute any remaining shares of
May Common Stock to the holders of Strawbridge & Clothier Common Stock.
Subchapter H provides that any claims against Strawbridge & Clothier which are
not asserted within two years after the filing of the Articles of Dissolution
will be forever barred.
The Plan of Reorganization and Liquidation provides that Strawbridge &
Clothier will distribute pro rata to the holders of the Series A Common Stock
and the Series B Common Stock that portion of the shares of May Common Stock
remaining after making provision for all of its known or ascertainable
liabilities (the Liquidating Distribution). It is currently anticipated that the
Liquidating Distribution will be made in a series of distributions and is
intended to be made in shares of May Common Stock but may be made in cash or
other assets, or any combination thereof, in such manner and at such time or
times as the Board of Directors in its absolute discretion may determine.
Strawbridge & Clothier presently intends to make the Initial Distribution
promptly after the final determination of the First Closing Stock Consideration.
The remaining shares of May Common Stock not distributed to Strawbridge &
Clothier shareholders in the Initial Distribution will be held by Strawbridge &
Clothier and may be converted to cash for the purpose of paying or making
provision for all of its remaining known or ascertainable liabilities to the
extent that the Disposition Proceeds are insufficient to pay or provide for all
such liabilities. Strawbridge & Clothier intends to make a subsequent
distribution to shareholders (the Second Distribution) of shares of May Common
Stock at the time of the transfer to the Liquidating Trust of any remaining
assets of Strawbridge & Clothier as described below, and the Final Distribution
of the remaining shares of May Common Stock, if any, at
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the termination of the Liquidating Trust. Assuming the approval of the
Liquidation Proposal, Strawbridge & Clothier currently anticipates that (i) the
First Closing will occur on or about July 18, 1996, (ii) the final determination
of the First Closing Stock Consideration and the Initial Distribution will occur
by November 22, 1996, (iii) the Second Distribution will occur by July 18, 1997,
and (iv) the Final Distribution, if any, will occur by July 31, 1999. See "THE
ASSET SALES AND LIQUIDATION TRANSACTIONS--The Department Stores Sale--The May
Asset Purchase Agreement-- The Stock Consideration" and "THE ASSET SALES AND
LIQUIDATION TRANSACTIONS-- The Liquidation--Strawbridge & Clothier's Estimate of
Liquidation Distributions."
The Liquidating Distribution will be made in complete redemption and
cancellation of all outstanding shares of Strawbridge & Clothier Common Stock.
The Plan of Reorganization and Liquidation provides that the Strawbridge &
Clothier Board of Directors may direct that the Strawbridge & Clothier stock
transfer books be closed at the close of business on the record date for the
Initial Distribution or any subsequent installment of the Liquidating
Distribution. It is the present intention of the Strawbridge & Clothier Board of
Directors that the stock transfer books will not be closed until the Second
Distribution. At that time, Strawbridge & Clothier shareholders will be required
to deliver their stock certificates in exchange for receipt of that
distribution. Prior to that time, the shares of Strawbridge & Clothier Common
Stock will continue to be transferable, and the Series A Common Stock will be
traded on the Nasdaq National Market, so long as the listing requirements of the
Nasdaq National Market are met.
No fractional shares of May Common Stock will be distributed as part of the
Liquidating Distribution. Strawbridge & Clothier shareholders will receive a
cash payment in lieu of a fractional share of May Common Stock either (i) from
the proceeds of a sale on the NYSE of a sufficient number of shares of May
Common Stock to settle the aggregate amount of fractional shares to which all
Strawbridge & Clothier shareholders are entitled or (ii) if Strawbridge &
Clothier has available cash at the time of the Liquidating Distribution, in an
amount equal to the closing price of a share of May Common Stock on the NYSE on
the record date for the Liquidating Distribution multiplied by such fraction.
Subchapter H provides that if, after distributions to the Strawbridge &
Clothier shareholders, the assets of Strawbridge & Clothier are insufficient to
pay all of its liabilities, a Strawbridge & Clothier shareholder will be liable
for any claim in an amount equal to the lesser of such shareholder's pro rata
share of such claim or the amount distributed to such shareholder.
The liquidation of Strawbridge & Clothier must be completed within one year
from the First Closing Date. See "THE ASSET SALES AND LIQUIDATION
TRANSACTIONS--Certain Federal Income Tax Consequences." Accordingly, prior to
the expiration of this period, the remaining assets of Strawbridge & Clothier
will be transferred, subject to the remaining liabilities, to the Liquidating
Trust.
Notwithstanding the adoption of the Plan of Reorganization and Liquidation
by Strawbridge & Clothier's shareholders, the Strawbridge & Clothier Board may
modify or amend the Plan of Reorganization and Liquidation (including, without
limitation, proceeding under the provisions of Section 1975 of the PBCL) and,
prior to the filing of Articles of Dissolution in the Pennsylvania Department of
State, may abandon the Plan of Reorganization and Liquidation, without further
action by the shareholders to the extent permitted by the PBCL.
The Plan of Reorganization and Liquidation provides that Strawbridge &
Clothier will continue to indemnify its officers, directors, employees and
agents in accordance with applicable law, the Strawbridge & Clothier Charter and
the Strawbridge & Clothier By-Laws and any contractual arrangements for actions
taken in connection with the Plan of Reorganization and Liquidation and the
winding up of its affairs and shall indemnify any liquidating trustees and their
agents on similar terms. Strawbridge & Clothier's obligation to indemnify such
persons may be satisfied out of the assets of the Liquidating Trust. The
Strawbridge & Clothier Board of Directors and the trustees, in their absolute
discretion, are
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<PAGE>
authorized to obtain and maintain insurance for the benefit of such officers,
directors, employees, agents and trustees to the extent permitted by law.
The Plan of Reorganization and Liquidation also provides that Strawbridge &
Clothier may, in the absolute discretion of its Board of Directors, pay to any
of its officers, directors and employees compensation in addition to such
person's regular compensation, in money or property, in recognition of the
extraordinary efforts required to be undertaken in successful implementation of
the Plan of Reorganization and Liquidation. Adoption of the Plan of
Reorganization and Liquidation by the shareholders of Strawbridge & Clothier
will also constitute the approval of the shareholders of the payment of any such
compensation. The dissolution of Strawbridge & Clothier shall not subject its
directors or officers to standards of conduct different from those prescribed by
Chapter 17 of the PBCL. Compliance by Strawbridge & Clothier with Section 1997
of the PBCL shall protect the directors of Strawbridge & Clothier and the
trustee(s) of the Liquidating Trust from personal liability to the claimants of
Strawbridge & Clothier.
THE LIQUIDATING TRUST AGREEMENT
The following is a summary of the material provisions of the Liquidating
Trust Agreement, a copy of the form of which is attached to this Proxy
Statement/Prospectus as Annex 1 to the Plan of Reorganization and Liquidation
and incorporated by reference herein. Capitalized terms which are not otherwise
defined in this summary have the meanings set forth in the Liquidating Trust
Agreement. The following description of the Liquidating Trust Agreement is
qualified in its entirety by reference to the full text of the Liquidating Trust
Agreement.
If necessary for any reason to complete the liquidation and distribution of
Strawbridge & Clothier's assets to its shareholders, the Board of Directors of
Strawbridge & Clothier may at any time transfer to a liquidating trust (the
"Liquidating Trust") under a Liquidating Trust Agreement (substantially in the
form of Annex 1 referred to above) any remaining assets of Strawbridge &
Clothier which are held as a contingency reserve. The Liquidating Trust, if any,
will succeed to all of the then remaining assets of Strawbridge & Clothier,
including such contingency reserve, and any liabilities of Strawbridge &
Clothier. The sole purpose of the Liquidating Trust will be to liquidate on
terms satisfactory to the liquidating trustee(s) and to distribute the assets
formerly owned by Strawbridge & Clothier, if any, to the Beneficiaries after
paying any remaining liabilities of Strawbridge & Clothier.
The Liquidating Trust Agreement provides for two individual trustees, who
may be directors or officers of Strawbridge & Clothier. The powers, duties and
authority of the trustees will include holding title to the assets of the
Liquidating Trust, the disposition or preservation of such assets, the
prosecution or collection of any claim or contingent right of the Liquidating
Trust, the collection of proceeds and income from time to time accruing to or
otherwise payable in respect of the assets of the Liquidating Trust and the
payment of debts, liabilities and expenses. The trustees will be required to
distribute a report to the Beneficiaries as soon as practicable after the end of
each fiscal year, providing them with information concerning Liquidating Trust
income for use in preparation of their tax returns.
In the event of the resignation, removal, death, incapacity or insolvency of
a trustee, any remaining trustee then in office will appoint a successor or, if
there is no remaining trustee, the Beneficiaries may appoint a successor. Each
trustee shall be entitled to receive reasonable fees as compensation for service
as a trustee and will be reimbursed for all expenses reasonably incurred. A
trustee will not be liable for any act or omission, except for that arising from
his or her bad faith, willful misfeasance, gross negligence or reckless
disregard of duty. The trustees will be indemnified by and receive reimbursement
from the assets of the Liquidating Trust against any loss, liability or damage
which they incur, except that they will not be relieved of liability for bad
faith, willful misfeasance, gross negligence or reckless disregard of duty.
Expenses in connection with a proceeding may be paid from the Liquidating Trust
in advance of final disposition upon receipt of an undertaking to repay the
amount advanced if it shall ultimately be determined that the trustee is not
entitled to be indemnified.
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The Beneficiaries of the Liquidating Trust will be the shareholders of
Strawbridge & Clothier at the time of the establishment of the Liquidating Trust
as they appear in the records of the Liquidating Trust from time to time. The
beneficial interests in the Liquidating Trust will be evidenced only by the
trust's records, and there will be no certificates representing such interests.
The beneficial interests will not be transferable except pursuant to the laws of
descent and distribution or by operation of law.
No Beneficiary shall be liable for any claim against the Liquidating Trust,
and a Beneficiary shall be entitled to pro rata indemnity from the trust corpus
if, contrary to the provisions of the Liquidating Trust Agreement, the
Beneficiary shall be held to any such personal liability.
Meetings of the Beneficiaries may be called at any time by the trustees or
upon written request by the Beneficiaries having an aggregate beneficial
interest of more than 50% of the total beneficial interests in the Liquidating
Trust, provided that any Beneficiary may request a meeting to fill vacancies in
the trustees if the trustees fail to fill any such vacancy within 90 days.
No Beneficiary shall have any right to institute any action with respect to
the trust corpus against any party other than the trustees unless Beneficiaries
having an aggregate beneficial interest of more than 50% of the total beneficial
interests in the Liquidating Trust shall have made a written request to the
trustees to institute such action and shall have offered to the trustees
reasonable indemnity against expenses to be incurred and the trustees shall have
failed within 30 days after receipt of such request to institute any such
action.
The Liquidating Trust will continue until the first to occur of (i) the
complete distribution of the Liquidating Trust's assets or (ii) the expiration
of two years from the date of transfer of Strawbridge & Clothier's assets to the
Liquidating Trust. At the end of such period, the Liquidating Trust will be
terminated and any remaining assets will be distributed to the Beneficiaries,
after payment of, or provision for, any remaining debts, liabilities and
expenses. After the termination of the Liquidating Trust and for the purpose of
liquidating and winding up the affairs of the Liquidating Trust, the trustees
shall continue as such until their duties have been fully performed.
The Liquidating Trust Agreement may be amended (i) by the trustees to cure
any ambiguity or correct or supplement any provision which may be defective or
inconsistent with any other provision or which does not adversely affect the
interests of the Beneficiaries or in order to insure that the Liquidating Trust
qualifies as a "liquidating trust" for federal income tax purposes, and (ii) by
the consent of Beneficiaries holding more than 50% of the total beneficial
interests in the Liquidating Trust provided that no such amendment shall
adversely affect the Beneficiaries' right to receive their pro rata share of the
assets of the trust corpus at the time of distribution.
STRAWBRIDGE & CLOTHIER'S ESTIMATE OF LIQUIDATION DISTRIBUTIONS
The table below sets forth management's best estimate of the calculations
that will be necessary to determine the fraction of a share of May Common Stock
that will be distributed to Strawbridge & Clothier shareholders in the
Liquidation in exchange for each share of Strawbridge & Clothier Common Stock
they own. Because the number of shares of May Common Stock that a Strawbridge &
Clothier shareholder will receive in the Liquidation will be, in part, a
function of the number of shares of May Common Stock delivered to Strawbridge &
Clothier in the Department Stores Sale pursuant to a formula established in the
May Asset Purchase Agreement and, in part, a function of the adequacy of the
total cash proceeds generated by the Clover Stores Sale and the liquidation of
the Other Clover Store Assets and the Remaining Assets to satisfy or provide for
all outstanding liabilities and obligations of Strawbridge & Clothier which are
not being assumed by May New York or Kimco, it is not possible to predict with
certainty the per share amount to be distributed to Strawbridge & Clothier
shareholders in the Liquidation. If such cash proceeds exceed the amount of the
liabilities and obligations to be satisfied, then the excess will be available
to be exchanged for additional shares of May Common Stock (the Second Closing
Stock Consideration). If the Disposition Proceeds are less than the amount of
the liabilities and obligations required to be satisfied, then prior to
distributing all of the
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<PAGE>
Stock Consideration to shareholders, Strawbridge & Clothier will need to sell
enough shares of May Common Stock in the market at then current market prices to
obtain the cash necessary to satisfy the shortfall.
The number of shares of May Common Stock to be received by Strawbridge &
Clothier in the Department Stores Sale is primarily dependent upon the amount of
net working capital (i.e., certain short-term assets minus certain short-term
liabilities and certain other specified obligations) and the amount attributed
to non-current assets as of the Effective Time included in the Department Store
Assets and the Assumed Long-Term Liabilities Amount (the amount of the specified
long-term liabilities being assumed as of the Effective Time). Accordingly, the
number of shares of May Common Stock delivered at the First Closing for the
Department Store Assets will be based upon an estimate of the number of shares
of May Common Stock issuable by May and, it is currently anticipated that the
actual number of shares of May Common Stock required to be delivered by May
pursuant to the May Asset Purchase Agreement (the First Closing Stock
Consideration) will be determined by November 22, 1996. For a description of the
calculation of the First Closing Stock Consideration, see "THE ASSET SALES AND
LIQUIDATION TRANSACTIONS--The Department Stores Sale--The May Asset Purchase
Agreement--The Stock Consideration." Strawbridge & Clothier intends to make the
Initial Distribution of approximately 75% of the shares of May Common Stock
received in the Department Store Sale promptly after the final determination of
the First Closing Stock Consideration. Strawbridge & Clothier intends to make
the Second Distribution at the time of the transfer to the Liquidating Trust of
any remaining assets of Strawbridge & Clothier which is anticipated to occur by
July 18, 1997 and the Final Distribution, if any, at the termination of the
Liquidating Trust which is anticipated to occur by July 31, 1999.
The table below sets forth (i) the contractual formula for determining the
total number of shares of May Common Stock to be issued by May in exchange for
the Department Store Assets and the Second Closing Cash Amount (the Stock
Consideration) (followed in such case by a parenthetical reference to the
section or sections of, or schedule or schedules to, the May Asset Purchase
Agreement in which such item is set forth or established), (ii) the calculation
that will estimate whether cash proceeds from other asset sales will be adequate
to discharge the Retained Liabilities and (iii) the calculation necessary to
ascertain the fraction of a share of May Common Stock Strawbridge & Clothier has
estimated to be received by a Strawbridge & Clothier shareholder in exchange for
one share of Strawbridge & Clothier Common Stock in the Liquidation (the
Estimated Liquidation Ratio). As explained in the notes to the table below, the
amounts used to prepare these calculations are subject to assumptions and
variables which may prove to be more or less favorable to the Strawbridge &
Clothier shareholders.
The figures in the right-hand column of the table have been provided by
management of Strawbridge & Clothier and represent its best estimate of the
range of such figures likely to exist as of the Effective Time. It is
Strawbridge & Clothier management's best estimate that shareholders may receive
0.45 share of May Common Stock for each share of Strawbridge & Clothier Common
Stock in the Liquidation (the Estimated Liquidation Ratio). In connection with
the preparation of this estimate, the management of Strawbridge & Clothier
performed a number of sensitivity analyses in order to assess what effect
fluctuations in the items identified in footnote (1), interest rates, the net
cash proceeds received from the Clover Stores Sale and the disposition of the
Other Clover Store Assets and the Remaining Assets, the amount of the Retained
Liabilities and the amount of the costs and expenses incurred in connection with
winding up the business and operations of Strawbridge & Clothier in connection
with the Liquidation could have on management's best estimate. The left-hand
column of the table sets forth alternative assumptions for the Estimated
Liquidation Ratio which are less favorable to shareholders than management's
best estimate indicated in the right-hand column of the table. These alternative
assumptions are not intended to indicate a "worst case" but rather the relative
volatility of the variables and assumptions described above and, taken together,
would indicate an Alternative Estimated Liquidation Ratio of 0.41 share of May
Common Stock for each share of Strawbridge & Clothier Common Stock.
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The table below and other information set forth herein include
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. There are a number of important factors
that could cause actual results to differ materially from those set forth in the
table including (i) the failure of Strawbridge & Clothier to achieve its
business plan for operations up to the First Closing Date due to economic and
weather conditions, (ii) the level and valuation of the inventory and customer
accounts receivable to be acquired by May New York in the case of the Department
Stores and the inventory to be liquidated in the case of the Clover Stores,
(iii) the amounts of liabilities to be paid in the Liquidation, and (iv) the
amount to be received with respect to the assets not being sold to May or Kimco.
Accordingly, there can be no assurance that the figures included in the table
below will actually reflect the amount of May Common Stock which Strawbridge &
Clothier shareholders will ultimately be entitled to receive.
<TABLE>
<CAPTION>
ALTERNATIVE ESTIMATED MANAGEMENT'S BEST ESTIMATED
LIQUIDATION RATIO LIQUIDATION RATIO
--------------------- ---------------------------
($ IN MILLIONS, EXCEPT SHARE AMOUNTS)
DEPARTMENT STORES SALE
<S> <C> <C> <C>
Add: Closing Balance Sheet Net Working
Capital Amount at Effective Time (Sec.
1.15)(1)................................ $ 161.6 $ 167.6
Plus: Consideration attributable to
non-current assets (Sec. 1.56).......... 301.5 301.5
---------- ----------
Subtotal................................ 463.1 469.1
Deduct: Assumed Long-Term Liabilities Amount
(Sec.Sec. 1.6, 1.56)(2)................. (271.0) (263.5)
Equals: Aggregate Net Consideration Payable
(Sec. 1.56)............................. $ 192.1 $ 205.6
---------- ----------
---------- ----------
Divide by: Signing date May Common Stock price
(Sec. 1.56)............................. $ 47.875 $ 47.875
Equals: Shares issuable by May (Sec. 1.56)...... 4,012,533 4,294,517
Plus: Additional Payless Spin-off Equivalent
Shares (Sec. 1.56)(3)................... 385,538 412,632
---------- ----------
Equals: (A) Estimated number of May shares
issuable for the Department Store
Assets (Sec. 1.56).................. 4,398,071 4,707,149
---------- ----------
---------- ----------
OTHER CASH SOURCES (USES)
Estimated net cash proceeds from disposition of all
other assets (including Clover Stores division)....... $ 140.0 $ 142.8
Deduct: Payment or provision for all liabilities
not assumed by May New York or
Kimco(4)(5)............................. (142.7) (139.2)
---------- ----------
Equals: (Liabilities to be satisfied by sale of
May Common Stock)/Additional cash to
exchange for May Common Stock (Sec.Sec.
1.17, 1.79)(4)(6)....................... (2.7) 3.6
---------- ----------
---------- ----------
Divide by: May Common Stock price for additional
shares (Sec. 1.81)(7)................... 48.25 48.25
Equals: (B) Estimated additional number of
shares of May Common Stock (to be
sold to satisfy liabilities)/to be
issued for Second Closing Cash
Amount at the Second Closing(4)..... (55,959) 74,611
---------- ----------
---------- ----------
ESTIMATED PER SHARE CONSIDERATION
(A)+(B)(4): Estimated total number of shares of May
Common Stock issuable................... 4,342,112 4,781,760
---------- ----------
---------- ----------
Divide by: Shares of Strawbridge & Clothier Common
Stock estimated to be outstanding at the
Effective Time.......................... 10,614,521 10,614,521
Equals: Fraction of one share of May Common
Stock estimated to be issuable in
exchange for each outstanding share of
Strawbridge & Clothier Common Stock
(Estimated Liquidation Ratios).......... 0.41 0.45
</TABLE>
(Footnotes on following page)
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(Footnotes for preceding page)
- ------------
(1) Represents Strawbridge & Clothier management's estimates of the Closing
Balance Sheet Net Working Capital Amount at the Effective Time as defined in
Section 1.15 of the May Asset Purchase Agreement as adjusted to reflect
certain obligations to be assumed by May New York. The actual Closing
Balance Sheet Net Working Capital Amount will fluctuate with Strawbridge &
Clothier's operating performance through the Effective Time, the age of the
inventory and the aging and collectability of the customer accounts
receivable. The value of inventory and customer accounts receivable will be
calculated in accordance with the May Asset Purchase Agreement based upon a
physical inventory and analysis of customer accounts receivable at the
Effective Time.
(2) Includes Strawbridge & Clothier management's estimates of the aggregate
principal amount as of the Effective Time of certain long-term debt and
other amounts to be assumed by May New York, any payment necessary to
transfer customer accounts receivable to May New York free and clear of all
liens and the net present value of the operating leases for the Department
Stores. The actual Assumed Long-Term Liabilities Amount will fluctuate with
interest rate changes and operating performance.
(3) Represents the adjustment to the number of shares of May Common Stock
issuable by May to Strawbridge & Clothier to account for May's spin-off of
Payless on May 4, 1996. The adjustment consists of the spin-off ratio (.16)
multiplied by the "Shares issuable by May" which is then valued at the last
reported sales price per share of Payless on the first day of regular way
trading ($28.75) and then converted into May shares at the signing date May
Common Stock price ($47.875).
(4) If net cash proceeds received from the disposition of the assets not being
purchased by May New York or Kimco are insufficient to pay all liabilities
and obligations not assumed by May New York or Kimco, then Strawbridge &
Clothier will have to sell enough shares of May Common Stock in the market
at then current market prices to obtain the cash necessary to satisfy the
shortfall. The Alternative Estimated Liquidation Ratio assumes that all such
shares of May Common Stock are sold, in which event no Second Closing would
occur.
(5) This amount includes Strawbridge & Clothier management's estimates of the
costs and expenses to be incurred in connection with winding up the business
and operations of Strawbridge & Clothier in connection with the Liquidation.
(6) Represents Strawbridge & Clothier management's estimates of its portion of
the Disposition Proceeds that will constitute the Closing Cash Transfer
(Sec. 1.17) and the Second Closing Cash Amount (Sec. 1.79). The actual
portion of the Disposition Proceeds so used will fluctuate with (a) the
finalization of amounts received on the Clover Stores Sales and the
disposition of the Other Clover Store Assets and the Remaining Assets and
(b) the final satisfaction of and provision for all outstanding liabilities
and obligations of Strawbridge & Clothier which are not being assumed by May
New York or Kimco. (Also see note (4) above).
(7) This is an assumed stock price. The actual per share price that would be
used in determining additional shares of May Common Stock that may be issued
would be the average daily per share closing prices for the May Common Stock
on the NYSE Composite Tape for the 20 consecutive trading days immediately
preceding the Second Closing Date. The price in the table is the closing
sales price on the NYSE on June 5, 1996.
-------------------
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to holders of shares of Strawbridge & Clothier Common
Stock who are holders of record on the date of the Initial Distribution and
receive shares of May Common Stock pursuant to the Liquidation. This discussion
is based on currently existing provisions of the Code, existing and proposed
Treasury regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to Strawbridge & Clothier,
the Strawbridge & Clothier shareholders or May.
Strawbridge & Clothier shareholders should be aware that this discussion
does not deal with all federal income tax considerations that may be relevant to
certain shareholders of Strawbridge & Clothier in light of their particular
circumstances, such as shareholders who are banks, insurance companies,
tax-exempt organizations, dealers in securities, or foreign persons, who do not
hold their shares of Strawbridge & Clothier Common Stock as capital assets, or
who acquired their shares in connection with stock option plans or otherwise as
compensation. In addition, the following discussion does not address the tax
consequences of the Department Stores Sale and the Liquidation under foreign,
state or local tax laws or the tax consequences of transactions effectuated
prior or subsequent to or concurrently with the Department Stores Sale and the
Liquidation (whether or not such transactions are in connection with such
transactions), including, without limitation, transactions in which Strawbridge
& Clothier Common Stock is acquired or May Common Stock is disposed of.
ACCORDINGLY, STRAWBRIDGE & CLOTHIER SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS
DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SUCH TRANSACTIONS IN THEIR
PARTICULAR CIRCUMSTANCES.
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Strawbridge & Clothier has not requested a ruling from the Internal Revenue
Service (the "IRS") with regard to any of the federal income tax consequences of
the Asset Sales and the Liquidation. This summary is based upon the opinion of
Morgan, Lewis & Bockius LLP, counsel to Strawbridge & Clothier, which is
included as an Exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part (the "Tax Opinion"), that the Department Stores
Sale and the Liquidation will constitute a Reorganization within the meaning of
Section 368(a)(1)(C) of the Code. The Tax Opinion is subject to certain
assumptions and qualifications, including but not limited to the truth and
accuracy of certain representations made by Strawbridge & Clothier and certain
shareholders of Strawbridge & Clothier. The Tax Opinion is not binding on the
IRS and does not preclude the IRS from adopting a contrary position. The
following discussion assumes that the Department Stores Sale together with the
Liquidation will qualify as a Reorganization based on the Tax Opinion.
Subject to the limitations and qualifications referred to herein, assuming
the Department Stores Sale together with the Liquidation qualify as a
Reorganization, the material federal income tax consequences are as follows:
(i) Holders of Strawbridge & Clothier Common Stock generally will not
recognize gain or loss upon their receipt solely of May Common Stock in
exchange for Strawbridge & Clothier Common Stock in the Liquidation. As
described more fully below, however, gain may be recognized to the extent
that a Strawbridge & Clothier shareholder receives or is deemed to receive
property other than May Common Stock in the Liquidation including as a
consequence of receiving a beneficial interest in the Liquidating Trust
(which would be the case to the extent that cash or property other than May
Common Stock is contributed to the Liquidating Trust) or as a consequence of
receiving cash in lieu of a fractional share of May Common Stock.
(ii) The aggregate tax basis of the May Common Stock received by
Strawbridge & Clothier shareholders in the Liquidation, including any May
Common Stock that is deemed to be received by Strawbridge & Clothier
shareholders as a result of receiving a beneficial interest in the
Liquidating Trust, generally will be the same as the aggregate tax basis of
the Strawbridge & Clothier Common Stock delivered in exchange therefor
increased by the amount of any gain that is recognized on the exchange (as
described above), and decreased by the amount of any property other than May
Common Stock received in the Liquidation or deemed received as a result of
the receipt of a beneficial interest in the Liquidating Trust. The tax basis
of the Strawbridge & Clothier Common Stock delivered in exchange therefor
will be allocated between the May Common Stock actually received and the
Strawbridge & Clothier shareholder's pro rata share of the May Common Stock
held in the Liquidating Trust.
(iii) The holding period of the May Common Stock received by the
Strawbridge & Clothier shareholders in the Liquidation will include the
period for which the Strawbridge & Clothier Common Stock was held, provided
that the Strawbridge & Clothier Common Stock is held as a capital asset at
the time of the Liquidation.
(iv) Neither May nor Strawbridge & Clothier will recognize gain solely
as a result of the Department Stores Sale.
(v) Strawbridge & Clothier will not recognize gain solely as a result of
the Liquidation except to the extent that (i) in conjunction with the
Liquidation, Strawbridge & Clothier transfers any appreciated assets (other
than May Common Stock) to the Liquidating Trust or directly to its
shareholders or (ii) Strawbridge & Clothier sells May Common Stock to
satisfy certain of its liabilities.
In addition, although the Clover Stores Sale will not itself be part of the
Reorganization, Strawbridge & Clothier expects to recognize a loss as a result
of such sale. Any such loss should be
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available to offset any gain that Strawbridge & Clothier recognizes in
connection with the Liquidation (as described above).
Of particular importance to the Tax Opinion are the assumptions and
representations relating to the satisfaction of the "continuity of interest"
requirement. To satisfy the continuity of interest requirement, Strawbridge &
Clothier shareholders must not, pursuant to a plan or intent existing at or
prior to the Department Stores Sale, dispose of or transfer so much of either
(i) their Strawbridge & Clothier Common Stock in anticipation of the Department
Stores Sale or (ii) the May Common Stock to be received in the Liquidation, such
that the Strawbridge & Clothier shareholders, as a group, would no longer have a
meaningful equity interest in the Strawbridge & Clothier department store
business being conducted by May after the Department Stores Sale and
Liquidation. Strawbridge & Clothier shareholders generally will be regarded as
having a meaningful interest as long as the May Common Stock received in the
Liquidation (after taking into account any planned dispositions of May Common
Stock by Strawbridge & Clothier to satisfy liabilities or otherwise by the
Strawbridge & Clothier shareholders) represents, in the aggregate, a
"substantial portion" of the entire consideration received by the Strawbridge &
Clothier shareholders in the Liquidation. The law is unclear as to what
constitutes a meaningful equity interest or a "substantial portion." The IRS
ruling guidelines require that the May Common Stock received in the Liquidation,
after taking into account all shares subject to planned dispositions, must equal
at least 50% of the total consideration received in the Liquidation for the
Strawbridge & Clothier Common Stock. Such guidelines, however, do not purport to
represent the applicable substantive law. No assurance can be given that the
"continuity of interest" requirement will be satisfied. If such requirement is
not satisfied, the Department Stores Sale and the Liquidation would not be
treated as a Reorganization under the Code.
A successful IRS challenge to the "Reorganization" status of the
Reorganization (as a result of the failure of the "continuity of interest"
requirement or otherwise) would result in several significant tax consequences.
First, a Strawbridge & Clothier shareholder would recognize gain or loss with
respect to each share of Strawbridge & Clothier Common Stock in respect of which
May Common Stock was received in the Liquidation equal to the difference between
the shareholder's basis in such share and the fair market value, as of the date
of distribution pursuant to the Liquidation, of the May Common Stock received in
the Liquidation. In such event, a shareholder's aggregate basis in the May
Common Stock so received would equal its fair market value and the shareholder's
tax holding period for such stock would begin the day after the date of
distribution pursuant to the Liquidation. Second, the transfer of Department
Store Assets to May would be treated as a taxable sale of such assets. The
corporate level gain Strawbridge & Clothier would recognize upon such a taxable
sale of assets would be equal to the difference between Strawbridge & Clothier's
adjusted tax basis in such assets and the fair market value of all of the
consideration received from May in the Department Stores Sale (including, but
not limited to, all of the May Common Stock issued by May and all of the
liabilities assumed by May New York) as of the First Closing Date. Strawbridge &
Clothier's tax liability associated with any such recognized gain, after taking
into account the effect of any relevant and available Strawbridge & Clothier tax
attributes (e.g., current and carryover net operating losses and tax credits),
is a liability expressly excluded from those liabilities to be assumed by May in
accordance with the May Asset Purchase Agreement. It is anticipated that any
such liability would be material.
CASH IN LIEU OF FRACTIONAL SHARES
Strawbridge & Clothier shareholders who receive cash in lieu of fractional
shares of May Common Stock generally will recognize capital gain or loss with
respect to those fractional shares in an amount equal to the differences between
the tax basis allocated to such fractional shares (as determined above) and the
cash received in respect thereof. Any such gain or loss will be long-term
capital gain or loss if the holding period of such fractional shares (as
determined above) exceeds one year and such fractional shares are held as
capital assets.
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TAX CONSEQUENCES ATTRIBUTABLE TO THE LIQUIDATING TRUST
Some of the May Common Stock received by Strawbridge & Clothier in the
Department Stores Sale, and some amount of cash, may be placed into the
Liquidating Trust, subject to one or more escrows, to provide for any
liabilities, including any contingent liabilities, of Strawbridge & Clothier.
For federal income tax purposes, a pro rata share of such assets will be deemed
to have been distributed to each Strawbridge & Clothier shareholder and
contributed by such shareholder to the Liquidating Trust. The Liquidating Trust
will not itself be subject to tax; rather, each holder of a beneficial interest
in the Liquidating Trust will be treated as owning a pro rata share of the
assets of the Liquidating Trust, and will be required to take into account the
holder's proportionate share of each of the Liquidating Trust's items of income
or deduction. Since the Department Stores Sale and the Liquidation will
constitute a tax-free reorganization, as described above, Strawbridge & Clothier
shareholders will not recognize any gain or loss to the extent that the assets
deemed distributed to them, and contributed to the Liquidating Trust, consist
solely of May Common Stock. If a Strawbridge & Clothier shareholder, however,
realizes gain in the Liquidation (i.e., if the total value of all the
consideration received by such shareholder in the Liquidation, including May
Common Stock, exceeds the holder's adjusted basis in the holder's Strawbridge &
Clothier shares), the holder must recognize such gain to the extent that such
holder's pro rata share of the assets of the Liquidating Trust consists of
property other than May Common Stock ("Boot"). In determining the amount of gain
or loss realized and recognized as a result of the Liquidation, the amount of
any fixed or contingent liabilities assumed by the Liquidating Trust will not be
treated as decreasing the amount of Boot that a Strawbridge & Clothier
shareholder is deemed to receive as a result of the receipt of an interest in
the Liquidating Trust.
ACCOUNTING TREATMENT
The Department Stores Sale will be treated as a purchase of the Department
Store Assets by May under GAAP under which identifiable net assets and
liabilities would be recorded in the consolidated financial statements of May at
their respective fair market values at the time of consummation of the
Department Stores Sale.
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL
Under the PBCL, shareholders of Strawbridge & Clothier are not entitled to
dissenters' rights of appraisal in connection with any of the matters to be
voted on at the Annual Meeting.
REGULATORY MATTERS
Certain federal and state regulatory matters, relating primarily to
antitrust and securities law issues, must be complied with before the Department
Stores Sale and the Clover Stores Sale are consummated. May and Strawbridge &
Clothier are not aware of any other governmental consents or approvals that are
required prior to the consummation of the Department Stores Sale or the Clover
Stores Sale other than those described below. It is presently contemplated that
if such additional governmental consents and approvals are required, such
consents and approvals will be sought. There can be no assurance, however, that
any such additional consents or approvals will be obtained.
The consummation of the Department Stores Sale is subject to the
requirements of the HSR Act and the rules and regulations thereunder, which
provide that certain acquisition transactions may not be consummated until
certain information has been furnished to the Antitrust Division and the FTC and
certain waiting periods have been terminated or have expired. Both May New York
and Strawbridge & Clothier were required to file Notification and Report Forms
with respect to the Department Stores Sale, which forms were filed with the
Antitrust Division and the FTC on April 18, 1996 and April 19,
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1996, respectively. The waiting period under the HSR Act expired at 11:59 p.m.
on May 19, 1996. The parties to the Kimco Asset Purchase Agreement have
determined that the HSR Act is not applicable to the Clover Stores Sale.
Neither the determination by Strawbridge & Clothier that the Kimco Asset
Purchase Agreement is not subject to the HSR Act nor the expiration of the HSR
Act waiting period with respect to the Department Stores Sale precludes the
Antitrust Division, the FTC or any state from challenging the Department Stores
Sale or the Clover Stores Sale on antitrust grounds in the future. Accordingly,
at any time before or after the consummation of the Department Stores Sale or
the Clover Stores Sale, the Antitrust Division, the FTC or any state could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, or certain other persons, including private parties, could take
action under the antitrust laws. Such action could include seeking to enjoin the
sales. Based on the information available to them, both May and Strawbridge &
Clothier believe that the Department Stores Sale and Kimco and Strawbridge &
Clothier believe the Clover Stores Sale can be effected in compliance with
federal and state antitrust laws. There can be no assurance, however, that a
challenge to either or both sales will not be made, or that, if such challenge
is made, May and Strawbridge & Clothier or Kimco and Strawbridge & Clothier, as
the case may be, will prevail.
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COMPARISON OF RIGHTS OF SHAREOWNERS OF MAY AND SHAREHOLDERS OF
STRAWBRIDGE & CLOTHIER
The statements set forth under this heading with respect to the Delaware
General Corporation Law (the "DGCL"), the PBCL, the Amended and Restated
Certificate of Incorporation of May (the "May Charter"), the By-Laws of May (the
"May By-Laws"), the Shareowner Rights Plan of May (the "May Rights Agreement"),
the Strawbridge & Clothier Charter and the Strawbridge & Clothier By-Laws, are
brief summaries thereof and do not purport to be complete. Such statements are
subject to the detailed provisions of the DGCL, the PBCL, the May Charter, the
May By-Laws, the May Rights Agreement, the Strawbridge & Clothier Charter and
the Strawbridge & Clothier By-Laws. See "AVAILABLE INFORMATION."
The following is a summary of certain of the material differences between
the rights of the owners of May Common Stock and the rights of the holders of
Strawbridge & Clothier Common Stock.
DIVIDEND RIGHTS
May. Under the DGCL, a corporation may pay dividends out of surplus or, if
no such surplus exists, out of net profits for the fiscal year in which such
dividends are declared and/or for its preceding fiscal year, provided, however,
that dividends may not be paid out of net profits if the capital of such
corporation is less than the aggregate amount of capital represented by the
outstanding stock of all classes having a preference upon the distribution of
assets. The May By-Laws provide that, subject to the provisions in the May
Charter, May can pay dividends at such times and in such amounts as the Board of
Directors may determine. The May Charter does not limit this right.
Strawbridge & Clothier. Under the PBCL, a corporation is prohibited from
making a distribution to shareholders if, after giving effect thereto: (i) such
corporation would be unable to pay its debts as they become due in the usual
course of business; or (ii) the total assets of such corporation would be less
than the sum of its total liabilities plus the amount that would be needed, if
such corporation were then dissolved, to satisfy the rights of shareholders
having superior preferential rights upon dissolution to the shareholders
receiving such distribution. For the purpose of clause (ii), the board of
directors may base its determination on one or more of the following: the book
value, or the current value, of the corporation's assets and liabilities,
unrealized appreciation and depreciation of the corporation's assets and
liabilities or any other method that is reasonable in the circumstances. The
Strawbridge & Clothier Charter provides that cash dividends payable on shares of
Series A Common Stock shall be at least ten percent higher on a per share basis
than the cash dividends payable on shares of Series B Common Stock. In the case
of dividends other than in cash or other distributions, shares of the Series A
Common Stock shall be equivalent to shares of the Series B Common Stock, except
that stock dividends or distributions shall always be made in shares of the
particular series to which it relates.
DIRECTORS AND OFFICERS
NUMBER AND ELECTION OF DIRECTORS; REMOVAL
May. Under the DGCL, cumulative voting in the election of directors is only
permitted if expressly authorized in a corporation's certificate of
incorporation. The May Charter does not provide for cumulative voting in the
election of directors. The May Charter provides that the number of directors
will be not less than three nor more than 21 with the exact number to be fixed
by the May By-Laws. The May By-Laws currently fix the number of directors at 14.
Under the DGCL, any director or the entire board of directors may be removed,
with or without cause, by the owners of a majority of the shares then entitled
to vote at an election of directors. If the board is classified, however, unless
the certificate of incorporation provides otherwise, shareowners may effect such
removal only for cause. The May Charter provides for a classified board
consisting of three classes.
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Strawbridge & Clothier. Under the PBCL, cumulative voting is required unless
otherwise provided in the articles of the corporation. The Strawbridge &
Clothier Charter provides that the shareholders shall not be entitled to
cumulate their votes for the election of directors. The Strawbridge & Clothier
By-Laws provide that the Board of Directors shall consist of not less than seven
nor more than 14 directors, with the exact number to be fixed from time to time
by the Board of Directors. As of the date hereof, there are 12 directors on the
Strawbridge & Clothier Board. Following the Annual Meeting the Strawbridge &
Clothier Board of Directors will consist of ten directors. Under the PBCL, the
board of directors may be removed at any time with or without cause by the vote
of shareholders entitled to vote thereon. Furthermore, the articles of a
corporation may not prohibit the removal of directors by the shareholders for
cause. The Strawbridge & Clothier By-Laws provide that the entire Board of
Directors, or any class of the Board, or any director may be removed from office
by the shareholders only for cause by the vote of at least two-thirds of the
votes of all voting shareholders entitled to cast a vote thereon or, if the
removal is proposed by a majority of the Board of Directors, upon receiving at
least a majority of the vote of all shareholders entitled to vote thereon. The
PBCL includes a provision similar to that of the DGCL with respect to the
removal of directors only for cause in situations where there is a classified
board. Under the PBCL, the by-laws of a corporation may provide for a classified
board. The Strawbridge & Clothier By-Laws provide that the Board shall be
classified into three classes.
FIDUCIARY DUTIES OF DIRECTORS
May. Under the DGCL, the business and affairs of a corporation are managed
by or under the direction of its boards of directors. In exercising their
powers, directors are charged with a fiduciary duty to protect the interests of
the corporation and to act in the best interests of its shareowners. Delaware
courts have held that the duty of care requires the directors to exercise an
informed business judgment, known as the "business judgment rule." A party
challenging the propriety of a decision of a board of directors bears the burden
of rebutting the applicability of the presumption of the business judgment rule
by demonstrating that, in reaching their decision, the directors breached one or
more of their fiduciary duties -- good faith, loyalty and due care. If the
presumption is not rebutted, the business judgment rule attaches to protect the
directors and their decisions, and their business judgments will not be second
guessed. Where, however, the presumption is rebutted, the directors bear the
burden of demonstrating the entire fairness of the relevant transaction.
Notwithstanding the foregoing, Delaware courts subject directors' conduct to
enhanced scrutiny in respect of defensive actions taken in response to a threat
to corporate control and approval of a transaction resulting in a sale of such
control.
Strawbridge & Clothier. The fiduciary duties of directors are similar under
the PBCL to the duties prescribed under the DGCL. Under the PBCL, directors are
required to discharge their duties in good faith and in a manner reasonably
believed to be in the best interests of the corporation. They are required to
use such care, including reasonable inquiry, skill and diligence, as a person of
ordinary prudence would use under similar circumstances. Unlike the DGCL,
however, the PBCL includes a provision specifically permitting (although not
requiring) directors, in discharging their duties, to consider the effects of
any action taken by them upon any or all groups affected by such action,
including shareholders, employees, suppliers, customers and creditors of such
corporation, and upon communities in which offices or other establishments of
such corporation are located. Furthermore, unlike the DGCL, the PBCL also makes
clear that directors have no greater obligation to justify their activities and
need not meet any higher burden of proof in the context of a potential or
proposed acquisition of control than in any other context.
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LIABILITY OF DIRECTORS
May. The DGCL permits a corporation to include in its certificate of
incorporation a provision limiting or eliminating the liability of its directors
to such corporation or its shareowners for monetary damages arising from a
breach of fiduciary duty, except for: (i) a breach of the duty of loyalty to the
corporation or its shareowners, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) a
declaration of a dividend or the authorization of the repurchase or redemption
of stock in violation of the DGCL or (iv) any transaction from which the
director derived an improper personal benefit. The May Charter eliminates
director liability to the maximum extent permitted by the DGCL.
Strawbridge & Clothier. Under the PBCL, a corporation may include in its
by-laws a provision, adopted by a vote of its shareholders, which eliminates the
personal liability of its directors, as such, for monetary damages for any
action taken or the failure to take any action unless (i) such directors have
breached or failed to perform their duties and (ii) the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. A
Pennsylvania corporation is not empowered, however, to eliminate personal
liability where the responsibility or liability of a director is pursuant to any
criminal statute or is for the payment of taxes pursuant to any federal, state
or local law. The Strawbridge & Clothier Charter and the Strawbridge & Clothier
By-Laws eliminate director liability to the maximum extent permitted by the
PBCL.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
May. Under the DGCL, a corporation may indemnify any person involved in a
third party action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of being a director or officer of the corporation,
against expenses (including attorneys' fees), judgments, fines and settlement
amounts actually and reasonably incurred in connection with such action, suit or
proceeding (and against expenses incurred in a derivative action on behalf of
such corporation) or incurred by reason of such person's being or having been a
representative of such corporation, if such person acted in good faith and
reasonably believed that his actions were in or not opposed to the best
interests of such corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe that his conduct was unlawful. The DGCL also
provides that a corporation may advance to such director or officer expenses
incurred by him in defending any action, upon receipt of an undertaking by the
person to repay the amount advanced if it is ultimately determined that he is
not entitled to indemnification. A determination as to the amount of the
indemnification to be made by the corporation shall be made by a majority vote
of the directors who are not parties to such action, even though less than a
quorum, or, if such directors so direct, by independent legal counsel. No
indemnification for expenses in derivative actions is permitted under the DGCL
where the person is adjudged liable to the corporation, unless a court finds him
entitled to such indemnification. If, however, the person is successful in
defending a third party or derivative action, indemnification for expenses
incurred is mandatory. The DGCL provides further that the provisions for
indemnification contained therein are nonexclusive of any other rights to which
the party may be entitled under any by-law, agreement or vote of shareowners or
disinterested directors. The May By-Laws provide for indemnification of
directors and officers to the fullest extent permitted by law and authorize May
to purchase and maintain insurance on behalf of any such person whether or not
May would have the power to indemnify such director or officer against such
liability under the DGCL.
Strawbridge & Clothier. The provisions of the PBCL regarding indemnification
are substantially similar to those of the DGCL. Unlike the DGCL, however, the
PBCL expressly permits indemnification in connection with any action, including
a derivative action, unless a court determines that the acts or omissions giving
rise to the claim constituted willful misconduct or recklessness. The
Strawbridge & Clothier By-Laws provide for indemnification of directors and
officers of Strawbridge & Clothier for any liability incurred in connection with
any proceeding, except where such indemnification is expressly
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prohibited by applicable law or the conduct constitutes willful misconduct or
recklessness. Strawbridge & Clothier is not required, however, to indemnify any
director or officer in connection with a proceeding (or portion thereof)
initiated by such director or officer against Strawbridge & Clothier or any
directors, officers or employees thereof unless (i) the initiation of such
proceeding (or portion thereof) was authorized by the Strawbridge & Clothier
Board of Directors or (ii) notwithstanding the lack of such authorization, the
person seeking indemnification is successful on the merits. The Strawbridge &
Clothier By-Laws further provide for the advancement of certain expenses in
accordance with the PBCL.
ANNUAL MEETINGS
May. Under the DGCL, if the annual meeting for the election of directors is
not held on the designated date, the directors are required to cause such a
meeting to be held as soon thereafter as convenient. If they fail to do so for a
period of 30 days after the designated date, or if no date has been designated
for a period of 13 months after the organization of the corporation or after its
last annual meeting, the Court of Chancery may summarily order a meeting to be
held upon the application of any shareowner or director.
Strawbridge & Clothier. Under the PBCL, if the annual meeting for election
of directors is not held within six months after the designated date, any
shareholder may call the meeting at any time thereafter.
SPECIAL MEETINGS
May. Under the DGCL, a special meeting of the shareowners may be called by
the board of directors or such other person as may be authorized by the
certificate of incorporation or the by-laws. The May Charter provides that
special meetings of shareowners may be called at any time only by a majority of
the entire Board of Directors.
Strawbridge & Clothier. Under the PBCL, special meetings of shareholders may
be called by the board of directors, by such officers or by such other persons
as provided in the by-laws, and, unless otherwise provided in the articles, by
shareholders entitled to cast at least 20% of the votes that all shareholders
are entitled to cast at a particular meeting. The shareholders of a registered
corporation shall not be entitled by statute to call a special meeting of
shareholders, unless such shareholder is an "interested shareholder" (as
hereinafter defined) calling a special meeting for the purpose of approving a
"business combination" (as hereinafter defined) with such interested
shareholder. The Strawbridge & Clothier By-Laws provide that special meetings of
the shareholders may be called at any time by the Chairman of the Board, or the
President, or the Board of Directors, or by shareholders entitled to cast a
majority of the votes which all shareholders are entitled to cast at the
particular meeting.
ACTION BY SHAREHOLDERS WITHOUT A MEETING
May. The DGCL permits the shareowners of a corporation to consent in writing
to any action without a meeting, unless the certificate of incorporation of such
corporation provides otherwise, provided such consent is signed by shareowners
having at least the minimum number of votes required to authorize such action at
a meeting of shareowners at which all shares entitled to vote thereon were
present and voted. The May Charter expressly includes a provision requiring that
corporate action may only be taken by unanimous written consent.
Strawbridge & Clothier. Under the PBCL, unless the by-laws of such
corporation provide otherwise, any corporate action may be taken without a
meeting, by partial or unanimous written consent. The Strawbridge & Clothier
By-Laws expressly include a provision requiring that corporate action may only
be taken by unanimous written consent.
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SHAREHOLDER'S PROPOSALS
May. The DGCL does not include a provision restricting the manner in which
nominations for directors may be made by shareowners or the manner in which
business may be brought before a meeting. The May By-Laws, however, include
detailed provisions regarding the procedures to be followed by shareowners with
respect to the business desired to be brought before the meeting and with
respect to the procedures to be followed in the nomination of directors by
shareowners.
Strawbridge & Clothier. The PBCL, like the DGCL, does not include a
provision restricting the manner in which nominations for directors may be made
by shareholders or the manner in which business may be brought before a meeting.
The Strawbridge & Clothier Charter includes certain provisions regarding the
procedures to be followed in the nomination of directors but neither the
Strawbridge & Clothier Charter nor the Strawbridge & Clothier By-Laws include
provisions regarding the procedures to be followed in order properly to bring
business before a meeting.
CHARTER AMENDMENTS
May. Under the DGCL, an amendment or change to the certificate of
incorporation generally requires the approval of the board of directors,
followed by a vote of the owners of a majority of the shares entitled to vote
thereon. When an amendment of the certificate would affect certain substantial
rights of the owners of a class of stock, or the shares of a series of a class,
the DGCL provides that the enactment of the amendment requires the approval of
the owners of a majority of the outstanding shares of the class entitled to vote
thereon. The May Charter provides that any proposal to amend, repeal or adopt
any provision of the Charter that is inconsistent with the "business
combination" proposed by an "interested shareowner" or an affiliate or associate
thereof must be approved by the affirmative vote of at least two-thirds of the
votes entitled to be cast thereon (not including such "interested shareowner" or
an affiliate or associate thereof) unless approved by a majority of the board of
directors.
Strawbridge & Clothier. Under the PBCL, unlike the DGCL, an amendment to the
articles only requires the approval of the board of directors followed by the
affirmative vote of a majority of the votes cast by all shareholders entitled to
vote thereon and, if any class or series of shares is entitled to vote thereon
as a class, the affirmative vote of a majority of the votes cast in each such
class vote. Furthermore, the PBCL provides that, unless otherwise provided in
the articles, an amendment of the articles of a corporation need not be adopted
by the board of directors prior to its submission to the shareholders for
approval if it is proposed by a petition of shareholders entitled to cast at
least 10% of the votes that all shareholders are entitled to cast thereon. The
Strawbridge & Clothier Charter does not eliminate this provision. The
Strawbridge & Clothier Charter provides further that any proposed amendment to
the Strawbridge & Clothier Charter that would (i) increase or decrease the
number of authorized shares of either Series A Common Stock or Series B Common
Stock, (ii) authorize the issuance of Series B Common Stock other than as
provided in the By-Laws, or (iii) alter or change the power, preferences,
relative voting power or special rights of the shares of Series A Common Stock
or Series B Common Stock, requires the approval of a majority of the votes
entitled to be cast by the holders of each series, voting separately as a
series, in addition to the approval of the holders of the Series A Common Stock
and Series B Common Stock voting together without regard to series.
AMENDMENTS TO BY-LAWS
May. Under the DGCL, by-laws may be adopted, amended or repealed by the
shareowners entitled to vote thereon, provided, however, that any corporation
may, in its certificate of incorporation, confer this power upon the directors,
provided the power vested in the shareowners shall not be divested or limited
where the board of directors also has such power. The May Charter provides that
the board of directors may adopt, repeal, alter, amend or rescind the May
By-Laws by a vote of two-thirds of the entire board of directors.
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Strawbridge & Clothier. Under the PBCL, by-laws may be adopted, amended and
repealed by the shareholders entitled to vote thereon. This authority may be
expressly vested in the board of directors by the by-laws, subject to the power
of the shareholders to change such action, unless the subject of the amendment
is solely within the province of the shareholders. The Strawbridge & Clothier
Charter provides that whenever any corporate action is to be taken by vote of
the shareholders adopting, amending or repealing the Strawbridge & Clothier
By-Laws, the action must be authorized (i) by a vote receiving at least
two-thirds of the votes which all voting shareholders are entitled to cast
thereon or (ii) if the action has been proposed by a majority of the Board of
Directors, upon receiving at least a majority of the votes which all voting
shareholders are entitled to cast thereon. The Strawbridge & Clothier By-Laws
provide further that, with respect to those subjects which are not by statute
committed expressly to the shareholders and regardless of whether the
shareholders have previously adopted or approved the by-law being amended or
repealed, a by-law may be amended or repealed by vote of a majority of the Board
of Directors at any regular or special meeting of directors.
MERGERS AND MAJOR TRANSACTIONS
May. Under the DGCL, whenever the approval of the shareowners of a
corporation is required for an agreement of merger or consolidation or for a
sale, lease or exchange of all or substantially all of its assets, such
agreement, sale, lease or exchange must be approved by the affirmative vote of
the owners of a majority of outstanding shares entitled to vote thereon.
Notwithstanding the foregoing, unless required by its certificate of
incorporation, no vote of the shareowners of a constituent corporation surviving
a merger is necessary to authorize such merger if: (i) the agreement of merger
does not amend the certificate of incorporation of such constituent corporation,
(ii) each share of stock of such constituent corporation outstanding prior to
such merger is to be an identical outstanding or treasury share of the surviving
corporation after such merger, (iii) either no shares of common stock of the
surviving corporation and no shares, securities or obligations convertible into
such common stock are to be issued under such agreement of merger, or the number
of shares of common stock issued or so issuable does not exceed 20% of the
number thereof outstanding immediately prior to such merger, and (iv) certain
other conditions are satisfied. In addition, the DGCL provides that a parent
corporation that is the record holder of at least 90% of the outstanding shares
of each class of stock of a subsidiary may merge such subsidiary into such
parent corporation without the approval of such subsidiary's shareowners or
board of directors. Furthermore, the DGCL provides that no shareowner vote is
required to approve a merger of a constituent corporation with a single direct
or indirect wholly owned subsidiary of such corporation, subject to certain
qualifications. The May Charter provides that a transaction which constitutes a
"business combination" proposed by or on behalf of an "interested shareowner,"
or any affiliate or associate thereof, must be approved by the affirmative vote
of at least two-thirds of the votes entitled to be cast by owners of all the
outstanding shares of the corporation's stock entitled to vote generally in the
election of directors (the "voting stock").
Strawbridge & Clothier. Under the PBCL, shareholder approval is required for
the sale, lease, exchange or other disposition of all, or substantially all, of
the property and assets of a corporation when not made in the usual and regular
course of the business of such corporation or for the purpose of relocating the
business of such corporation or in connection with the dissolution or
liquidation of the corporation. Unlike the DGCL, however, in cases where
shareholder approval is required, a merger, consolidation, sale, lease, exchange
or other disposition must be approved by a majority of the votes cast by all
shareholders entitled to vote thereon. Under the PBCL, unless required by the
by-laws of a constituent corporation, shareholder approval is not required for a
plan of merger or consolidation if: (i) the surviving or new corporation is a
domestic corporation whose articles are identical to the articles of such
constituent corporation, (ii) each share of such constituent corporation
outstanding immediately prior to the merger or consolidation will continue as or
be converted into (except as otherwise agreed to by the holder thereof) an
identical share of the surviving or new corporation, and (iii) such plan
provides that the shareholders of such constituent corporation will hold in the
aggregate shares of the surviving
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or new corporation having a majority of the votes entitled to be cast generally
in an election of directors. In addition, the PBCL provides that no shareholder
approval is required if, prior to the adoption of such plan, another corporation
that is a party to such plan owns 80% or more of the outstanding shares of each
class of such constituent corporation. The Strawbridge & Clothier Charter
provides that certain transactions, including the sale of assets, transactions
with "interested shareholders," dissolutions, mergers, consolidations and
certain other fundamental transactions, require the approval of at least
two-thirds of the votes which all voting shareholders are entitled to cast
thereon, unless proposed by the Board of Directors, in which case only a
majority of the votes cast by the shareholders entitled to vote thereon is
required. The Strawbridge & Clothier Charter also provides that any merger or
consolidation of Strawbridge & Clothier with or into any other corporation, any
sale, lease, exchange or other disposition of substantially all of the assets to
or with any other person, or any dissolution of Strawbridge & Clothier, other
than a merger or other transaction with a majority-owned subsidiary of
Strawbridge & Clothier, requires the vote of a majority of the Series A Common
Stock and Series B Common Stock voting separately as a series in addition to the
approval of the holders of Series A Common Stock and Series B Common Stock
voting together.
DISSENTERS' RIGHTS OF APPRAISAL
May. Under the DGCL, unless the certificate of incorporation of a
corporation provides otherwise, there are no appraisal rights provided in the
case of certain mergers, a sale or transfer of all or substantially all of its
assets or an amendment to the corporation's certificate of incorporation.
Moreover, the DGCL does not provide appraisal rights in connection with a merger
or consolidation, unless the certificate of incorporation provides otherwise, to
the owners of shares of a corporation that is either (i) listed on a national
securities exchange or designated as a national market system security by the
NASD, or (ii) held of record by more than 2,000 shareowners, unless the
applicable agreement of merger or consolidation requires the owners of such
shares to receive, in exchange for such shares, (a) any property other than
shares of stock of the resulting or surviving corporation, (b) shares of stock
of any other corporation listed on a national securities exchange (or designated
as described above) or held of record by more than 2,000 holders, (c) cash in
lieu of fractional shares, or (d) any combination of the foregoing. In addition,
the DGCL denies appraisal rights to the shareowners of the surviving corporation
in a merger if such merger did not require for its approval the vote of the
shareowners of such surviving corporation.
Strawbridge & Clothier. The PBCL provides that shareholders of a corporation
have a right of appraisal with respect to specified corporate actions,
including: (i) a plan of merger, consolidation, division (within the meaning of
Section 1951 of the PBCL), share exchange or conversion (within the meaning of
Section 1961 of the PBCL), (ii) certain other plans or amendments to its
articles in which disparate treatment is accorded to the holders of shares of
the same class or series, and (iii) a sale, lease, exchange or other disposition
of all or substantially all of the corporation's property and assets, except if
such sale, lease, exchange or other disposition is (a) made in connection with
the dissolution or liquidation of the corporation, (b) the acquiring corporation
owns all of the outstanding shares of the acquired corporation or the voting
rights, preferences, limitations or relative rights of the acquired corporation
are not altered thereby, or (c) the assets sold, leased, exchanged or otherwise
disposed of are simultaneously leased back to the corporation. Under the PBCL,
appraisal rights are not provided, however, to the holders of shares of any
class that is either listed on a national securities exchange or held of record
by more than 2,000 shareholders unless (i) such shares are not converted solely
into shares of the acquiring, surviving, new or other corporation and cash in
lieu of fractional shares, (ii) such shares constitute a preferred or special
class of stock, and the articles of such corporation, the corporate action under
consideration or the express terms of the transaction encompassed in such
corporate action do not entitle all holders of the shares of such class to vote
thereon and the transaction requires for the adoption thereof the affirmative
vote of a majority of the votes cast by all shareholders of such class, or (iii)
such shares constitute a group of a class or series which are to receive the
same
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<PAGE>
special treatment in the corporate action under consideration, and the holders
of such group are not entitled to vote as a special class in respect of such
corporate action.
ANTI-TAKEOVER PROVISIONS
May. Under the DGCL, a corporation is prohibited from engaging in any
business combination with a person who, together with his affiliates or
associates owns (or within a three-year period did own) 15% or more of the
corporation's voting stock (an "interested shareowner"), unless (i) prior to
such date, the board of directors approved either the business combination or
the transaction which resulted in the shareowner becoming an interested
shareowner, (ii) the interested shareowner acquired 85% of the voting stock of
the corporation (excluding specified shares) upon consummation of the
transaction, or (iii) on or subsequent to such date the business combination is
approved by the board of directors of such corporation and authorized by the
affirmative vote (at an annual or special meeting and not by written consent) by
at least 66 2/3% of the outstanding voting shares of such corporation (excluding
shares held by such interested shareowner). A "business combination" includes
(i) mergers, consolidations and sales or other dispositions of 10% or more of
the assets of a corporation to or with an interested shareowner, (ii) certain
transactions resulting in the issuance or transfer to an interested shareowner
of any stock of such corporation or its subsidiaries, and (iii) other
transactions resulting in a disproportionate financial benefit to an interested
shareowner. This provision of the DGCL does not apply to a corporation if the
certificate of incorporation or by-laws contain a provision expressly electing
not to be governed by this provision or the corporation does not have voting
stock either listed on a national securities exchange, authorized for quotation
on an inter-dealer quotation system of a registered national securities
association or held of record by more than 2,000 shareowners. The May Charter
includes a "business combination" provision substantially similar to that
provided in the DGCL.
The DGCL does not contain a "control-share acquisition" statute similar to
that contained in the PBCL.
Strawbridge & Clothier. Unlike under the DGCL, the PBCL provides that a
corporation is permanently prohibited from engaging in any business combination
with a person who, together with his affiliates or associates owns (or within
the preceding five-year period did own) 20% or more of the "registered"
corporation's voting shares (an "interested shareholder"), unless: (i) such
business combination, or the acquisition of shares causing such interested
shareholder to become such, was approved in advance by the board of directors of
such corporation, (ii) such interested shareholder acquires at least 80% of the
voting shares of such corporation, the consideration to be offered to
shareholders in connection with such business combination meets specified fair
price standards and such business combination is approved by the affirmative
vote of the holders of shares representing at least a majority of the votes that
the holders of voting shares are entitled to cast, excluding voting shares
beneficially owned by such interested shareholder and its affiliates and
associates, (iii) such business combination is unanimously approved by the
holders of all outstanding common shares of such corporation, (iv) within five
years after the date the shareholder became an interested shareholder, the
business combination is approved by a majority of the outstanding voting shares
of such corporation (excluding shares held by such interested shareholder), (v)
within five years after the date the shareholder became an interested
shareholder, the business combination is approved by a majority of all
shareholders and meets certain considerations set forth in the PBCL concerning
the amount of consideration. A "business combination" includes mergers,
consolidations, asset sales, share exchanges, divisions of a "registered"
corporation or any subsidiary thereof and other transactions resulting in a
disproportionate financial benefit to an interested shareholder. Unless
otherwise provided in the articles, this provision of the PBCL does not apply to
a corporation if the corporation does not have voting shares either registered
or traded on a national securities exchange or registered with the Commission.
The Strawbridge & Clothier Charter does not include its own "business
combination" provision; rather, it is governed by the provision in the PBCL.
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<PAGE>
The PBCL, unlike the DGCL, includes a statute which provides that, subject
to certain limited exceptions, in the event of the acquisition by any person or
group of shares of a "registered" corporation that entitles the holder thereof
to at least 20% of the voting power of the voting shares of such corporation,
such person or group must give notice to all shareholders of record of such
corporation that such acquisition has occurred and any of such shareholders may
demand payment of the fair value of their shares.
The PBCL also includes a "control-share acquisition" statute. A
"control-share acquisition" is defined as an acquisition of such number of
voting shares as, when added to the voting shares already held by such acquiring
person or group, would entitle such person or group to exercise voting power for
the first time within any of the following three ranges: (i) at least 20% but
less than 33 1/3%, (ii) at least 33 1/3% but less than 50%, or (iii) more than
50%. "Control shares" also include voting shares acquired within 180 days of the
occurrence of a "control-share acquisition" or acquired with the intention of
making a "control-share acquisition." The PBCL provides further that "control
shares" of a "registered" corporation will not have voting rights unless
restored by the affirmative vote of (i) the holders of a majority of the
outstanding voting shares (not including the "control shares") of such
corporation and (ii) the holders of a majority of the voting power of the
outstanding voting shares of such corporation. In addition, under certain
circumstances, a "registered" corporation is permitted to redeem its "control
shares."
Any profit realized by a "controlling person" from the disposition of any
equity security of a "registered" corporation is recoverable by such corporation
if (i) such profit is realized by such "controlling person" within 18 months
after such "controlling person" became such and (ii) the equity security so
disposed of was acquired by such "controlling person" within 24 months prior to
or 18 months after such "controlling person" became such. Subject to certain
exceptions, "controlling person" includes any person or group who (i) acquired,
offered to acquire, or directly or indirectly publicly disclosed or caused to be
publicly disclosed its intention to acquire, power to vote at least 20% of the
voting shares of such corporation, or (ii) publicly disclosed or caused to be
publicly disclosed that it may seek to acquire control of such corporation
through any means.
DISSOLUTION
May. Under the DGCL, if the board of the directors of the corporation deems
it advisable that the corporation should be dissolved and a majority of the
outstanding stock of the corporation entitled to vote thereon votes in favor of
the proposed dissolution, the corporation shall be dissolved upon the filing of
a certificate of dissolution with the Secretary of State of the State of
Delaware. The corporation shall continue after dissolution for the purposes of
defending suits and settling its affairs for a three-year period. Persons having
a claim against the corporation in a pending action, suit or proceeding shall be
given notice and file their claims according to certain procedures specified in
the DGCL. A corporation or successor entity which has given notice in accordance
with the procedures specified in Section 280(a) of the DGCL shall petition the
Court of Chancery to determine the amount of security that the corporation must
provide that will be reasonably likely to be sufficient as compensation for any
claim against the corporation which is the subject of a pending action, suit or
proceeding, which is not barred and which is likely to arise or become known to
the corporation or successor entity within five years after the date of
dissolution or such longer period as the Court of Chancery may determine not to
exceed ten years. Under the DGCL, directors of a dissolved corporation that
comply with the payment and distribution procedures provided therein shall not
be personally liable to the claimants of the dissolved corporation.
Strawbridge & Clothier. Under the PBCL, if the board of directors adopts a
resolution recommending to dissolve the corporation, the shareholders must adopt
the resolution by the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon. Unlike the DGCL, the PBCL provides two
different procedures for the corporation to provide for the winding up and
distribution of
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<PAGE>
the corporation's assets. The board of directors of the corporation may elect
that the dissolution shall proceed under Subchapter H or under Section 1975 of
the PBCL. Under Section 1975, the corporation must provide for the liabilities
of the corporation prior to filing the articles of dissolution in the
Pennsylvania Department of State. Directors of corporations that elect to follow
this procedure are held to the standard of care that applies to all of their
other duties. The Subchapter H provision is largely analogous to the procedure
under the DGCL. Under the PBCL, however, the corporation only continues to exist
for the purpose of settling its affairs for a period of two years. Furthermore,
the court in determining the amount of security that shall be posted by the
dissolved corporation shall consider the amount that would be reasonably likely
to be sufficient to provide compensation for claims that are unknown but that
are likely to arise or become known for a period of only two years after the
dissolution of the corporation. The Strawbridge & Clothier Charter provides that
a dissolution of Strawbridge & Clothier requires the vote of a majority of the
votes entitled to be cast by the holders of the Series A Common Stock and Series
B Common Stock voting separately as a series in addition to the approval of at
least a majority of the votes entitled to be cast by the holders of Series A
Common Stock and Series B Common Stock entitled to vote thereon, voting together
without regard to series.
RIGHTS AGREEMENTS
May. May has in place a "shareowner rights plan" pursuant to which a right
is attached to each outstanding share of May Common Stock. The rights may only
become exercisable under certain circumstances involving actual or potential
acquisitions of May's Common Stock by a person or affiliated persons. Depending
upon the circumstances, if the rights become exercisable, the owner may be
entitled to purchase units of May's preference stock, $.50 par value per share,
May Common Stock or shares of common stock of the acquiring person. The rights
will remain in existence until August 31, 2004, unless they are earlier
terminated, extended, exercised or redeemed.
Strawbridge & Clothier. Strawbridge & Clothier does not have a "shareowner
rights plan."
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<PAGE>
ELECTION OF DIRECTORS
At the Annual Meeting, four directors shall be elected for a term of three
years expiring in 1999, and until their successors shall have been elected and
qualified. Properly executed proxies will be voted for the election of Isaac H.
Clothier, IV, Paul E. Shipley, Peter S. Strawbridge and Warren W. White, the
four nominees named below, in the absence of contrary instructions.
The management has no reason to believe that any of the nominees named below
will be unable or decline to serve if elected. However, if any such nominees
should become unavailable, discretionary authority is reserved to vote for a
substitute. Votes may be cast for or withheld for any or all nominees. If a
shareholder, including a broker or other record owner, abstains or fails to
vote, such action will not be considered a vote cast.
<TABLE>
<CAPTION>
PRINCIPAL DIRECTOR TERM
NAME OCCUPATION AGE SINCE EXPIRING
- ---------------------------------- ---------------------------------- --- -------- --------
<S> <C> <C> <C> <C>
NOMINEES
Isaac H. Clothier, IV............. Attorney.......................... 63 1975 1999
Paul E. Shipley................... Retired........................... 66 1988 1999
Peter S. Strawbridge.............. President......................... 57 1968 1999
Warren W. White................... Executive Vice President.......... 64 1981 1999
CONTINUING DIRECTORS
Jennifer S. Braxton............... Assistant Advertising Director.... 33 1994 1997
Thomas B. Harvey, Jr.............. Attorney.......................... 60 1988 1997
David W. Strawbridge.............. Vice President.................... 56 1971 1997
Natalie B. Weintraub.............. Retired........................... 67 1994 1997
Francis R. Strawbridge, III....... Chairman of the Board............. 58 1968 1998
Steven L. Strawbridge............. Vice President, Treasurer and
Secretary......................... 52 1975 1998
</TABLE>
Each of the nominees and continuing directors indicated above as being
employed by Strawbridge & Clothier has been so employed during the past five
years. Mr. Harvey is an attorney and has been in practice since 1963. Until her
retirement from the Company in 1994, Mrs. Weintraub was Vice President and
General Merchandise Manager, Department Stores since 1976. Mr. Clothier has been
a partner of Dechert, Price & Rhoads since 1966. Mr. Shipley retired in 1993 as
a Vice President of Wilmington Trust Company, where he was employed since 1972,
and he continues to be active in civic and community affairs. The terms of
Richard H. Hall (age 69), a director since 1987, and Anne C. Longstreth (age
74), a director since 1984, expire at the time of the Annual Meeting, and they
will not stand for re-election.
Peter S. Strawbridge and Steven L. Strawbridge are brothers and are first
cousins of Francis R. Strawbridge, III and David W. Strawbridge who also are
brothers. Each is a first cousin of Mr. Harvey and Mr. Shipley who also are
first cousins. Jennifer S. Braxton is the daughter of Peter S. Strawbridge and
the niece of Steven L. Strawbridge.
Francis R. Strawbridge, III is a director of Mellon PSFS. Peter S.
Strawbridge is a director of CoreStates Financial Corp.
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<PAGE>
THE BOARD OF DIRECTORS AND COMMITTEES
During fiscal year 1995, the Board of Directors held 15 meetings. The Board
of Directors has an Executive Committee comprised of F.R. Strawbridge, III and
P.S. Strawbridge, Co-Chairmen, S.L. Strawbridge, Secretary, D.W. Strawbridge and
W.W. White. The Board of Directors also has an Audit Committee, a Compensation
Committee, a Nominating Committee and a Stock Option Committee.
Each director who is not an employee of Strawbridge & Clothier receives a
fee of $750 for each meeting of the Board of Directors which such director
attends and $500 for each meeting of the Audit Committee (except for the
Chairman thereof who receives $750), the Compensation Committee, the Nominating
Committee and the Stock Option Committee which such director attends.
The members of the Audit Committee are I.H. Clothier, IV, Chairman, S.L.
Strawbridge, Secretary, J.S. Braxton, R.H. Hall, T.B. Harvey, Jr., and P.E.
Shipley. The functions of the Audit Committee are to recommend to the Board of
Directors a firm of independent auditors to audit the books and accounts of
Strawbridge & Clothier, generally to consider the scope of the audits performed
by the internal auditors and the independent auditors, to review the results
thereof and to discuss other significant auditing matters with the internal
auditors and the independent auditors. In fiscal year 1995, the Audit Committee
held four meetings.
The members of the Compensation Committee are T.B. Harvey, Jr., Chairman,
R.H. Hall, Secretary, I.H. Clothier, IV, and P.E. Shipley. The functions of the
Compensation Committee are to review general compensation policies and to review
recommendations made regarding the salaries of executive officers. In fiscal
year 1995, the Compensation Committee held one meeting.
The members of the Nominating Committee are T. B. Harvey, Jr., Chairman,
I.H. Clothier, IV, A.C. Longstreth and P.E. Shipley. The function of the
Nominating Committee is to recommend to the Board of Directors persons to be
nominated for election as directors of Strawbridge & Clothier. Shareholder
suggestions regarding possible candidates for director for consideration by the
Nominating Committee, together with appropriate biographical information, should
be submitted to the Secretary of Strawbridge & Clothier not later than 45 days
prior to the date fixed by the Strawbridge & Clothier By-Laws for the annual
meeting of shareholders. The Nominating Committee did not meet in fiscal year
1995.
The members of the Stock Option Committee are P.E. Shipley, Chairman, I.H.
Clothier, IV and N.B. Weintraub. The function of the Stock Option Committee is
to administer Strawbridge & Clothier's stock option plans and to select
optionees and determine the type of option and number of shares subject to the
options. The Stock Option Committee did not meet in fiscal year 1995.
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<PAGE>
EXECUTIVE COMPENSATION
GENERAL
The following table sets forth certain information concerning compensation
paid for Strawbridge & Clothier's last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------------ ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS COMPENSATION(1)
- ------------------------------------ ---- -------- ------------ ------------ ---------------------------
<S> <C> <C> <C> <C> <C>
Peter S. Strawbridge................ 1995 $340,000 0 0 $ 1,219
President and Co-Chief 1994 $310,000 0 0 $ 1,780
Executive Officer 1993 $310,000 0 0 $ 2,500
Francis R. Strawbridge, III......... 1995 $340,000 0 0 $ 1,108
Chairman of the Board and 1994 $300,000 0 0 $ 1,892
Co-Chief Executive Officer 1993 $300,000 0 0 $ 2,458
Warren W. White..................... 1995 $300,000 0 0 $ 921
Executive Vice President and 1994 $275,000 0 0 $ 2,079
General Manager, Clover Stores 1993 $260,000 0 0 $ 2,167
Robert G. Muskas.................... 1995 $192,500 0 0 $ 1,000
Executive Vice President for 1994 $180,000 0 0 $ 2,000
Merchandise and Sales Promotion, 1993 $180,000 0 0 $ 1,500
Department Stores
Louis F. Busico..................... 1995 $192,000 0 0 $ 1,025
Vice President and General 1994 $177,000 0 0 $ 1,975
Merchandise Manager, Clover Stores 1993 $167,000 0 0 $ 1,392
</TABLE>
- ------------
(1) Amounts contributed or accrued by Strawbridge & Clothier under its 401(k)
Retirement Savings Plan.
-------------------------
EMPLOYMENT AGREEMENTS AND CONSULTING ARRANGEMENT
Each of the 18 current executive officers of Strawbridge & Clothier, who
also are the participants in Strawbridge & Clothier's Deferred Compensation
Plan, has entered into a three-year renewable employment contract with
Strawbridge & Clothier terminable by either party triannually, which establishes
the employee's basic annual rate of compensation, subject to periodic increases
and bonuses. If the shareholders approve the Liquidation Proposal and the
Department Stores Sale is consummated, these executive officers may elect to
terminate their employment contracts and enter into consulting agreements with
May New York for a like term and compensation amounts. Strawbridge & Clothier
has notified May New York that none of such executive officers have indicated
that they will terminate such contracts and enter into consulting agreements
with May New York. See "THE ASSET SALES AND LIQUIDATION TRANSACTIONS--The
Department Stores Sale--The May Asset Purchase Agreement--Employees and Employee
Plans." Strawbridge & Clothier has a consulting arrangement with G. Stockton
Strawbridge, the former Chairman of the Executive Committee until his retirement
from Strawbridge & Clothier, whereby Mr. Strawbridge receives $100,000 per annum
for consulting services to Strawbridge & Clothier. See "BENEFICIAL OWNERSHIP OF
VOTING SECURITIES."
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DEFERRED COMPENSATION PLAN
The following table illustrates estimated retirement benefits for
participants in Strawbridge & Clothier's Deferred Compensation Plan for Key
Executive Employees, as amended and restated effective February 1, 1985, and as
further amended effective as of July 1, 1994 and as of July 1, 1995 (the
"Deferred Compensation Plan") based on years of service with Strawbridge &
Clothier.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 OR MORE(1)
- ------------------------------------------ ------- ------- ------- ------- -------------------------
<S> <C> <C> <C> <C> <C>
$125,000.................................. $32,813 $43,750 $54,688 $65,625 $75,000
150,000.................................. 39,375 52,500 65,625 78,750 90,000
200,000.................................. 52,500 70,000 87,500 105,000 120,000
250,000.................................. 65,625 87,500 109,375 131,250 150,000
300,000.................................. 78,750 105,000 131,250 157,500 180,000
325,000.................................. 85,313 113,750 142,188 170,625 195,000
350,000.................................. 91,875 122,500 153,125 183,750 210,000
</TABLE>
- ------------
(1) Based on maximum service credit of 60%.
-------------------------
Strawbridge & Clothier's Deferred Compensation Plan provides for the payment
of monthly retirement benefits computed on the basis of 1 3/4% of the
participant's "Average Monthly Earnings" for the 24 month period for which the
participant's total compensation is highest during the 60 months (or during the
actual number of months employed if less than 60) of the participant's service
immediately preceding the participant's retirement (or other termination) or
attaining age 70, whichever shall be earlier, multiplied by the participant's
years of service, with an adjustment by the use of an actuarial factor for
retirement prior to age 65 and after age 60 if service is less than 15 years on
the date of the participant's early retirement and for retirement prior to age
60 and at or after age 50 with at least 25 years of service, with an adjustment
by the use of an actuarial factor for benefit commencement prior to age 60. A
minimum benefit of 50% of Average Monthly Earnings (subject to reduction by an
actuarial factor for benefit commencement prior to age 60) will be paid to a
participant who has 15 years of service as a participant under the Deferred
Compensation Plan or who has 20 years of service with Strawbridge & Clothier
including 10 years of service as a participant under the Deferred Compensation
Plan. For most participants, retirement benefits under the plan may not exceed
60% of Average Monthly Earnings. The amounts of each monthly benefit in
connection with retirement, disability or death, and the amounts of minimum and
maximum benefits under the Deferred Compensation Plan, are subject to reduction
by use of an actuarial formula in the case of any participant who elects, under
the Deferred Compensation Plan's contingent annuitant option, to provide monthly
benefits after the participant's death, to a contingent annuitant of choice. As
of April 1, 1995, the executive officers named in the compensation table above
have the following years of credited service under the Deferred Compensation
Plan: P.S. Strawbridge, 34 1/2 years; F.R. Strawbridge, III, 34 1/2 years; W.W.
White, 39 years; R.G. Muskas, 36 1/2 years; and L.F. Busico, 37 years.
STOCK OPTION GRANTS AND EXERCISES
Set forth in the tables below is information concerning stock options
granted and exercised during the fiscal year ended February 3, 1996 and the
value of stock options held at the end of the fiscal year ended February 3, 1996
by executive officers named in the Summary Compensation Table.
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<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
PERCENT OF FOR OPTION TERM
OPTIONS TOTAL OPTIONS EXERCISE OR EXPIRATION ------------------
NAME GRANTED GRANTED BASE PRICE DATE 5% 10%
- ------------------------------------ ------- ------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Peter S. Strawbridge................ 0 0 $ 0 N/A N/A
Francis R. Strawbridge, III......... 0 0 $ 0 N/A N/A
Warren W. White..................... 0 0 $ 0 N/A N/A
Robert G. Muskas.................... 5,000 52.6% $ 18.6875 11/25/2006 $58,762 $148,915
Louis F. Busico..................... 0 0 $ 0 N/A N/A
</TABLE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END YEAR-END
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter S. Strawbridge.......... 0 $ 0 21,218 0 $ 0 N/A
Francis R. Strawbridge, III... 0 $ 0 21,218 0 $ 0 N/A
Warren W. White............... 0 $ 0 10,609 0 $ 0 N/A
Robert G. Muskas.............. 406 $9,643 8,401 0 $18,001 N/A
Louis F. Busico............... 0 $ 0 5,304 0 $ 0 N/A
</TABLE>
-------------------------
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Strawbridge & Clothier's executive compensation is supervised by the
Compensation Committee of the Board of Directors. The function of the
Compensation Committee is to review general compensation policies and
recommendations made regarding the salaries of executive officers. Strawbridge &
Clothier seeks to provide executive compensation that will support the
achievement of Strawbridge & Clothier's financial goals while attracting and
retaining talented executives and rewarding superior performance. In performing
this function, the Compensation Committee reviews the annual Management
Compensation Services ("MCS") study of retail management.
In general, Strawbridge & Clothier compensates its executive officers
through base salary, but may also consider long-term incentive compensation.
From time to time, the Stock Option Committee provides long-term incentive
compensation in the form of stock options where appropriate as compensation for
Strawbridge & Clothier's executive officers. In addition, executive officers
participate in benefit plans, including medical, dental and retirement plans,
that are available generally to Strawbridge & Clothier's employees.
Base salary levels for Strawbridge & Clothier's executive officers are set
generally to be competitive in relation to the salary levels of executive
officers in other companies within the retail industry, as shown in the MCS
study, taking into consideration the position's complexity, responsibility and
need for special expertise. Compensation of Strawbridge & Clothier's executive
officers falls within the low end of the range of compensation of the other
companies used as a comparison by the Committee. Overall changes in salary
levels for executive officers, including the Co-Chief Executive Officers, are
generally linked to corporate performance. In this regard, the Compensation
Committee reviews objective
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<PAGE>
measures each year, after results for the prior fiscal year are available before
setting salary levels. Such objective measures include changes in revenues from
operations, changes in operating profit results and changes in net earnings as
compared to the prior year. In reviewing salaries in individual cases, the
Compensation Committee also takes into account individual experience,
performance and special achievements.
The salaries for Strawbridge & Clothier's Co-Chief Executive Officers, P.S.
Strawbridge and F.R. Strawbridge, III, for the fiscal year ended February 3,
1996 increased from the prior year based primarily on Strawbridge & Clothier's
earnings performance in the fiscal year ended January 28, 1995 compared to the
fiscal year ended January 29, 1994. The other executive officers of Strawbridge
& Clothier also received increases based similarly on earnings performance.
COMPENSATION COMMITTEE:
Isaac H.Clothier, IV
Richard H. Hall
Thomas B. Harvey, Jr.
Paul E. Shipley
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<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph set forth below compares the cumulative
total stockholder return on the Series A Common Stock of Strawbridge & Clothier
with the cumulative total return on the S&P 500 and a peer group index of
regional departmental stores over the same period (assuming the investment of
$100 in the Series A Common Stock, the S&P 500 and the peer group index on
February 2, 1991, the end of fiscal 1990, reinvestment of all cash dividends and
equalization of stock splits and dividends).
Strawbridge & Clothier's peer group is comprised of six other regional
department store companies: Bon-Ton Stores, Inc., Gottschalks Inc., Jacobson
Stores Inc., Mercantile Stores Inc., Stein Mart Inc. and Younkers Inc.
[GRAPH]
FISCAL YEAR
1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------
Strawbridge & Clothier
- Series A $121.2 $142.5 $139.9 $140.5 $170.9
S&P 500 Index 125.4 138.5 155.1 156.6 217.0
Peer Group 127.4 104.9 109.5 115.5 118.8
- --------------------------------------------------------------------------------
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BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth the shareholdings as of the Record Date of
persons owning beneficially more than 5% of the outstanding shares of Series A
Common Stock or Series B Common Stock, the nominees and continuing directors,
certain executive officers and all executive officers and directors as a group.
As is indicated below, ownership of the Series B Common Stock, which is
convertible at all times into Series A Common Stock on a share-for-share basis,
also is deemed to be beneficial ownership of Series A Common Stock pursuant to
Rule 13d-3 under the Exchange Act.
<TABLE><CAPTION>
AMOUNT OWNED BENEFICIALLY(1)(2)
---------------------------------------------------------------------------------
SERIES B SERIES A
COMMON STOCK COMMON STOCK
--------------------------------------------------------- ----------------------
SOLE SHARED
VOTING VOTING PERCENT OF VOTING PERCENT OF
AND OR SERIES B AND SERIES A
NAME AND ADDRESS OF INVESTMENT INVESTMENT COMMON INVESTMENT COMMON
BENEFICIAL OWNER POWER POWER TOTAL STOCK(3) POWER(4) STOCK(5)
- --------------------------------- ---------- -------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
5% OWNERS
G. Stockton Strawbridge......... 275,649(6) 1,137,136(7)(8)(9)10) 1,412,785 48.6% 5,390(10) 15.5%
801 Market Street
Philadelphia, PA 19107-3199
PNC Bank, National 1,190,501(7)(8)(13) 1,190,501 40.1% 146,999(14) 15.0%
Association(11)(12).............
100 South Broad Street
Philadelphia, PA 19110-1023
Peter S. Strawbridge............ 18,233 659,453(7) 677,686 23.3% 21,885(15) 8.3%
801 Market Street
Philadelphia, PA 19107-3199
Henry M. Clews.................. 481,498(8)(10) 481,498 16.6% 5,390(10) 5.9%
22A School Street
Hanover, NH 03755-2027
Christopher S. Clews............ 481,498(8)(10) 481,498 16.6% 5,390(10) 5.9%
799 South Street
Portsmouth, NH 03801-5420
Francis R. Strawbridge, III..... 33,938 219,701(16) 253,639 8.7% 21,882(15) 3.5%
801 Market Street
Philadelphia, PA 19107-3199
Paul E. Shipley................. 79,307 211,557(6) 290,864 10.0% 3.6%
P.O. Box 4295
Greenville, DE 19807-0295
Thomas B. Harvey, Jr............ 30,292 136,000(16) 166,292 5.7% 2.1%
40 Cranbury Neck Road
Cranbury, NJ 08512-3100
Isaac H. Clothier, IV........... 116,180 101,243(13) 217,423 7.5% 7,833 2.8%
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-3793
NOMINEES
Isaac H. Clothier, IV........... 116,180 101,243(13) 217,423 7.5% 7,833 2.8%
Paul E. Shipley................. 79,307 211,557(6) 290,864 10.0% 3.6%
Peter S. Strawbridge............ 18,233 659,453(7) 677,686 23.3% 21,885(15) 8.3%
Warren W. White................. 7,288 7,288 11,243(15)
CONTINUING DIRECTORS
Jennifer S. Braxton............. 10 10 176(15)
Thomas B. Harvey, Jr............ 30,292 136,000(16) 166,292 5.7% 2.1%
David W. Strawbridge............ 29,908 29,908 11,099(15)
Francis R. Strawbridge, III..... 33,938 219,701(16) 253,639 8.7% 21,882(15) 3.5%
Steven L. Strawbridge........... 22,830 22,830 10,947(15)
Natalie B. Weintraub............ 2,895 2,895 323
CERTAIN EXECUTIVE OFFICERS
Robert G. Muskas................ 1,497 1,497 8,993(15)
Louis F. Busico................. 2,818 2,818 6,546(15)
All executive officers and
directors as a group (27
persons)........................ 376,097 1,198,279 1,574,376 54.2% 241,966(15) 19.2%
</TABLE>
(Footnotes on following page)
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(Footnotes for preceding page)
- ------------
(1) Includes, pursuant to Rule 13d-3, shares as to which sole or shared voting
power (which includes the power to vote, or to direct the voting of, such
shares) and/or sole or shared investment power (which includes the power to
dispose, or to direct the disposition, of such shares) is possessed. Also
includes shares subject to stock options as discussed in footnote (15)
below. Does not include any shares as to which neither voting power nor
investment power is possessed, even where the traditional economic interest
in the shares (i.e., the right to receive dividends and the right to
receive proceeds upon sale) is possessed.
(2) The shares of Series B Common Stock beneficially owned by all of the
persons indicated in the table total 2,119,719 shares (73.0% of the
outstanding Series B Common Stock), which ownership of Series B Common
Stock, together with the 386,522 shares of Series A Common Stock owned by
such persons, represents, exclusive of 173,427 option shares discussed in
footnote (15), 58.2% of the combined voting power of the Series A Common
Stock and Series B Common Stock. In addition, approximately 758,470 shares
of Series B Common Stock (26.1% of the outstanding Series B Common Stock)
are beneficially owned by other members of the Strawbridge family and the
Clothier family and trusts for their benefit. Such ownership of Series B
Common Stock, together with the approximately 283,634 shares of Series A
Common Stock (3.7% of the outstanding Series A Common Stock) owned by such
family members and trusts, represents 21.4% of the combined voting power.
(3) Percentages of less than 1% are not shown. There were 2,904,680 shares of
Series B Common Stock outstanding on June 3, 1996.
(4) The voting and investment power is sole unless otherwise indicated. The
amounts shown do not include shares of Series A Common Stock deemed to be
beneficially owned pursuant to Rule 13d-3 by virtue of ownership of Series
B Common Stock which is convertible on a share-for-share basis into Series
A Common Stock.
(5) The percentages represent the amount owned beneficially which includes
shares of Series A Common Stock deemed to be owned pursuant to Rule 13d-3
by virtue of ownership by the person or group of Series B Common Stock. The
percentages are based on the outstanding shares of Series A Common Stock
(7,709,841 at June 3, 1996), plus the shares of Series B Common Stock owned
beneficially by the person or group. Percentages of less than 1% are not
shown.
(6) Includes 211,001 shares as to which G.S. Strawbridge has sole voting power
and shares investment power with P.E. Shipley.
(7) Includes 655,441 shares as to which G.S. Strawbridge, P.S. Strawbridge and
PNC Bank, National Association share voting and investment power.
(8) Includes 418,825 shares as to which G.S. Strawbridge, H.M. Clews, C.S.
Clews and PNC Bank, National Association share voting and investment power.
(9) Not included are the 211,001 shares referred to in footnote (6) above.
(10) Includes 62,673 shares of Series B Common Stock and 5,390 shares of Series
A Common Stock as to which G.S. Strawbridge, H.M. Clews and C.S. Clews
share voting and investment power.
(11) The information relating to this person is presented in reliance upon
information set forth in a Schedule 13G filed with the Commission reporting
as of December 31, 1995.
(12) Does not include any shares held by the bank in purely custodial accounts.
(13) Includes 94,302 shares as to which I.H. Clothier, IV and PNC Bank, National
Association share voting and investment power.
(14) With respect to 88,660 of the shares, the voting or investment power is
shared.
(15) The numbers shown include shares of Series A Common Stock owned by the
individual or the members of the group through Strawbridge & Clothier's
401(k) Retirement Savings Plan as of March 31, 1996, as follows: F.R.
Strawbridge, III, 656 shares; S.L. Strawbridge, 308 shares; J.S. Braxton,
84 shares; D.W. Strawbridge, 490 shares; P.S. Strawbridge, 667 shares; W.W.
White, 634 shares; R.G. Muskas, 501 shares; L.F. Busico, 477 shares; and
all executive officers and directors as a group (21 persons) a total of
8,940 shares. The numbers shown also include shares of Series A Common
Stock which the individual or members of the group have the right to
acquire within 60 days upon the exercise of stock options, as follows: F.R.
Strawbridge, III, 21,218 shares; S.L. Strawbridge, 10,609 shares; D.W.
Strawbridge, 10,609 shares; P.S. Strawbridge, 21,218 shares; W.W. White,
10,609 shares; R.G. Muskas, 8,401 shares; L.F. Busico, 5,304 shares; and
all executive officers and directors as a group (20 persons) a total of
173,427 shares. In computing the percent of each series owned by an
individual or the group, the number of shares subject to options held by
the individual or the group are deemed outstanding.
(16) Includes 136,000 shares as to which F.R. Strawbridge, III and T.B. Harvey,
Jr. share voting and investment power with another co-trustee.
-------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires Strawbridge & Clothier's
directors and executive officers and persons who own more than ten percent of a
registered class of Strawbridge & Clothier's equity securities to file with the
Commission initial reports of ownership and reports of changes in ownership of
Strawbridge & Clothier Common Stock and other equity securities of Strawbridge &
Clothier. Executive officers, directors and greater than ten percent
shareholders are required by the regulations adopted by the Commission pursuant
to the Exchange Act to furnish Strawbridge & Clothier with copies of all Section
16(a) forms they file. To Strawbridge & Clothier's knowledge, based solely on a
review of the copies of such reports furnished to Strawbridge & Clothier, for
the fiscal year ended February 3, 1996, all reports required to be filed
pursuant to Section 16(a) by the executive officers, directors and greater than
ten percent shareholders of Strawbridge & Clothier were timely filed.
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APPROVAL OF DESIGNATION OF AUDITORS
On February 28, 1996, the Board of Directors of Strawbridge & Clothier
designated, in accordance with the Strawbridge & Clothier By-Laws and at the
recommendation of the Audit Committee, the firm of Ernst & Young LLP,
independent auditors, to audit the books and accounts of Strawbridge & Clothier
for the fiscal year ending February 1, 1997. IN ACCORDANCE WITH ITS POLICY OF
SEEKING ANNUAL SHAREHOLDER APPROVAL OF THE APPOINTMENT OF AUDITORS, THE BOARD OF
DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE DESIGNATION OF THIS FIRM
IN THIS CAPACITY. If the shareholders do not approve such designation, the
selection of auditors will be reconsidered by the Board of Directors. A
representative of Ernst & Young LLP will be present at the Annual Meeting. He
will have an opportunity to make a statement if he desires to do so and will be
available to respond to appropriate questions.
EXPERTS
The consolidated financial statements and related schedules of May as of
February 3, 1996 and January 28, 1995 and for each of the three years ended
February 3, 1996, January 28, 1995 and January 29, 1994, incorporated by
reference in this Proxy Statement/Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firms as experts in
accounting and auditing in giving said reports.
The consolidated financial statements of Strawbridge & Clothier incorporated
by reference in Strawbridge & Clothier's Annual Report (Form 10-K) for the year
ended February 3, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
LEGAL OPINIONS
The validity of the shares of May Common Stock issuable by May pursuant to
the May Asset Purchase Agreement will be passed upon by Skadden, Arps, Slate,
Meagher & Flom, counsel to May. A member of Skadden, Arps, Slate, Meagher & Flom
beneficially owns 4,000 shares of May Common Stock. Mrs. Helene Kaplan, Esq., of
counsel to Skadden, Arps, Slate, Meagher & Flom, is a member of the Board of
Directors of May, and owns 8,100 shares of May Common Stock.
PROXY SOLICITATION EXPENSES
All expenses of this solicitation including the cost of mailing the Proxy
Statement/Prospectus will be borne by Strawbridge & Clothier. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of Strawbridge & Clothier in person or by telephone,
telegram or other means of communication. Such directors, officers and employees
will not be additionally compensated, but may be reimbursed for out-of-pocket
expenses, in connection with such solicitation. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding proxy solicitation
material to beneficial owners of shares of Strawbridge & Clothier Common Stock
held of record by such persons, and Strawbridge & Clothier may reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. Strawbridge & Clothier has also engaged Georgeson & Co. to
solicit proxies on its behalf. Strawbridge & Clothier has agreed to pay such
firm a proxy solicitation fee of $8,000 and to reimburse such firm for its
reasonable out-of-pocket expenses.
SHAREHOLDER PROPOSALS
In the event the Liquidation Proposal has not been approved prior thereto,
Strawbridge & Clothier currently anticipates holding an annual meeting on or
about August 1, 1997. Accordingly, any proper shareholder proposal to be
presented at such annual meeting must be received by Strawbridge & Clothier no
later than December 24, 1996, and should be sent to the attention of the
Secretary, Strawbridge & Clothier, 801 Market Street, Philadelphia, Pennsylvania
19107.
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OTHER MATTERS
The management of Strawbridge & Clothier does not know of any matters, other
than those referred to in the accompanying Notice of Annual Meeting of
Shareholders, to be presented at the meeting for action by the shareholders.
However, if any other matters are properly brought before the meeting or any
adjournments or postponements thereof, it is intended that votes will be cast
pursuant to the proxies with respect to such matters in accordance with the best
judgment of the persons acting under the proxies.
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<PAGE>
ANNEX A
STRAWBRIDGE & CLOTHIER
PLAN OF REORGANIZATION AND LIQUIDATION
This Plan of Reorganization and Liquidation (the "Plan") is for the purpose
of effecting the dissolution and liquidation of Strawbridge & Clothier, a
Pennsylvania corporation (the "Company"), in accordance with and pursuant to the
provisions of the Pennsylvania Business Corporation Law and Section 368(a) of
the Internal Revenue Code of 1986, as amended, in substantially the following
manner:
1. Effective. The Plan shall be effective on the date (the "Effective Date")
on which it is adopted by the affirmative vote of the holders of a majority of
the outstanding shares of the Series A Common Stock and Series B Common Stock of
the Company, voting separately as a class and together, at an annual meeting
(the "Annual Meeting") of the Company's shareholders (the "Shareholders") called
for such purpose pursuant to a Notice and Joint Proxy/Registration Statement on
Form S-4 filed with the Securities and Exchange Commission.
2. Cessation of Business. After the Effective Date, the Company shall not
engage in any business activities except for the purposes of (i) prosecuting or
defending lawsuits by or against the Company, (ii) enabling the Company to
gradually settle and close its business, dispose of and convey its property,
discharge liabilities and wind up its business affairs and (iii) making the
Liquidation Distribution (as hereinafter defined) and distributing its remaining
assets, if any, in accordance with the Plan. The Board of Directors of the
Company (the "Board") and, at their pleasure, the officers, shall continue in
office solely for these purposes. After Articles of Dissolution are filed with
the Pennsylvania Department of State, the Company will not plan to hold any
further annual meetings of its Shareholders.
3. Dissolution. As promptly as practicable after the Effective Date and upon
the filing of Articles of Dissolution with the Pennsylvania Department of State
the Company shall be dissolved pursuant to Subchapter H of Chapter 19 of the
Pennsylvania Business Corporation Law ("Subchapter H").
4. Sale of Assets. As part of the overall plan of reorganization, the
Company has entered into (i) the Asset Purchase Agreement (the "May Agreement")
dated as of April 4, 1996 between the Company and The May Department Stores
Company ("May") providing for the sale of the department store assets of the
Company in exchange for shares of May Common Stock (the "May Shares") (the "May
Acquisition"); and (ii) the Asset Purchase Agreement (the "Kimco Agreement")
dated as of May 3, 1996 between the Company and Kimco Realty Corporation
providing for the sale of the Clover stores for cash (the "Kimco Acquisition",
together with the May Acquisition, the "Acquisitions"). After the Effective
Date, the Company shall have continuing authority to sell, lease, exchange or
otherwise convert all or any part of its assets as contemplated by the terms and
provisions of the Plan, including, if the requisite approval of the Shareholders
is received, the consummation of the Acquisitions pursuant to the Acquisition
Agreements.
5. Payment of Debts. The Company shall pay or make proper provision for the
payment of all known or ascertainable liabilities of the Company, including all
amounts estimated by the Board to be necessary, appropriate or desirable, in its
absolute discretion, for the payment of estimated expenses, taxes and contingent
liabilities (including expenses of dissolution, liquidation and termination of
existence) (the "Contingency Reserve"), all as provided in Subchapter H. The
Contingency Reserve may consist of a portion of the May Shares, cash or other
property, if any. The Company may, if deemed necessary, sell May Shares and
apply the proceeds of the sale to the payment of liabilities.
6. Liquidating Distribution. The Company shall distribute pro rata to the
Shareholders that portion of the May Shares remaining after making provision for
the Contingency Reserve (the
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<PAGE>
"Liquidating Distribution"). The Liquidating Distribution may be made in a
series of distributions and is intended to be made in May Shares but may be in
cash or kind, in such manner and at such time or times as the Board, in its
absolute discretion, may determine.
7. Cancellation of Common Stock. The Liquidating Distribution shall be in
complete redemption and cancellation of all of the outstanding Common Stock of
the Company. The Board may direct that the Company's stock transfer books be
closed at the close of business on the record date fixed by the Board for the
first or any subsequent installment of any Liquidating Distribution as the
Board, in its absolute discretion, may determine (the "Record Date") and
thereafter certificates representing Common Stock shall not be assignable or
transferable on the books of the Company except by will, intestate succession or
operation of law. The Shareholders shall surrender stock certificates (or, if so
required by the Board in its absolute discretion, furnish indemnity bonds in
case of lost or destroyed certificates) as a condition to their receipt of any
Liquidating Distribution immediately following the Record Date.
8. Missing Shareholders. If any Liquidating Distribution to a Shareholder
cannot be made, whether because the Shareholder cannot be located, has not
surrendered a certificate evidencing the Common Stock as required hereunder, or
for any other reason, then the distribution to which such Shareholder is
entitled shall (unless transferred to the trust established pursuant to Section
11 hereof) be transferred to and deposited with the state official authorized by
the laws of the Commonwealth of Pennsylvania to receive the proceeds of such
distribution. The proceeds of such distribution shall thereafter be held solely
for the benefit of and for ultimate distribution to such Shareholder as the sole
equitable owner thereof and shall escheat to the Commonwealth of Pennsylvania or
be treated as abandoned property in accordance with the laws of the Commonwealth
of Pennsylvania. In no event shall the proceeds of any such distribution revert
to or become the property of the Company.
9. Amendments. Notwithstanding the adoption of the Plan by the Company's
Shareholders, the Board may modify or amend the Plan (including, without
limitation, proceeding under the provisions of Section 1975 of the Pennsylvania
Business Corporation Law) and, prior to the filing of Articles of Dissolution
with the Department of State of the Commonwealth of Pennsylvania, may abandon
the Plan, without further action by the Shareholders to the extent permitted by
Pennsylvania law.
10. Indemnification. The Company shall continue to indemnify its officers,
directors, employees and agents in accordance with applicable law, its articles
and bylaws and any contractual arrangements for actions taken in connection with
the Plan and the winding up of the affairs of the Company and shall indemnify
any liquidating trustees and their agents on similar terms. The Company's
obligation to indemnify such persons may be satisfied out of the assets of the
Liquidating Trust (as defined below). The Board and the trustees, in their
absolute discretion, are authorized to obtain and maintain insurance for the
benefit of such officers, directors, employees, agents and trustees to the
extent permitted by law.
11. Liquidating Trust. If necessary for any reason to complete the
liquidation and distribution of the Company's assets to the Shareholders, the
Board may at any time transfer to a liquidating trust (the "Liquidating Trust")
under a Liquidating Trust Agreement substantially in the form attached hereto as
Annex 1, any remaining assets of the Company which are held as the Contingency
Reserve. The Trust, if any, will succeed to all of the then remaining assets of
the Company, including such reserve, and any liabilities of the Company. The
sole purpose of the Trust will be to liquidate on terms satisfactory to the
liquidating trustee(s) and to distribute the assets formerly owned by the
Company, if any, after paying any remaining liabilities of the Company to the
Shareholders.
12. Power of Board of Directors. The Board and, if authorized by the Board,
the officers, shall have authority to do or authorize any and all acts and
things as provided for in the Plan and any and all such further acts and things
as they may consider desirable to carry out the purposes of the Plan,
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<PAGE>
including the execution and filing of all such certificates, documents,
information returns, tax returns, and other documents which may be necessary or
appropriate to implement the Plan. The Board may authorize such variations from
or amendments to the provisions of the Plan as may be necessary or appropriate
to effectuate the complete liquidation and dissolution of the Company and the
distribution of its assets to its Shareholders in accordance with the
Pennsylvania Business Corporation Law. The death, resignation, or other
disability of any director or officer of the Company shall not impair the
authority of the surviving or remaining director(s) or officer(s) to exercise
any of the powers provided for in the Plan. Upon such death, resignation or
other disability, the surviving or remaining director(s), or, if there be none,
to the extent permitted by law the surviving or remaining officer(s) shall have
authority to fill the vacancy or vacancies so created, but the failure to fill
such vacancy or vacancies shall not impair the authority of the surviving or
remaining director(s) or officer(s) to exercise any of the powers provided for
in the Plan. In connection with and for the purpose of implementing and assuring
completion of the Plan, the Company may, in the absolute discretion of the
Board, pay to the Company's officers, directors and employees, or any of them,
compensation or additional compensation above their regular compensation, in
money or property, in recognition of the extraordinary efforts they, or any of
them, will be required to undertake or actually undertake, in successful
implementation of the Plan. Adoption of the Plan by the Shareholders shall
constitute the approval of the Shareholders of the payment of any such
compensation. The dissolution of the Company shall not subject its directors or
officers to standards of conduct different from those prescribed by or pursuant
to Chapter 17 of the Pennsylvania Business Corporation Law. Compliance by the
Company with Section 1997 of the Pennsylvania Business Corporation Law shall
protect the directors of the Company and the trustee(s) of the Liquidating Trust
from personal liability to the claimants of the Company.
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<PAGE>
ANNEX 1
LIQUIDATING TRUST AGREEMENT
This AGREEMENT AND DECLARATION OF TRUST is made by and between STRAWBRIDGE &
CLOTHIER, a Pennsylvania corporation (the "Company"), and and (the
"Trustees").
WHEREAS, the Company is in the process of liquidation and dissolution
pursuant to a Plan of Reorganization and Liquidation (the "Plan") adopted by the
Company's shareholders on , 1996;
WHEREAS, pursuant to the aforesaid Plan, the Company is to complete its
liquidation by , 1997;
WHEREAS, pursuant to the terms of an Asset Purchase Agreement (the "May
Agreement") dated as of April 4, 1996 between the Company and The May Department
Stores Company ("May"), the Company has transferred to May, on , 1996, its
department store assets in exchange for shares of May Common Stock and the
assumption of certain liabilities as provided in the May Agreement;
WHEREAS, the transfer of the department store assets contemplated by the May
Agreement, in conjunction with the Liquidation, is intended to qualify as a
tax-free reorganization pursuant to Sections 368(a)(1)(C) and 368(a)(2)(G) of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the Company has distributed a portion of the shares of May Common
Stock received by the Company pursuant to the May Agreement to its shareholders
and has retained the balance as a contingency reserve to satisfy any remaining
liabilities of the Company;
WHEREAS, the shareholders of the Company have approved this Agreement and
have authorized the Company to make distributions, on behalf of the
shareholders, to the Trustees, as trustees of this Trust;
NOW, THEREFORE, in consideration of the foregoing and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby grants, releases, assigns, transfers, conveys and delivers to the
Trustees all of the Company's right, title and interest in and to all assets it
currently owns, holds or in which it otherwise possesses any interest, subject
to the assumption by the Trustees of all of the Company's liabilities and
obligations, whether ascertained, unascertained or contingent, IN TRUST for the
uses and purposes stated herein and subject to the terms and provisions set out
below, and the Trustees hereby accept such assets and such Trust and hereby
assume such liabilities and obligations of the Company subject to the terms and
provisions set out below.
ARTICLE 1
NAMES AND DEFINITIONS
1.1 Name. This Trust shall be known as the S&C Liquidating Trust (the
"Trust").
1.2 Definitions.
(a) Agreement or Agreement of Trust shall mean this instrument as
originally executed or as it may from time to time hereafter be amended
pursuant to the terms hereof.
(b) Beneficiaries shall mean the shareholders of the Company as they
appear in the records of the Trust from time to time.
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(c) Trust Corpus shall mean the property held from time to time by the
Trustees, subject to all of the liabilities and obligations assumed by the
Trustees, under this Trust.
ARTICLE 2
NATURE OF TRANSFER
2.1 Nature and Purpose of Trust. The Trust exists solely for the purposes of
holding, liquidating and disposing of any assets received by it and paying or
settling the ascertained, unascertained and contingent liabilities and
obligations of the Company and thereafter distributing the remaining Trust
Corpus to the Beneficiaries. In connection with such purpose, it is intended
that the Trust serve as a vehicle for the preservation and maintenance of the
Trust Corpus, with a view to its liquidation and not the conduct of a continuing
business. This Agreement is intended to create a trust, and to be governed and
construed in all respects as a trust. The Trust is not intended to be, shall not
be deemed to be and shall not be treated as a general partnership, limited
partnership, joint venture, corporation, joint stock company or association, nor
shall the Trustees or the Beneficiaries, or any of them, for any purpose be, or
be deemed to be or treated in any way whatsoever to be, liable or responsible
hereunder as partners or joint venturers. The relationship of the Beneficiaries
to the Trustees shall be solely that of beneficiaries of a trust, and their
rights shall be limited to those conferred upon them by this Agreement. In no
event shall any part of the Trust Corpus revert or be distributed to the
Company. Notwithstanding any other provision hereof, the Trustees are authorized
and empowered to take only such action as is necessary or advisable to preserve
the Trust Corpus pending its distribution to the Beneficiaries, and the Trustees
shall have no power or authority to enter into or engage in the conduct of any
trade or business in respect of the Trust Corpus.
2.2 Instruments of Further Assurance. The Company and such persons as shall
have the right and power after the dissolution of the Company will, upon request
of the Trustees, execute, acknowledge, and deliver such further instruments and
do such further acts as may be necessary or proper to effectively carry out the
purposes of this Agreement, to confirm the transfer to the Trustees of any
property covered or intended to be covered hereby and the assumption of all
liabilities pertaining thereto, and to vest in the Trustees, their successors
and assigns, the estate, powers, instruments or funds in trust hereunder.
2.3 Unknown Property and Liabilities. The Trustees shall be responsible for
only the property delivered to them or registered in their names and shall have
no duty to make, nor incur any liability for failing to make, any search for
unknown property. The Trustees shall be responsible for only those liabilities
and obligations of which they are informed and shall have no duty to make, nor
any liability for failing to make, any search for unknown liabilities.
2.4 Transferee Liability. In the event that any liability is asserted
against the Trustees as recipients of the property transferred to the Trustees
hereunder, on account of any claimed liability of or through the Company, the
Trustees may use such part of the Trust Corpus as may be reasonable for
contesting any such liability and in payment thereof, including reasonable
attorneys' fees incurred in connection therewith.
2.5 Limitation of Liability. No personal liability shall attach to the
Trustees or the Beneficiaries with respect to any liabilities or obligations
arising under this Agreement, and all persons dealing with the Trust must look
solely to the Trust Corpus for the enforcement of any claims against the Trust.
2.6 Assignment for Benefit of Beneficiaries. The Trustees hereby assign to
the Beneficiaries the beneficial interest in all the Trust Corpus, and retain
only such incidents of ownership therein as are necessary to undertake the
actions and transactions authorized herein.
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ARTICLE 3
BENEFICIARIES
3.1 Beneficial Interests. The beneficial interests of the Beneficiaries
shall be recorded by the Trustees or their agent on the books of the Trust. The
beneficial interests of the Beneficiaries will be evidenced only by the Trust's
records and there will be no certificates or other tangible evidence of such
interests. The beneficial interests of the Beneficiaries will not be
transferable except pursuant to the laws of descent and distribution or by
operation of law.
If any conflicting claims or demands are made or asserted with respect to
beneficial interests herein, or if there should be any disagreement among the
transferees, assignees, heirs, representatives or legatees succeeding to all or
a part of the interest on any Beneficiary resulting in adverse claims or demands
being made in connection with such interest, then, in any of such events, the
Trustees shall be entitled, at their sole election, to refuse to comply with any
such conflicting claims or demands. In so refusing, the Trustees may elect to
make no payment or distribution in respect of the beneficial interest involved,
or any part thereof, and in so doing the Trustees shall not be or become liable
to any of such parties for their failure or refusal to comply with any of such
conflicting claims or demands, nor shall the Trustees be liable for interest on
any funds which they may so withhold. The Trustees shall be entitled to refrain
and refuse to act until (i) the rights of the adverse claimants have been
adjudicated by a final judgment of a court of competent jurisdiction from which
there is no appeal pending and the applicable appeal period shall have expired,
(ii) all differences have been adjusted by valid written agreement between all
of such parties, and the Trustees shall have been furnished with an executed
counterpart of such agreement, or (iii) there is furnished to the Trustees a
surety bond or other security satisfactory to the Trustees, as they shall deem
appropriate, to fully indemnify them as between all conflicting claims or
demands.
3.2 Rights of Beneficiaries. The Beneficiaries shall take and hold their
beneficial interests subject to all the terms and provisions of this Agreement
of Trust. The interest of the Beneficiaries is hereby declared to, and shall be
in all respects, personal property. The Beneficiaries shall have no title to,
possession of, management of, or control of, the Trust Corpus except as herein
expressly provided. The whole title to all the Trust Corpus shall be vested in
the Trustees and the sole interest of the Beneficiaries shall be the rights and
benefits given to them under this Agreement of Trust.
3.3 Applicable Law. As to matters affecting the title, ownership,
transferability, or attachment of the interest of the Beneficiaries in the
Trust, the laws from time to time in force in the Commonwealth of Pennsylvania
shall govern except as otherwise herein specifically provided.
ARTICLE 4
DURATION AND TERMINATION OF TRUST
4.1 Duration. The existence of this Trust shall terminate two years from the
date of the transfer of the Company's assets to the Trust, unless earlier
terminated by the distribution of all of the Trust Corpus; provided, however,
that if the Trust holds installment obligations that are payable over a period
that ends more than two years after the date of transfer of the Company's assets
to the Trust, the term of the Trust with respect to those obligations only shall
extend for such longer period as is reasonably necessary to collect and
distribute all payments made on such obligations; and, further provided that the
Trustees will make continuing efforts to dispose of the Trust Corpus, make
timely distributions, and not unduly prolong the duration of the Trust; and,
further provided that the Trustee will make continuing efforts to dispose of the
Trust Corpus, make timely distributions, and not unduly prolong the duration of
the Trust.
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4.2 Continuance of Trust for Winding Up. After the termination of the Trust
and for the purpose of liquidating and winding up the affairs of the Trust, the
Trustees shall continue to act as such until their duties have been fully
performed. Upon distribution of all the Trust Corpus, the Trustees shall retain
the books, records, shareholder lists, Beneficiary lists, and certificates and
other documents and files which shall have been delivered to or created by the
Trustees. At the Trustees' discretion, all of such records and documents may,
but need not, be destroyed at any time after three years from the completion and
winding up of the affairs of the Trust. Except as otherwise specifically
provided herein, upon the discharge of all liabilities of the Trust and final
distribution of all of the Trust Corpus, the Trustees shall have no further
duties or obligations hereunder except to account as provided in Section 5.3
hereof.
ARTICLE 5
ADMINISTRATION OF TRUST ESTATE
5.1 Payment of Claims, Expenses and Liabilities. The Trustees shall pay from
the Trust Corpus all claims, expenses, charges, liabilities, and obligations of
the Trust and all liabilities and obligations which the Trustees specifically
assume and agree to pay pursuant to this Agreement and such transferee
liabilities as the Trustees may be obligated to pay as transferees of the assets
comprising the Trust Corpus, and the costs, charges, and expenses connected with
or growing out of the execution or administration of the Trust and such other
payments and disbursements as are provided in this Agreement or as may be
determined to be a proper charge against the Trust Corpus by the Trustees.
5.2 Interim Distributions. The Trust shall distribute at least annually to
the Beneficiaries its net income plus all net proceeds from the sale of assets,
except that the Trust may retain an amount of net income or net proceeds
reasonably necessary to maintain the value of the Trust Corpus or to meet claims
and contingent liabilities.
5.3 Final Distribution. If the Trustees determine that all claims, debts,
liabilities, and obligations of the Trust have been paid or discharged and that
the remaining assets of the Trust may be conveniently distributed in kind, or if
the existence of the Trust shall terminate pursuant to Section 4.1 hereof, the
Trustees shall, as expeditiously as is consistent with the conservation and
protection of the Trust Corpus, distribute the Trust Corpus to the Beneficiaries
of record on the close of business on such record date as the Trustees may
determine.
5.4 Reports to Beneficiaries. As soon as practicable after the end of each
fiscal year of the Trust and after termination of the Trust, the Trustees shall
submit a written report to the Beneficiaries (which report shall constitute the
accounting of the Trust for such period) showing (i) the assets and liabilities
of the Trust at the end of such fiscal year or upon termination and the receipts
and disbursements of the Trustees for such fiscal year or period, (ii) any
changes in the Trust Corpus which they have not previously reported, and (iii)
any action taken by the Trustees in the performance of their duties under this
Agreement of Trust which they have not previously reported and which, in their
opinion, materially affects the Trust Corpus. The fiscal year of the Trust shall
end on December 31 of each year unless the Trustees deem it advisable to
establish some other date as the date on which the fiscal year of the Trust
shall end.
5.5 Federal Income Tax Information. As soon as practicable after the close
of each fiscal year, the Trustees shall mail to the Beneficiaries a statement
showing the dates and amounts of all distributions made by the Trustees, if any,
and such other information as is reasonably available to the Trustees which may
be helpful in determining the amount and character of items of income,
deductions and credits of the Trust that the Beneficiaries should include in
their federal income tax returns for the preceding year.
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ARTICLE 6
POWERS OF AND LIMITATIONS UPON THE TRUSTEES
6.1 General Powers of and Limitations upon Trustees. The Trustees, subject
only to the specific limitations contained in this Agreement, shall have,
without further or other authorization, and free from any power or control on
the part of the Beneficiaries, full, absolute and exclusive power, control and
authority over the Trust Corpus and over the affairs of the Trust to the same
extent as if the Trustees were the sole owners thereof in their own right,
provided, however, that such power, control and authority shall only be
exercised to do such acts and things as in their sole judgment and discretion
are necessary or incidental to, or desirable for, the carrying out of any of the
purposes of the Trust. Any determination made in good faith by the Trustees of
the purposes of the Trust or the existence of any power or authority hereunder
shall be conclusive and binding upon the Beneficiaries. In construing the
provisions of this Agreement, presumption shall be in favor of the grant of
powers and authority to the Trustees, except insofar as the existence or
exercise of any such power or authority would jeopardize the status of the Trust
as a grantor trust for federal income tax purposes. The enumeration of any
specific power or authority herein shall not be construed as limiting the
general powers or authority or any other specified power or authority conferred
herein upon the Trustees. As set forth in Section 2.1 hereof, the Trustees shall
not at any time, on behalf of the Trust or the Beneficiaries, enter into or
engage in any trade or business, and no part of the Trust Corpus shall be used
or disposed of by the Trustees in furtherance of any trade or business. This
limitation shall apply irrespective of whether the conduct of any such business
activities is deemed by the Trustees to be necessary or proper for the
conservation and protection of the Trust Corpus.
The Trustees shall invest the funds of the Trust Corpus in demand and time
deposits in banks or savings institutions, or temporary investments such as
short-term certificates of deposit or Treasury bills. The sole purpose of the
Trust shall be to liquidate the Trust Corpus and discharge the liabilities
transferred to it with no objective to continue or engage in the conduct of any
trade or business. In no event shall the Trustees receive any property, make any
distribution, satisfy or discharge any obligation, claim, liability, or expense
or otherwise take any action which is inconsistent with a complete liquidation
of the Company as that term is used and interpreted by Sections 368(a)(1)(C) and
368(a)(2)(G) of the Code, the Treasury Regulations promulgated thereunder, and
rulings, decisions and determinations of the Internal Revenue Service or any
court of competent jurisdiction, or take any action that would jeopardize the
status of the Trust as a "liquidating trust" for federal income tax purposes
within the meaning of Treasury Regulation Section 301.7701-4(d). The Trust does
not, and will not, receive or retain cash in excess of a reasonable amount to
meet claims and contingent liabilities. In addition, the Trust does not, and
will not, receive transfers of any unlisted stock of a single issuer that
represents 80 percent or more of the stock of such issuer, and the Trust does
not, and will not, receive transfers of any general or limited partnership
interests.
6.2 Specific Powers of Trustees. Subject to the provisions of Section 6.1
hereof, the Trustees shall have the following specific powers in addition to any
powers conferred upon them by any other Section or provision of this Agreement
of Trust or by virtue of any present or future statute or rule of law, in all
instances without any action or consent required by the Beneficiaries; provided,
however, that the enumeration of the following powers shall not be considered in
any way to limit or control the power of the Trustees to act as specifically
authorized by any other Section or provision of this Agreement and to act in
such a manner as the Trustees may deem necessary or appropriate, in their sole
discretion, to conserve, protect, and administer the Trust Corpus or otherwise
to confer upon the Beneficiaries the benefits intended to be conferred upon them
by this Agreement.
(a) To retain and set aside such funds out of the Trust Corpus as the
Trustees shall deem necessary or expedient to pay, or provide for the
payment of, (i) unpaid claims, liabilities, debts or
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obligations of the Trust, (ii) contingencies, and (iii) the expenses of
administering the Trust Corpus;
(b) To do and perform any acts or things necessary or appropriate for
the conservation and protection of the Trust Corpus, and in connection
therewith to employ any agents or representatives as the Trustees deem
expedient and to pay reasonable compensation therefor;
(c) To sell, transfer, assign, borrow against, pledge, hypothecate or
deal in any other manner with any of the Trust Corpus, including the shares
of May Common Stock, in such manner as the Trustees may deem advisable for
any Trust purpose;
(d) To engage in, intervene in, prosecute, join, defend, compound,
settle, compromise, abandon or adjust by arbitration or otherwise, any
actions, suits, proceedings, disputes, claims, controversies, demands or
other litigation to enforce any instruments, contracts, agreements, claims
or causes of action relating to the Trust, the Trust Corpus or the Trust's
affairs, to enter into agreements relating to the foregoing, whether or not
any suit is commenced or claim accrued or asserted and, in advance of any
controversy, to enter into agreements regarding arbitration, adjudication or
settlement thereof, all in the name of the Trust or of the Company if
otherwise required;
(e) To file any and all documents and take any and all such other action
as the Trustees, in their sole judgment, may deem necessary in order that
the Trust may lawfully carry out its purposes in any jurisdiction;
(f) To change the name of the Trust;
(g) To prepare and file, or assist in the preparation and filing of,
federal and state tax returns and reports required to be filed on behalf of
the Trust or the Trustees.
ARTICLE 7
LIABILITY OF TRUSTEES AND BENEFICIARIES AND OTHER MATTERS
7.1 Generally. No Trustee shall be liable to the Trust or to any Trustee or
Beneficiary for any act or omission of any other Trustee, Beneficiary, or agent
of the Trust, or be held to any personal liability whatsoever in tort, contract,
or otherwise in connection with the affairs of the Trust, except only that
arising from his or her own bad faith, wilful misfeasance, gross negligence, or
reckless disregard of duty. No Trustee shall be liable except for the
performance of such duties and obligations as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into this
agreement against the Trustee. No Trustee shall be liable with respect to any
action taken or omitted to be taken by him or her in good faith, in accordance
with the direction of Beneficiaries having an aggregate beneficial interest of
more than 50% of the total beneficial interests in the Trust. In addition to,
and not in limitation of, the foregoing, no successor Trustee shall be in any
way liable for the acts or omissions of any Trustee or agent of the Trust
occurring prior to the date on which he or she became Trustee.
7.2 Reliance by Trustees. The Trustees may consult with counsel, auditors or
other experts, and the advice or opinion of such counsel, auditors, or other
experts shall be full and complete personal protection to the Trustees in
respect of any action taken or suffered by them in good faith and in reliance
upon or in accordance with such advice or opinion. In discharging their duties,
the Trustees may rely upon financial statements of the Trust represented to them
to be correct by the person having charge of its books of account. The Trustees
may rely, and shall be personally protected in acting, upon any instrument or
other document of any sort whatsoever reasonably believed by them to be genuine.
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7.3 Limitation of Liability of Trustees and Beneficiaries. The Trustees, in
incurring any debts, liabilities, or obligations, or in taking or omitting any
other actions for or in connection with the Trust, are, and shall be deemed to
be, acting as Trustees of the Trust and not in their own individual capacities.
Except to the extent provided in Section 7.1 hereof, no Trustee shall, nor shall
any Beneficiary, be liable for any debt, claim, demand, judgment, decree,
liability, or obligation of any kind of, against, or with respect to the Trust,
arising out of any action taken or omitted for or on behalf of the Trust, and
the Trust shall be solely liable therefor, and resort shall be had solely to the
Trust Corpus for the payment or performance thereof. A Beneficiary shall be
entitled to pro rata indemnity from the Trust Corpus, if, contrary to the
provisions hereof, the Beneficiary shall be held to any such personal liability.
7.4 Express Exculpatory Clauses in Instruments. As far as practicable, the
Trustees shall cause any written instrument creating an obligation of the Trust
to include a reference to this Agreement and to provide that neither the
Beneficiaries nor the Trustees shall be liable thereunder and that the other
parties to such instrument shall look solely to the Trust Corpus for the payment
of any claim thereunder or the performance thereof; provided, however, that the
omission of such provision from any such instrument shall not render the
Beneficiaries or any Trustee liable nor shall the Trustees be liable to anyone
for such omission.
7.5 Indemnification of Trustees.
(a) Each Trustee shall be indemnified from the Trust Corpus against any
loss, liability, expense (including attorney's fees and costs), or damage which
such Trustee may incur or sustain by reason of being or having been a Trustee of
the Trust or for performing any functions incidental to such service; provided,
however, that the foregoing shall not relieve such person of liability for bad
faith, willful misfeasance, gross negligence, or reckless disregard of duty.
(b) Indemnification under paragraph (a) of this Section 7.5 shall be made by
the Trust as authorized in the specific case unless a determination has been
made that indemnification of the Trustee is improper in the circumstances
because he or she has not met the applicable standards of conduct. Such
determination shall be made by independent legal counsel (who may be counsel to
the Trust) in a written opinion.
(c) Expenses incurred in connection with a civil, criminal, administrative,
or investigative action, suit, or proceeding, or threat thereof, may be paid by
the Trust in advance of the final disposition of such action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the Trustee to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Trust as authorized herein.
(d) The indemnification provided in this Section 7.5 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any other agreement or otherwise, both as to action as Trustee and as to action
in another capacity while holding such office, and shall continue as to a person
who has ceased to be a Trustee and shall inure to the benefit of the heirs,
executors, and administrators of such person.
(e) The Trust shall have the power to purchase and maintain at the expense
of the Trust insurance on behalf and for the benefit of any person who is or was
a Trustee of the Trust against such person as Trustee, whether or not the Trust
would have the power to indemnify such person against such liability under the
provisions of this Section 7.5.
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ARTICLE 8
PROTECTION OF PERSONS DEALING WITH THE TRUSTEES
8.1 Reliance upon Acts of Trustees. Any act of a Trustee purporting to be
done in his or her capacity as such shall, as to any persons dealing with such
Trustee, be conclusively deemed to be within the purpose of this Trust and
within the powers of the Trustee. As to any matter requiring or involving action
by the Beneficiaries, any person dealing with a Trustee shall be fully protected
in relying upon the Trustee's certificate setting forth the facts concerning the
calling of any meeting of the Beneficiaries, the giving of notice thereof, and
the action taken at such meeting, including the aggregate beneficial interests
of the Beneficiaries taking such action.
ARTICLE 9
COMPENSATION OF TRUSTEES
9.1 Amount of Compensation. In lieu of commissions or other compensation
fixed by law for trustees, the Trustees shall be entitled to receive reasonable
fees as compensation for their services as Trustees.
9.2 Dates of Payment. The compensation payable to the Trustees pursuant to
the provisions of Section 9.1 hereof shall be paid monthly or at such other
times as the Trustees may determine.
9.3 Expenses. The Trustees shall be reimbursed from the Trust Corpus for all
expenses reasonably incurred in accordance with this Agreement.
ARTICLE 10
CONCERNING THE TRUSTEES
10.1 Number and Qualification. Subject to the provisions of Section 10.3
hereof relating to the period pending the appointment of a successor Trustee,
there shall be at least one Trustee of the Trust.
10.2 Resignation and Removal. Any Trustee may resign and be discharged from
the Trust hereby created by giving written notice thereof to the Beneficiaries.
Such resignation shall become effective on the day specified in such notice or
upon the appointment of such Trustee's successor and such successor's acceptance
of such appointment, whichever is earlier, without need for prior accounting.
Any Trustee may be removed at any time, with or without cause, by vote of
Beneficiaries holding more than 50% of the total beneficial interests in the
Trust.
10.3 Appointment of Successor. Should at any time a Trustee resign or be
removed, or die or become incapable of action, or be adjudged a bankruptcy or
insolvent, a vacancy shall be deemed to exist and a successor shall be appointed
by any remaining Trustee. If any vacancy is not filled by any remaining Trustee
within 90 days, or if there is no remaining Trustee, the Beneficiaries may,
pursuant to Article 12 hereof, appoint a successor Trustee or Trustees. If the
Beneficiaries have not filled all vacancies to be filled by them within 60 days
after they have the authority to do so pursuant to this Section 10.3, a
Beneficiary may apply to a court of competent jurisdiction in accordance with
Pennsylvania law to fill such vacancies.
10.4 Acceptance of Appointments by Successor Trustee. Any successor Trustee
appointed hereunder shall execute an instrument accepting such appointment
hereunder and shall deliver one counterpart thereof to each other Trustee and,
in case of a resignation, to the retiring Trustee.
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Thereupon such successor Trustee shall, without any further act, become vested
with all the estates, properties, rights, powers, trusts, and duties of his or
her predecessor in the Trust hereunder with like effect as if originally named
herein.
10.5 Bonds. Unless a bond is required by law, no bond shall be required of
the original Trustees hereunder. Unless required by a Trustee prior to a
successor Trustee's acceptance of an appointment as such pursuant to Section
10.4 hereof, or unless a bond is required by law, no bond shall be required of
any successor Trustee hereunder. If a bond is required by law, no surety or
security with respect to such bond shall be required unless required by law or
unless required by a Trustee in the case of a successor Trustee.
ARTICLE 11
CONCERNING THE BENEFICIARIES
11.1 Evidence of Action by Beneficiaries. Whenever in this Agreement it is
provided that a Beneficiary may take any action (including the making of any
demand or request, the giving of any notice, consent, or waiver, the removal of
a Trustee, the appointment of a successor Trustee, or the taking of any other
action), the fact that at the time of taking any such action such Beneficiary
having joined therein may be evidenced (i) by any instrument or any number of
instruments of similar tenor executed by a Beneficiary in person or by agent or
attorney appointed in writing, or (ii) by the record of the Beneficiary voting
in favor thereof at any meeting of Beneficiaries duly called and held in
accordance with the provisions of Article 12 hereof.
11.2 Limitation upon Suits by Beneficiaries. No Beneficiary shall have any
right by virtue of any provision of this Agreement to institute any action or
proceeding at law or in equity against any party other than the Trustees upon or
under or with respect to the Trust Corpus or the assets relating to or forming
part of the Trust Corpus and the Beneficiaries do hereby waive any such right,
unless Beneficiaries having an aggregate beneficial interest of more than 50% of
the total beneficial interests in the Trust shall have made written request upon
the Trustees to institute such action or proceeding in their own names as
Trustees hereunder and shall have offered to the Trustees reasonable indemnity
against the costs and expenses to be incurred therein or thereby, and the
Trustees for 30 days after their receipt of such notice, request, and offer of
indemnity shall have failed to institute any such action or proceeding.
11.3 Requirement of Undertaking. The Trustees may request any court to
require, and any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Agreement, or in any suit against
the Trustees for any action taken or omitted by them as Trustees, the filing by
any party litigant in such suit of an undertaking to pay the costs of such suit,
and such court may in its discretion assess reasonable costs, including
reasonable attorney's fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; provided, that the provisions of this Section 11.3 shall not apply to
any suit by the Trustees and such undertaking shall not be requested by the
Trustees or otherwise required in any suit by any Beneficiary or group of
Beneficiaries having an aggregate beneficial interest of more than 25% of the
total beneficial interests of the Trust.
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ARTICLE 12
MEETING OF BENEFICIARIES
12.1 Purpose of Meetings. A meeting of the Beneficiaries may be called at
any time and from time to time pursuant to the provisions of this Article 12 for
the purpose of taking any action which the terms of this Agreement permit
Beneficiaries having a specified aggregate beneficial interest to take either
acting alone or with the Trustees or with any other Beneficiary or
Beneficiaries.
12.2 Meeting Called by Trustees. The Trustees may at any time call a meeting
of the Beneficiaries to be held at such time and at such place within the
Commonwealth of Pennsylvania (or elsewhere if so determined by the Trustees) as
the Trustees shall determine. Written notice of every meeting of the
Beneficiaries shall be given by the Trustees (except as provided in Section 12.3
hereof), which written notice shall set forth the time and place of such meeting
and in general terms the action proposed to be taken at such meeting, and shall
be mailed not more than 60 nor less than ten days before such meeting is to be
held to all of the Beneficiaries of record not more than 60 days before the date
of such meeting, such record date to be fixed by the Trustees. The notice shall
be directed to the Beneficiaries at their respective addresses as they appear in
the records of the Trust.
12.3 Meeting Called Upon Request of Beneficiary. Except as hereinafter
provided in this section 12.3, within 30 days after written request to the
Trustees by Beneficiaries having an aggregate beneficial interest of more than
50% of the total beneficial interests in the Trust to call a meeting of all the
Beneficiaries, which written request shall specify in reasonable detail the
action proposed to be taken, the Trustees shall proceed under the provisions of
Section 12.2 hereof to call a meeting of the Beneficiaries, and if the Trustees
fails to call such a meeting within such 30 day period then such meeting may be
called by Beneficiaries having an aggregate beneficial interest of more than 50%
of the total beneficial interests in the Trust or by their designated
representative or representatives. If the purpose of the meeting is to fill one
or more vacancies in accordance with Section 10.3 hereof, any Beneficiary may
make written request to the Trustees to call such meeting and the Trustees shall
do so forthwith; if there are no Trustees, any Beneficiary may call such a
meeting. If the purpose of the meeting is other than to fill one or more
vacancies and if there are no Trustees, Beneficiaries having an aggregate
beneficial interest of more than 50% of the total beneficial interests in the
Trust, or their designated representative or representatives, may call such
meeting without first applying to the Trustees or waiting the 30-day period
provided for in the first sentence of this Section 12.3. Any meeting called by
one or more Beneficiaries shall be subject to the same notice requirements as
are set forth in Section 12.2 hereof, and the Beneficiary or Beneficiaries
calling the meeting shall fix the record date therefor.
12.4 Persons Entitled to Vote at Meeting of Beneficiaries. Each Beneficiary
on the record date shall be entitled to vote at a meeting of the Beneficiaries
either in person or by proxy duly authorized in writing and shall have one vote
for each share of Common Stock of the Company previously registered on the books
of the Trust in the name of such Beneficiary. The signature of the Beneficiary
on such written authorization need not be witnessed or notarized.
12.5 Quorum. At any meeting of Beneficiaries, the presence of Beneficiaries
having an aggregate beneficial interest sufficient to take action on any matter
for which such meeting was called shall be necessary to constitute a quorum.
12.6 Conduct of Meetings. The Trustees shall appoint the Chairman and the
Secretary of the meeting. The vote upon any resolution submitted to any meeting
of Beneficiaries shall be by written ballot.
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12.7 Record of Meeting. A record of the proceedings of each meeting of
Beneficiaries shall be prepared by the Secretary of the meeting. The record
shall be signed and verified by the Secretary of the meeting and shall be
delivered to the Trustees to be preserved by them. Any record so signed and
verified shall be conclusive evidence of all the matters therein stated.
ARTICLE 13
AMENDMENTS
13.1 With Consent of Beneficiaries. At the direction or with the consent
(evidenced in the manner provided in Section 11.1 hereof) of Beneficiaries
having an aggregate beneficial interest of more than 50% of the total beneficial
interests in the Trust, the Trustees shall promptly make and execute a
declaration amending this Agreement for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or amendments hereto; provided, however, that no such amendment shall permit the
Trustees hereunder to engage in any activity prohibited by Section 2.1 or 6.1
hereof, or adversely affect the Beneficiaries' right to receive their pro rata
shares of the Trust Corpus at the time of distribution.
13.2 Without Consent of Beneficiaries. The Trustees may from time to time
and at any time make or execute a declaration amending this Agreement without
the consent of the Beneficiaries pursuant to Section 13.1 hereof for the purpose
of (a) curing any ambiguity or correcting or supplementing any provision
contained herein or in any amendment to this Agreement which may be defective or
inconsistent with any other provision contained herein or in any amendment to
this Agreement, (b) making such other provisions or modifications in regard to
matters or questions relating to this Agreement or any amendment hereto,
provided the same shall not adversely affect the interests of the Beneficiaries,
or (c) having the Trust continue to qualify as a "liquidating trust" for federal
income tax purposes.
13.3 Notice and Effect of Amendment. Promptly after the execution by the
Trustees of any such declaration of amendment, the Trustees shall send a summary
or copy of the amendment to each Beneficiary. Upon the execution of any such
declaration of amendment by the Trustees, this Agreement shall be deemed to be
modified and amended in accordance therewith.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 Filing Documents. This Agreement shall be filed in such governmental
office or offices, if any, and in such other office or offices as the Trustees
may determine to be necessary or desirable. A copy of this Agreement and all
amendments thereof shall be filed in the office of the Trustees and shall be
available during regular business hours upon reasonable notice for inspection by
any Beneficiary or his or her duly authorized representative. The Trustees shall
file or record any amendment of this Agreement in the same places where the
original Agreement is filed or recorded. The Trustees shall file or record any
instrument which relates to any change in the office of Trustee in the same
places where the original Agreement is filed or recorded.
14.2 Laws as to Construction. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
14.3 Separability. In the event any provision of this Agreement or the
application thereof to any person or circumstances shall be finally determined
by a court of competent jurisdiction to be invalid or
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unenforceable to any extent, the remainder of this Agreement, or the application
of such provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each provision
of this Agreement shall be valid and enforced to the fullest extent permitted by
law.
14.4 Notices. Any notice or other communication by the Trustees to any
Beneficiary shall be deemed to have been sufficiently given, for all purposes,
if given by being deposited, postage prepaid, in a post office or letter box and
being addressed to such Beneficiary at its address as shown in the records of
the Trust.
14.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
14.6 Headings for Reference Only. The Article and Section headings contained
herein have been inserted for convenience and reference only and shall not be
construed to affect the meaning, construction or effect of this Agreement.
14.7 No Court Supervision. The Trust shall not be administered under the
direction or jurisdiction of any court except as provided in Section 10.3
hereof, nor shall there be any duty of the Trustees to account to any court with
respect to their administration of the Trust or the Trust Corpus.
14.8 Irrevocable Trust. This Trust is irrevocable except to the extent
contemplated by Article 13 hereof.
IN WITNESS WHEREOF, Strawbridge & Clothier has caused this Agreement to be
signed by its Chairman or President and the Trustees have signed this Agreement,
effective this day of , 199 .
STRAWBRIDGE & CLOTHIER
By:
..................................
Title:
..................................
Trustee
..................................
Trustee
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ANNEX B
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BETWEEN
THE MAY DEPARTMENT STORES COMPANY
AND
STRAWBRIDGE & CLOTHIER
DATED AS OF APRIL 4, 1996
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
ARTICLE I
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DEFINITIONS................................................................................. 7
Section 1.1 "Accounts Receivable"........................................... 7
Section 1.2 "Affiliates".................................................... 8
Section 1.3 "Aged Department Store Inventory"............................... 8
Section 1.4 "Alternative Transaction"....................................... 8
Section 1.5 "Assumed Department Store Liabilities".......................... 8
Section 1.6 "Assumed Long-Term Liabilities Amount".......................... 8
Section 1.7 "Bill of Sale".................................................. 9
Section 1.8 "Business Day".................................................. 9
Section 1.9 "Buyer Filings"................................................. 9
Section 1.10 "Buyer Financial Statements".................................... 9
Section 1.11 "Buyer Registration Statement".................................. 9
Section 1.12 "Closing Balance Sheet Accounts Receivable Amount".............. 9
Section 1.13 "Closing Balance Sheet Cash Amount"............................. 9
Section 1.14 "Closing Balance Sheet Inventory Amount"........................ 9
Section 1.15 "Closing Balance Sheet Net Working Capital Amount".............. 9
Section 1.16 "Closing Balance Sheet Payables Amount"......................... 10
Section 1.17 "Closing Cash Transfer"......................................... 10
Section 1.18 "Closing Settlement Schedule"................................... 10
Section 1.19 "Code".......................................................... 10
Section 1.20 "Cost Complement"............................................... 10
Section 1.21 "Department Store Assets"....................................... 10
Section 1.22 "Department Store Cash"......................................... 11
Section 1.23 "Department Store Contracts".................................... 11
Section 1.24 "Department Store Distribution Centers"......................... 11
Section 1.25 "Department Store Division"..................................... 11
Section 1.26 "Department Store Division Balance Sheet"....................... 11
Section 1.27 "Department Store Equipment, Machinery and Fixtures"............ 11
Section 1.28 "Department Store Files and Records"............................ 11
Section 1.29 "Department Store Intellectual Property"........................ 11
Section 1.30 "Department Store Inventory".................................... 11
Section 1.31 "Department Store Land"......................................... 12
Section 1.32 "Department Store Leases"....................................... 12
Section 1.33 "Department Store Leased Real Property"......................... 12
Section 1.34 "Department Store Merchandise on Order"......................... 12
Section 1.35 "Department Store Premises"..................................... 12
Section 1.36 "Department Store Purchase Orders".............................. 12
Section 1.37 "Department Store Real Property"................................ 12
Section 1.38 "Department Stores"............................................. 12
Section 1.39 "Department Store Space Leases"................................. 12
Section 1.40 "Department Store Subsidiaries"................................. 12
Section 1.41 "Disposition Proceeds".......................................... 12
Section 1.42 "Effective Time"................................................ 12
Section 1.43 "Employee Benefit Plan"......................................... 12
Section 1.44 "Employee Pension Benefit Plan"................................. 13
Section 1.45 "Employee Welfare Benefit Plan"................................. 13
Section 1.46 "ERISA"......................................................... 13
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Section 1.47 "Escrow Agent".................................................. 13
Section 1.48 "Escrow Agreement".............................................. 13
Section 1.49 "Escrowed Stock Consideration".................................. 13
Section 1.50 "Excluded Assets"............................................... 13
Section 1.51 "Excluded Liabilities".......................................... 13
Section 1.52 "Face Amount"................................................... 15
Section 1.53 "First Closing"................................................. 15
Section 1.54 "First Closing Date"............................................ 15
Section 1.55 "First Closing Estimated Stock Delivery"........................ 15
Section 1.56 "First Closing Stock Consideration"............................. 15
Section 1.57 "GAAP".......................................................... 15
Section 1.58 "Government".................................................... 15
Section 1.59 "HSR Act"....................................................... 15
Section 1.60 "Improvements".................................................. 15
Section 1.61 "Inventory Date"................................................ 15
Section 1.62 "Licenses and Permits".......................................... 15
Section 1.63 "Lien".......................................................... 15
Section 1.64 "Material Adverse Effect"....................................... 15
Section 1.65 "May Common Stock".............................................. 16
Section 1.66 "Multiemployer Plan"............................................ 16
Section 1.67 "NYSE".......................................................... 16
Section 1.68 "Other Department Store Contracts".............................. 16
Section 1.69 "P&L Accounts".................................................. 16
Section 1.70 "PBGC".......................................................... 16
Section 1.71 "Permitted Encumbrances"........................................ 16
Section 1.72 "Person"........................................................ 16
Section 1.73 "Preliminary Closing Date Balance Sheet"........................ 16
Section 1.74 "Pro Forma Department Store Division Financial Statements"...... 16
Section 1.75 "Proxy Statement/Prospectus".................................... 17
Section 1.76 "Reorganization"................................................ 17
Section 1.77 "SEC"........................................................... 17
Section 1.78 "Second Closing"................................................ 17
Section 1.79 "Second Closing Cash Amount".................................... 17
Section 1.80 "Second Closing Date"........................................... 17
Section 1.81 "Second Closing May Stock Price"................................ 17
Section 1.82 "Second Closing Stock Consideration"............................ 17
Section 1.83 "Securities Act"................................................ 17
Section 1.84 "Securities Exchange Act"....................................... 17
Section 1.85 "Seller Common Stock"........................................... 17
Section 1.86 "Seller Filings"................................................ 17
Section 1.87 "Seller Financial Statements"................................... 17
Section 1.88 "Seller Series A Common Stock".................................. 18
Section 1.89 "Seller Series B Common Stock".................................. 18
Section 1.90 "Sellers"....................................................... 18
Section 1.91 "Significant Subsidiary"........................................ 18
Section 1.92 "Stock Consideration"........................................... 18
Section 1.93 "Subsidiaries".................................................. 18
Section 1.94 "Taxes"......................................................... 18
Section 1.95 "Tax Returns"................................................... 18
Section 1.96 "Ticketed Retail Price"......................................... 18
Section 1.97 "Trading Day"................................................... 18
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Section 1.98 "Transferring Employees"........................................ 19
Section 1.99 "WARN".......................................................... 19
ARTICLE II
PURCHASE AND SALE; THE FIRST CLOSING........................................................ 19
Section 2.1 Purchase and Sale of the Department Store Assets................ 19
Section 2.2 Consideration for the Department Store Assets................... 19
Section 2.3 Time and Place of First Closing................................. 19
Section 2.4 Deliveries by the Seller........................................ 19
Section 2.5 Deliveries by the Buyer......................................... 20
Section 2.6 Escrow Deliveries............................................... 20
Section 2.7 Escrow.......................................................... 20
Section 2.8 Purchase Price Adjustment....................................... 21
ARTICLE III
THE SECOND CLOSING.......................................................................... 23
Section 3.1 Purchase and Sale of the Second Closing Cash Amount............. 23
Section 3.2 Consideration for the Second Closing Cash Amount................ 23
Section 3.3 Time and Place of Second Closing................................ 23
Section 3.4 Deliveries by the Seller........................................ 23
Section 3.5 Deliveries by the Buyer......................................... 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER................................................ 24
Section 4.1 Corporate Organization.......................................... 24
Section 4.2 Due Authorization............................................... 24
Section 4.3 Department Store Subsidiaries Stock............................. 24
Section 4.4 Consents and Approvals; No Violation............................ 24
Section 4.5 Financial Statements; SEC Filings............................... 25
Section 4.6 Absence of Changes.............................................. 25
Section 4.7 Absence of Undisclosed Liabilities.............................. 26
Section 4.8 Litigation...................................................... 26
Section 4.9 Taxes........................................................... 26
Section 4.10 Title and Related Matters....................................... 27
Section 4.11 Department Store Leases......................................... 27
Section 4.12 Other Department Store Contracts................................ 27
Section 4.13 Department Store Inventory...................................... 28
Section 4.14 Department Store Intellectual Property.......................... 28
Section 4.15 Employee Benefit Plans.......................................... 28
Section 4.16 Employment and Severance Agreements............................. 30
Section 4.17 Accounts Receivable............................................. 30
Section 4.18 Assets Necessary to the Business................................ 30
Section 4.19 Proxy Statement/Prospectus; Registration Statement.............. 30
Section 4.20 Brokers and Finders............................................. 30
Section 4.21 Pennsylvania Business Corporation Law........................... 30
Section 4.22 Voting Requirement.............................................. 30
Section 4.23 Labor Matters................................................... 30
Section 4.24 Insurance....................................................... 31
Section 4.25 Environmental................................................... 31
Section 4.26 Disclosure...................................................... 31
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER................................................. 31
Section 5.1 Corporate Organization.......................................... 31
Section 5.2 Capitalization.................................................. 32
Section 5.3 Subsidiaries Stock; Significant Subsidiaries.................... 32
Section 5.4 Due Authorization............................................... 32
Section 5.5 Consents and Approvals; No Violation............................ 32
Section 5.6 Financial Statements; SEC Filings............................... 33
Section 5.7 Absence of Changes.............................................. 33
Section 5.8 Absence of Undisclosed Liabilities.............................. 34
Section 5.9 Litigation...................................................... 34
Section 5.10 Taxes........................................................... 34
Section 5.11 Employee Benefit Plans.......................................... 34
Section 5.12 Proxy Statement/Prospectus; Registration Statement.............. 35
Section 5.13 Brokers and Finders............................................. 36
Section 5.14 Ownership of Seller Common Stock................................ 36
ARTICLE VI
COVENANTS OF THE PARTIES.................................................................... 36
Section 6.1 Conduct of Business of the Department Store Division............ 36
Section 6.2 Disposition of the Excluded Assets.............................. 39
Section 6.3 Access and Investigation........................................ 39
Section 6.4 Proxy Statement/Prospectus; Buyer Registration Statement........ 39
Section 6.5 Shareholder Meeting............................................. 40
Section 6.6 Acquisition Proposals........................................... 40
Section 6.7 Consents........................................................ 41
Section 6.8 Filings......................................................... 41
Section 6.9 Best Efforts; Further Assurances................................ 41
Section 6.10 Publicity....................................................... 41
Section 6.11 Collective Bargaining Agreements................................ 41
Section 6.12 NYSE Listing.................................................... 41
Section 6.13 Dissolution; Dissolution Escrow and Trust....................... 42
Section 6.14 Sales and Transfer Taxes........................................ 42
Section 6.15 Use of Name..................................................... 43
Section 6.16 Temporary Use of Corporate Offices.............................. 43
Section 6.17 Temporary Continuation of R.D.I. Contract....................... 43
Section 6.18 Island Avenue Condemnation...................................... 43
Section 6.19 Department Store Space Leases................................... 44
ARTICLE VII
EMPLOYEES AND EMPLOYEE PLANS................................................................ 44
Section 7.1 Offer of Employment............................................. 44
Section 7.2 Collective Bargaining Agreements................................ 45
Section 7.3 Severance Plans................................................. 45
Section 7.4 Employee Benefit Plans.......................................... 45
Section 7.5 Retirement Savings Plan and Pension Benefit Plan................ 46
Section 7.6 Supplemental Executive Retirement Plan.......................... 47
Section 7.7 Retiree Health Plan............................................. 48
Section 7.8 Consulting Contracts............................................ 48
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ARTICLE VIII
CONDITIONS.................................................................................. 48
Section 8.1 Conditions to the Obligations of Each Party to Effect the
Acquisition..................................................... 48
Section 8.2 Additional Conditions to the Obligations of the Seller.......... 49
Section 8.3 Additional Conditions to the Obligations of the Buyer........... 49
ARTICLE IX
TERMINATION AND ABANDONMENT................................................................. 50
Section 9.1 Termination..................................................... 50
Section 9.2 Procedure and Effect of Termination............................. 50
ARTICLE X
MISCELLANEOUS............................................................................... 51
Section 10.1 Survival of Representations and Warranties...................... 51
Section 10.2 Costs and Expenses.............................................. 51
Section 10.3 Notices......................................................... 51
Section 10.4 Amendment....................................................... 52
Section 10.5 Entire Agreement................................................ 52
Section 10.6 Counterparts.................................................... 52
Section 10.7 Applicable Law.................................................. 52
Section 10.8 Descriptive Headings............................................ 52
Section 10.9 Assignment...................................................... 52
Section 10.10 Validity........................................................ 52
Section 10.11 Specific Performance............................................ 52
Section 10.12 No Third Party Beneficiary...................................... 52
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ASSET PURCHASE AGREEMENT, dated as of April 4, 1996 (the "Agreement"),
between The May Department Stores Company, a New York corporation (the "Buyer"),
and Strawbridge & Clothier, a Pennsylvania corporation (the "Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller is engaged in the business of operating department
stores and discount stores;
WHEREAS, the Buyer desires to purchase from the Seller the Department Store
Assets and is willing to acquire the Disposition Proceeds;
WHEREAS, prior to the First Closing of the transactions contemplated herein
and during the twelve month period following the First Closing Date, the Seller
intends to sell or otherwise dispose of the Excluded Assets through one or more
asset sale transactions (the "Disposition");
WHEREAS, the Seller is willing to transfer to the Buyer the Department Store
Assets and some or all of the Disposition Proceeds in exchange for the
assumption by the Buyer of the Assumed Department Store Liabilities and the
issuance and delivery by the Buyer of the Stock Consideration;
WHEREAS, pursuant to this Agreement, the Buyer and the Seller propose to
effect a tax-free reorganization under Section 368(a)(1)(C) of the Code, whereby
(i) at the First Closing, the Seller will transfer to the Buyer the Department
Store Assets and a portion of the proceeds from the Disposition, and in
consideration therefor, the Buyer will assume the Assumed Department Store
Liabilities and issue and deliver to the Seller a portion of the Stock
Consideration, (ii) within 12 months following the First Closing Date the Seller
will transfer the remainder of the proceeds from the Disposition to the Buyer in
exchange for the balance of the Stock Consideration, and (iii) not later than
the first anniversary of the First Closing Date, the Seller will dissolve, and
pursuant to the dissolution and as a part of the Reorganization, will distribute
to the holders of Seller Common Stock the shares received as the Stock
Consideration and any other remaining assets of the Seller that have not been
transferred to the Buyer pursuant to this Agreement, subject to an escrow and
other arrangements that adequately provide for the payment of all liabilities of
the Seller as provided in Section 6.13 of this Agreement;
WHEREAS, this Agreement is intended to constitute the plan of reorganization
pursuant to which the Reorganization under Section 368(a)(1)(C) is effected; and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Buyer's willingness to enter into this
Agreement, the Seller and the Buyer have entered into an asset option agreement
in the form attached hereto as Exhibit A (the "Option Agreement");
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, each of the following terms shall have the
following meaning:
SECTION 1.1 "ACCOUNTS RECEIVABLE" shall mean all of the proprietary credit
card accounts of the Sellers (as defined in Section 1.90) with retail customers
for retail purchases on credit, including
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without limitation, all such accounts that are P&L Accounts or may have been
assigned, transferred or conveyed, in whole or in part, by the Sellers for
financing purposes.
SECTION 1.2 "AFFILIATES" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with such Person.
SECTION 1.3 "AGED DEPARTMENT STORE INVENTORY" shall mean all Department
Store Inventory last received by the Seller more than six (6) months prior to
the Inventory Date, except that, as to Department Store Inventory in the
departments listed on Schedule 1.3 (the "Extended Age Departments"), it shall
mean last received more than 12 months but less than 24 months prior to the
Inventory Date.
SECTION 1.4 "ALTERNATIVE TRANSACTION" shall mean any proposal or offer,
other than a proposal or offer by the Buyer or any of its Affiliates, for a
tender or exchange offer, a merger, consolidation or other business combination
transaction which would involve or otherwise affect the Department Store Assets
or any proposal or offer to acquire in any manner all or any portion of the
Department Store Assets.
SECTION 1.5 "ASSUMED DEPARTMENT STORE LIABILITIES" shall mean:
(a) the outstanding principal balance, as of the Effective Time, under
the Seller's 9.2% Series A Senior Notes due 2004;
(b) the outstanding principal balance, as of the Effective Time, under
the Seller's 9.0% Series B Senior Notes due 1999;
(c) the outstanding principal balance, as of the Effective Time, under
the Seller's 7.04% Allstate Senior Notes due 1997;
(d) the outstanding principal balance, as of the Effective Time, under
the Seller's 10.00% Michael Reich Mortgage Note due 2007 ;
(e) the outstanding principal balance, as of the Effective Time, under
the Seller's 8.75% S&C Echelon Equitable Mortgage Note due 1997;
(f) the outstanding principal balance, as of the Effective Time, under
the Seller's 6 5/8% Notes due 2003;
(g) the accounts receivable facility payment necessary to cause all
Accounts Receivable in which PNC has any interest to be transferred to the
Buyers free of Lien at the First Closing;
(h) the liabilities, obligations and duties of the Sellers accruing and
arising after the Effective Time under the Department Store Contracts; and
(i) other liabilities, obligations and duties of the Sellers (including
those being assumed by the Buyer pursuant to Article VII) to the extent
included in the Closing Balance Sheet Net Working Capital Amount.
SECTION 1.6 "ASSUMED LONG-TERM LIABILITIES AMOUNT" shall mean the sum of
(a) the aggregate outstanding principal amount as of the Effective Time, of the
obligations described in paragraphs (a) through (e) of Section 1.5, increased by
the prepayment penalties, make whole/yield maintenance premiums and other
prepayment charges, if any, computed as of the Effective Time, that would be
required to be paid for such obligations pursuant to the terms thereof if the
Buyer were to elect to prepay them as of the Effective Time; plus (b) the
amount, computed as of the Effective Time, that would be required to be
deposited with the trustee of the obligation described in paragraph (f) of
Section 1.5 were the Buyer to elect to fully defease such obligation as of the
Effective Time, including all fees, costs and expenses of the trustee or
otherwise under such indenture, plus $40,000; plus (c) the amount necessary to
cause all Accounts Receivable not owned by the Sellers free of Lien as described
in
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paragraph (g) of Section 1.5 to be transferred to the Buyer free of Lien and
other obligations at the First Closing; plus (d) the present value (using an
annual discount rate of 9%) of all rental payments required under the Department
Store Leases for (i) if the remaining years of the existing term are 25 or more,
the existing term or (ii) if the remaining years of the existing term are less
than 25, the remaining years of the existing term and all renewal options which
would extend each of the Department Store Leases to at least 25 years. The
calculation of the Assumed Long-Term Liabilities Amount shall be set forth on
Schedule 1.6.
SECTION 1.7 "BILL OF SALE" shall mean the bill of sale substantially in the
form of Schedule 1.7.
SECTION 1.8 "BUSINESS DAY" shall mean any day other than Saturday, Sunday
and any day which is a legal holiday or a day on which banking institutions in
New York City are authorized by law or other governmental action to close.
SECTION 1.9 "BUYER FILINGS" shall mean the filings made by the Buyer or any
Subsidiaries of the Buyer with the SEC referred to in Section 5.6(b).
SECTION 1.10 "BUYER FINANCIAL STATEMENTS" shall mean the consolidated
balance sheets of the Buyer and its Subsidiaries as of January 28, 1995 and
January 29, 1994, and the related consolidated statements of earnings and
consolidated statements of cash flows for each of the three fiscal years ended
January 28, 1995, January 29, 1994 and January 30, 1993, incorporated by
reference in the Annual Report on Form 10-K of the Buyer for the fiscal year
ended January 28, 1995, as filed with the SEC and the unaudited condensed
consolidated balance sheet of the Buyer as of October 28, 1995, and the related
unaudited condensed consolidated statements of earnings for the 13 and 39 weeks
ended October 28, 1995 and the unaudited consolidated statement of cash flows
for the 39 week periods respectively then ended included in the Quarterly Report
on Form 10-Q for the quarterly period ended October 28, 1995, as filed with the
SEC.
SECTION 1.11 "BUYER REGISTRATION STATEMENT" shall mean the Registration
Statement on Form S-4 to be filed with the SEC by the Buyer in connection with
the issuance of the Stock Consideration.
SECTION 1.12 "CLOSING BALANCE SHEET ACCOUNTS RECEIVABLE AMOUNT" shall mean
the Face Amount of the accounts included in the Accounts Receivable (other than
P&L Accounts) multiplied by (a) 93% where the Face Amount of the account does
not reflect any amount that is 90 days or more past due, (b) 40%, where the Face
Amount of the account reflects any amount that is 90 days to 209 days past due,
and (c) 20% where the Face Amount of the account reflects any amount that is 210
days or more past due. No amount shall be included in the Closing Settlement
Schedule for P&L Accounts.
SECTION 1.13 "CLOSING BALANCE SHEET CASH AMOUNT" shall mean the amount of
the Closing Cash Transfer plus the Department Store Cash.
SECTION 1.14 "CLOSING BALANCE SHEET INVENTORY AMOUNT" means the amount
calculated, as of the Effective Time, by multiplying the Ticketed Retail Price
for all Department Store Inventory (except as provided in the next sentence) by
the corresponding Cost Complement on a first-in, first-out basis. The Closing
Balance Sheet Inventory Amount for each item of (a) Aged Department Store
Inventory shall be equal to 50% of the Closing Balance Sheet Inventory Amount as
otherwise would be calculated for such item in the preceding sentence, (b) floor
sample Department Store Inventory in the Extended Age Departments noted with an
asterisk on Schedule 1.3 shall be reduced (or further reduced, as the case may
be) by 20% of the Closing Balance Sheet Inventory Amount as otherwise would be
calculated for such floor sample in this Section 1.14, and (c) Department Store
Inventory received 24 months or more prior to the Inventory Date shall be zero.
SECTION 1.15 "CLOSING BALANCE SHEET NET WORKING CAPITAL AMOUNT" shall mean
the net working capital amount of the Department Store Division, as of the
Effective Time, derived from the calculation prescribed in Schedule 1.15.
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SECTION 1.16 "CLOSING BALANCE SHEET PAYABLES AMOUNT" shall mean the amount
payable, as of the Effective Time, by the Seller in respect of the Department
Store Division for the purchase of goods or services in the ordinary course of
business and reflected on the Closing Settlement Schedule in accordance with
GAAP.
SECTION 1.17 "CLOSING CASH TRANSFER" shall mean that amount of cash, if
any, which is wire transferred by the Seller to the Buyer at the Effective Time
pursuant to Section 2.4(a). The Seller shall have the right in its sole
discretion to fix such amount, if any, but shall be obligated to establish such
amount by notice to the Buyer delivered pursuant to this Agreement not later
than 5 Business Days prior to the First Closing Date, and if such notice is not
so delivered then such amount shall be zero.
SECTION 1.18 "CLOSING SETTLEMENT SCHEDULE" shall have the meaning
prescribed in Section 2.8(c).
SECTION 1.19 "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
SECTION 1.20 "COST COMPLEMENT" shall mean the "Applicable Cumulative Cost"
to original retail price (plus any additional markup) relationship for goods
purchased during the year-to-date fiscal period ending immediately prior to the
Inventory Date as reflected on the Department Store Division's books and records
on a first-in, first-out basis. The "Applicable Cumulative Cost" means invoice
cost less cash discount taken plus freight costs from the vendor to the
Department Store Distribution Centers. The Cost Complement shall be calculated
on a Department Store Division departmental basis, in accordance with the retail
method of accounting for merchandise inventory and cost determination and in
accordance with GAAP, but excluding any internal loads and charges (such as
advertising loads) and capitalized inventory costs, and reduced by all rebates,
credits, allowances and discounts (such as cash discounts and cash discount
loads).
SECTION 1.21 "DEPARTMENT STORE ASSETS" shall mean:
(a) the Closing Balance Sheet Cash Amount;
(b) the Accounts Receivable;
(c) the Department Store Equipment, Machinery and Fixtures;
(d) the Department Store Files and Records;
(e) the Department Store Intellectual Property;
(f) the Department Store Inventory;
(g) the Department Store Premises;
(h) the rights to $9.2 million (no less, no more) of award and proceeds
from the condemnation of the Seller's distribution center at 4800 South
Island Avenue, Philadelphia, Pennsylvania, and which, if paid in whole or in
part to the Sellers, at any time, shall be delivered by the Seller to the
Buyer on the later of the First Closing or the date received by the Sellers,
and shall not be included in the Closing Settlement Schedule nor in the
Second Closing Cash Amount;
(i) the good will of the business of the Department Store Division; and
(j) all other property and assets reflected in the Department Store
Division Balance Sheet, plus all items of a nature customarily carried as
assets for the Department Store Division which have been or will be acquired
in the ordinary course of business by the Department Store Division between
the date of the Department Store Division Balance Sheet and the Effective
Time, less any items which have been or, subject to Section 6.1, will be
disposed of or consumed in the ordinary course of business by the Department
Store Division between the date of the Department Store Division Balance
Sheet and the Effective Time.
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SECTION 1.22 "DEPARTMENT STORE CASH" shall mean the amount of cash actually
held in the Department Stores at the Effective Time, plus the amount of prepaid
postage in postage meters in the Department Stores at the Effective Time.
SECTION 1.23 "DEPARTMENT STORE CONTRACTS" shall mean the Department Store
Leases, the Department Store Space Leases and the Other Department Store
Contracts.
SECTION 1.24 "DEPARTMENT STORE DISTRIBUTION CENTERS" shall mean the
distribution centers for the Department Store Division, all of which are
described on Schedule 1.24.
SECTION 1.25 "DEPARTMENT STORE DIVISION" shall mean the business activities
and operations conducted by the department store division of the Seller and
shall include all of the Seller's department store business activities and
operations conducted by the Seller or the Department Store Subsidiaries; and
shall specifically exclude the Hopewell vacant land and, except for the Accounts
Receivable, all business activities and operations of the Seller's discount
store operations under the name "Clover."
SECTION 1.26 "DEPARTMENT STORE DIVISION BALANCE SHEET" shall mean the pro
forma balance sheet of the Department Store Division as of February 3, 1996,
attached hereto as Schedule 1.26.
SECTION 1.27 "DEPARTMENT STORE EQUIPMENT, MACHINERY AND FIXTURES" shall
mean: (a) all the building operating systems and equipment, other systems and
equipment (including without limitation, all POS, ticketing, sensormatic, phone,
security and energy management systems and equipment), machinery, furniture,
furnishings, fixtures, trade fixtures and improvements, tooling, spare parts and
supplies (including forms and packaging supplies, fuel, oil and light bulbs, and
housekeeping, restaurant and other supplies) located in the Improvements as of
the applicable dates on which the Buyer inspected each of the Department Store
Premises; (b) all rolling stock (tractors, trailers, etc.) used in connection
with the Department Store Division; and (c) any rights of the Sellers to the
warranties (to the extent assignable), software, licenses and other rights to
the use thereof received in connection with the aforesaid items.
SECTION 1.28 "DEPARTMENT STORE FILES AND RECORDS" shall mean all files,
plans, surveys and documents, whether in hard copy or magnetic format, of the
Sellers specifically relating to the Department Store Assets or the Assumed
Department Store Liabilities, including without limitation, all books and
records relating to employees, purchase of goods, supplies and services,
financial, accounting and operations matters and dealings with customers of the
Department Store Division.
SECTION 1.29 "DEPARTMENT STORE INTELLECTUAL PROPERTY" shall mean all
trademarks, service marks, trade names, brands, private labels, patents,
copyrights, know-how or trade secrets and licenses and rights with respect to
the foregoing that the Sellers own or possess and which relate to the Department
Store Division, including without limitation, the trade name "Strawbridge &
Clothier" and those that are listed on Schedule 4.14.
SECTION 1.30 "DEPARTMENT STORE INVENTORY" shall mean (a) all items of
merchandise located in the Department Stores on the Inventory Date which are
held at the Department Stores in the ordinary course of business for resale to
customers in the ordinary course of business of the Department Store Division
and (b) all items of Department Stores merchandise located in the Department
Store Distribution Centers on the Inventory Date in the ordinary course of
business of the Department Store Division which are held for delivery to the
Department Stores, and in both cases which are reflected in accordance with GAAP
on the books and records of the Department Store Division as inventory and which
are owned by and have been paid for in full (or provisions for payment have been
made in the Closing Balance Sheet Payables Amount) by the Sellers, but does not
include any broken, damaged, defective or incomplete merchandise, any
merchandise being held for return to vendors, any merchandise held on lay-away,
consignment or under similar arrangements and any merchandise owned by licensees
or other third parties.
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SECTION 1.31 "DEPARTMENT STORE LAND" shall mean all parcels of land owned
by the Sellers and all parcels of land demised under the Department Store
Leases, in either case, at the locations described on Schedule 1.31, together
with all of the Sellers' right, title and interest in and to all rights of way,
easements, reciprocal easement agreements and other rights of the Sellers
appurtenant to the foregoing and all right, title and interest, if any, of the
Sellers in and to the strips and gores, streets, highways and alleys abutting or
adjacent thereto. Department Store Land specifically excludes the Hopewell
vacant land.
SECTION 1.32 "DEPARTMENT STORE LEASES" shall mean all of the leases of the
Sellers relating to the business of the Department Store Division (as lessee),
all of which are listed in Schedule 1.32.
SECTION 1.33 "DEPARTMENT STORE LEASED REAL PROPERTY" shall mean all of the
Sellers' right, title and interest, as tenant, under the Department Store Leases
in and to the Department Store Land described thereunder and the Improvements on
the Department Store Land and/or demised under the Department Store Leases.
SECTION 1.34 "DEPARTMENT STORE MERCHANDISE ON ORDER" shall mean the
Department Stores merchandise ordered but not delivered by the Effective Time
that is the subject of the Department Store Purchase Orders.
SECTION 1.35 "DEPARTMENT STORE PREMISES" shall mean the Department Store
Real Property and the Department Store Leased Real Property.
SECTION 1.36 "DEPARTMENT STORE PURCHASE ORDERS" shall mean those purchase
orders which were placed in the ordinary course of business of the Department
Store Division for Department Stores merchandise to be delivered to the
Department Stores or to the Department Store Distribution Centers for subsequent
delivery to the Department Stores, which are not cancelled by the Sellers
pursuant to Section 6.1(b)(x) or otherwise.
SECTION 1.37 "DEPARTMENT STORE REAL PROPERTY" shall mean all of the
Sellers' right, title and interest in and to the fee simple title to all of the
Department Store Land and the Improvements thereon, all of which are described
on Schedule 1.37.
SECTION 1.38 "DEPARTMENT STORES" shall mean the department stores in the
Department Store Division, all of which are listed on Schedule 1.38.
SECTION 1.39 "DEPARTMENT STORE SPACE LEASES" shall mean those leases (as
well as other occupancy agreements) of space at the Department Store Premises
under which any of the Sellers is the lessor, all of which are described on
Schedule 1.39.
SECTION 1.40 "DEPARTMENT STORE SUBSIDIARIES" shall mean the directly or
indirectly owned Subsidiaries of the Seller included in the Department Store
Division, all of which are identified on Schedule 4.3.
SECTION 1.41 "DISPOSITION PROCEEDS" shall mean the cash proceeds from the
Disposition which are received directly or indirectly by the Seller on or prior
to the Second Closing Date after payment of or provision for any Taxes paid or
payable as a result of the Disposition and any out-of-pocket costs or expenses
associated with or arising out of the Disposition and after payment of or
provision for any Excluded Liabilities which have not otherwise been paid or
provided for at the time of the Second Closing.
SECTION 1.42 "EFFECTIVE TIME" shall mean the close of business of the First
Closing Date at which time the First Closing and all transactions contemplated
thereby shall be deemed to have occurred simultaneously; provided, the First
Closing has actually occurred.
SECTION 1.43 "EMPLOYEE BENEFIT PLAN" shall mean an Employee Pension Benefit
Plan, a Multiemployer Plan and an Employee Welfare Benefit Plan, where no
distinction is required by the context in which the term is used.
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SECTION 1.44 "EMPLOYEE PENSION BENEFIT PLAN" shall have the meaning set
forth in Section 3(2) of ERISA.
SECTION 1.45 "EMPLOYEE WELFARE BENEFIT PLAN" shall have the meaning set
forth in Section 3(1) of ERISA.
SECTION 1.46 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
SECTION 1.47 "ESCROW AGENT" shall mean the escrow agent appointed pursuant
to Section 2.7.
SECTION 1.48 "ESCROW AGREEMENT" shall mean the Escrow Agreement to be
entered into at the First Closing among the Buyer, the Seller and the Escrow
Agent substantially in the form of Exhibit B.
SECTION 1.49 "ESCROWED STOCK CONSIDERATION" shall mean 630,000 shares of
May Common Stock that shall be delivered by the Buyer to the Escrow Agent
pursuant to the Escrow Agreement.
SECTION 1.50 "EXCLUDED ASSETS" shall mean all properties and assets of the
Sellers not constituting the Department Store Assets, including those assets
listed on Schedule 1.50 and the following:
(a) The real property interests of the Sellers in the South Island
Avenue distribution center that are the subject of condemnation proceedings;
(b) All rights, title and interests of the Sellers in the Hopewell
vacant land;
(c) Subsidiaries' stock;
(d) The Clover stores, the Clover distribution center and the Clover
Burlington vacant land; and
(e) American Express, Mastercard, Visa and other similar third party
credit card receivables.
SECTION 1.51 "EXCLUDED LIABILITIES" shall mean all the liabilities and
obligations of the Sellers (other than the Assumed Department Store Liabilities)
of whatever kind or nature, known or unknown, fixed or contingent, accrued or
unaccrued, including without limitation:
(a) any obligation or liability under any financing or other encumbrance
on, affecting or related to any of the Department Store Assets or any of the
Excluded Assets;
(b) any obligations or liabilities for any Taxes, including without
limitation, (i) any Taxes relating to the Department Store Assets or the
Assumed Department Store Liabilities in respect of any and all periods
ending on or prior to the transfer of the Department Store Assets to and the
assumption of the Assumed Department Store Liabilities by the Buyer or the
Excluded Assets in respect of any and all periods, (ii) any income Taxes
imposed on the gain, if any, realized on the transfer of the Department
Store Assets and the assumption of the Assumed Department Store Liabilities,
whether imposed on the Buyer, the Seller or any holder of the Seller Common
Stock, or any sales, use, real property, transfer or gains or other similar
Taxes arising from the transfer of the Department Store Assets to and the
assumption of the Assumed Department Store Liabilities by the Buyer, (iii)
any Taxes imposed in respect of the asset sale transactions consummated
pursuant to the Disposition and (iv) any Taxes imposed upon the Sellers'
operations (including any several liability imposed upon any Subsidiaries of
the Seller under Treasury Regulation Section 1.1502-6 (and any comparable
state, local or foreign law or regulation));
(c) any employment related obligations or liabilities of the Sellers in
respect of the personnel employed by the Sellers, including, without
limitation, obligations or liabilities arising from or in any way related to
policies, authorizations, licenses and accounts required by applicable laws
or any obligations for Taxes, accrued salaries, wages, commissions, bonuses,
pension (including,
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without limitation, profit sharing), worker and unemployment compensation,
vacation pay, severance pay, sick pay, benefit plan contributions or other
employee benefits) for any of the Sellers' employees or any amounts for
which the Sellers may become liable to any Person under the provisions of
ERISA, the Family and Medical Leave Act, the Americans With Disabilities
Act, the Equal Employment Opportunities Act or the regulations promulgated
under any of the foregoing;
(d) any obligations or liabilities which may arise under any
Multiemployer Plan or any obligations or liabilities, including liabilities
for post-retirement or post-termination benefits under any insurance or
employee benefit plan or program or any formal or informal benefit practice
maintained, or contributed to, by the Sellers;
(e) any obligations or liabilities arising from or relating to any of
the transactions consummated pursuant to the Disposition;
(f) any obligations or liabilities with respect to any litigation
commenced or claims (including, without limitation, workers' compensation,
auto liability, product liability and general liability) made at any time
(before, on or after the Effective Time) relating to (i) the Department
Store Assets or the Assumed Department Store Liabilities, (ii) the Excluded
Assets, (iii) transfer of the Department Store Assets to the Buyer, and (iv)
the Sellers' operations;
(g) any obligations or liabilities relating to payment for inventory or
amounts owed by the Sellers or any indebtedness of the Sellers to any bank,
credit card company, lending institution, vendor or supplier or any
indebtedness of the Sellers under any notes or commercial paper issued by
the Sellers;
(h) (i) any obligations or liabilities in respect of the employment of
any personnel employed by the Sellers (including, without limitation, any
obligations or liabilities under Seller Plans (as defined in Section
4.15(a)) or any employment contracts) at any time and/or in respect of the
termination of the employment of any such personnel by the Sellers,
including, without limitation, any liabilities for monies payable under
labor, union or collective bargaining agreements in respect of any such
personnel by the Sellers or any obligations or liabilities under WARN or any
similar plant closing act, law or ordinance; and (ii) any obligations or
liabilities arising in respect of any claim by employees employed by the
Sellers at any time or in respect of periods prior to the Effective Time,
including all amounts accrued or payable for pension, retirement or other
benefits;
(i) all obligations or liabilities under any agreement, the benefits of
the Sellers in, to and/or under which are not included in the Department
Store Assets;
(j) any obligations or liabilities for returned checks arising from
checks accepted or issued by the Sellers;
(k) any obligations for the Sellers' liabilities under any civil rights
laws, wage and hour laws or equal employment opportunity acts, laws,
ordinances or regulations;
(l) any obligation or liability with respect to any leased or licensed
department;
(m) any obligation or liability in connection with the Sellers' deferred
compensation plan described in Note 5 to the Seller's Consolidated Financial
Statements for the fiscal year ended January 28, 1995;
(n) any obligation or liability arising out of the Sellers' retiree
health care plan described in Note 5 to the Seller's Consolidated Financial
Statements for the fiscal year ended January 28, 1995; and
(o) any obligation or liability arising out of any toxic substance or
hazardous material or any other environmental condition or contamination.
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SECTION 1.52 "FACE AMOUNT" shall mean the aggregate of all amounts
receivable as of the Effective Time for the Accounts Receivable reflected in the
Closing Balance Sheet Net Working Capital Amount, after posting all payments
(cash or check) received and credits given through the Effective Time, less the
sum of: (a) all credits (such as back room discounts, billing errors and
adjustments, and other allowances resulting from transactions that occurred
before the Effective Time) given from the Effective Time through the 60th day
following the Effective Time; plus (b) the amount of all Accounts Receivable
which, as of the Effective Time, are P&L Accounts; plus (c) all amounts for
purchases made during any liquidation or similar sale. The Face Amount of all
Accounts Receivable in the Sellers' credit plan # 318-001, 312-001, 403-004,
406-004, 412-004, 101-903, 101-906, 101-912, 110-010, 110-903, 136-903 and
136-906 shall be discounted to obtain a finance charge yield equivalent to the
finance charge yield on a typical revolving account without deferred billing and
receiving no grace period other than for payment of the account in full within
30 days; provided, however, that if the aggregate Face Amount, as of the
Effective Time, of all such Accounts Receivable is less than $8,000,000, the
provisions of this sentence shall not be applicable. Face Amount shall not
include finance charges and late charges not billed as of the Effective Time.
SECTION 1.53 "FIRST CLOSING" shall mean the consummation of the
transactions contemplated by Article II of this Agreement in accordance with the
terms and conditions set forth in Article II.
SECTION 1.54 "FIRST CLOSING DATE" shall mean the last Business Day of the
fiscal month in which all of the conditions to each party's obligations
hereunder have been satisfied or waived; or such other date as the parties
hereto agree upon in writing.
SECTION 1.55 "FIRST CLOSING ESTIMATED STOCK DELIVERY" shall mean 3,570,000
shares of May Common Stock that shall be delivered by the Buyer to the Seller
pursuant to Section 2.5(a).
SECTION 1.56 "FIRST CLOSING STOCK CONSIDERATION" shall mean that number of
shares of May Common Stock determined pursuant to the calculation prescribed in
Schedule 1.56 in accordance with Section 2.8 and including the Payless Spin-Off
Equivalent Shares (as defined in Schedule 1.56) if required by Schedule 1.56.
SECTION 1.57 "GAAP" shall mean United States generally accepted accounting
principles applied on a year-end basis.
SECTION 1.58 "GOVERNMENT" shall mean any agency, division, subdivision,
audit group or procuring office of the government of the United States, any
state or territory thereof, or any city, county or municipality thereof or any
foreign government, including the employees or agents thereof.
SECTION 1.59 "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations thereunder.
SECTION 1.60 "IMPROVEMENTS" shall mean the buildings, improvements and
structures on the Department Store Land and/or demised under the Department
Store Leases.
SECTION 1.61 "INVENTORY DATE" shall mean the day immediately prior to the
First Closing Date.
SECTION 1.62 "LICENSES AND PERMITS" shall mean the permits, authorizations
and licenses issued by any Government in connection with the business of the
Department Store Division or the Department Store Premises.
SECTION 1.63 "LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, lien (statutory or other), conditional sale agreement, option or
right of refusal, first offer, termination, participation or purchase, other
than Permitted Encumbrances.
SECTION 1.64 "MATERIAL ADVERSE EFFECT" shall mean (a)(i) with respect to
the Department Store Division, any change in or effect on the business of the
Department Store Division that is materially
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adverse to the business, prospects, results of operations, properties, assets,
liabilities or condition (financial or otherwise) of the Department Store
Division taken as a whole or (ii) with respect to the Department Store Premises,
any change in or effect on any one of them that is materially adverse to the
value thereof or to its ability to be operated as presently operated by the
Seller; and (b) with respect to the Buyer, any change in or effect on the
business of the Buyer and its Subsidiaries that is materially adverse to the
business, prospects, results of operations, properties, assets, liabilities or
condition (financial or otherwise) of the Buyer and its Subsidiaries taken as a
whole.
SECTION 1.65 "MAY COMMON STOCK" shall mean the common stock, par value $.50
per share, of the Buyer and any capital stock or other securities into which the
May Common Stock is converted or which are issued in respect of the May Common
Stock in either case in connection with any reclassification, recapitalization,
stock split or dividend (other than any dividend to be distributed to effect the
Payless Spin-Off, as defined in Schedule 1.56), merger, combination, exchange of
shares or other similar transaction if the record date for such transaction is
prior to the Effective Time, and, in all such cases, references to a share of
May Common Stock shall be deemed a reference to all securities into which such
share is convertible or has been converted or to such share of May Common Stock
together with all such securities issued or issuable with respect to such share
of May Common Stock.
SECTION 1.66 "MULTIEMPLOYER PLAN" shall have the meaning set forth in
Section 3(37) of ERISA.
SECTION 1.67 "NYSE" shall mean the New York Stock Exchange, Inc.
SECTION 1.68 "OTHER DEPARTMENT STORE CONTRACTS" shall mean the contracts,
agreements and commitments of the Sellers in respect of the Department Store
Assets or the Assumed Department Store Liabilities, but limited to (a) the
Department Store Purchase Orders, (b) the contracts, agreements and commitments
listed in Schedule 4.12, and (c) the agreements and commitments of the Sellers
which are entered into between the date of this Agreement and the Effective Time
with the Buyer's approval; excluding, however, all contracts, agreements and
commitments which expire or are terminated in the ordinary course of business
prior to the Effective Time.
SECTION 1.69 "P&L ACCOUNTS" shall mean all Accounts Receivable which, as of
or prior to the Effective Time: (i) have been placed with an attorney or
collection agency for collection proceedings; (ii) relate to a person who is
deceased or has filed for protection under the Bankruptcy Code or other
creditor's rights laws; (iii) are subject to a claim of fraud; (iv) have not had
an actual payment (cash or cleared check) in an amount equal to or greater than
the required monthly, unadjusted, minimum payment for a period of 12 months; or
(v) shall have been written off as uncollectible or doubtful accounts.
SECTION 1.70 "PBGC" shall mean the Pension Benefit Guaranty Corporation.
SECTION 1.71 "PERMITTED ENCUMBRANCES" shall mean (a) those exceptions to
title to the Department Store Premises set forth on Schedule 4.10(b); and (b)
statutory liens for current real estate taxes or assessments not yet due without
interest or penalty;
SECTION 1.72 "PERSON" shall mean any individual, corporation, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or Government.
SECTION 1.73 "PRELIMINARY CLOSING DATE BALANCE SHEET" shall mean the
balance sheet as of the First Closing Date for the Department Store Division
prepared in accordance with Section 2.8.
SECTION 1.74 "PRO FORMA DEPARTMENT STORE DIVISION FINANCIAL
STATEMENTS" shall mean the pro forma consolidated financial statements of the
Department Store Division referred to in Section 4.5(b).
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SECTION 1.75 "PROXY STATEMENT/PROSPECTUS" shall mean the proxy statement
relating to the meeting of the Seller's shareholders to be held in connection
the Reorganization.
SECTION 1.76 "REORGANIZATION" shall mean the reorganization of the Seller
under Section 368(a)(1)(C) of the Code contemplated by the terms of this
Agreement which includes the transfer of substantially all of the assets of the
Seller, including the Department Store Assets and the Disposition Proceeds, to
the Buyer in exchange for the Stock Consideration and the Buyer's assumption of
the Assumed Department Store Liabilities, followed by the distribution in
liquidation by the Seller of the Stock Consideration received from the Buyer
plus any other assets retained by the Seller to the holders of the Seller Common
Stock and to the liquidating trust established pursuant to Section 6.13 of this
Agreement.
SECTION 1.77 "SEC" shall mean the Securities and Exchange Commission.
SECTION 1.78 "SECOND CLOSING" shall mean the consummation of the
transactions contemplated by Article III of this Agreement in accordance with
the terms and conditions set forth in Article III.
SECTION 1.79 "SECOND CLOSING CASH AMOUNT" is generally contemplated to be
generated out of Disposition Proceeds and shall mean specifically the amount of
cash determined by the Seller and set forth in a notice delivered to the Buyer
pursuant to this Agreement not less than 15 days prior to the Second Closing
Date specified in such notice.
SECTION 1.80 "SECOND CLOSING DATE" shall mean the date specified by the
Seller in the notice establishing the Second Closing Cash Amount which will in
no event be sooner than 30 days following the First Closing Date nor later than
the Business Day preceding the first anniversary of the First Closing Date.
SECTION 1.81 "SECOND CLOSING MAY STOCK PRICE" shall mean the dollar amount
carried out to the fourth decimal point equal to the average of the daily per
share closing prices for May Common Stock for the 20 consecutive Trading Days
immediately preceding the Second Closing Date as such closing prices are
reported on the principal consolidated transaction reporting system with respect
to securities listed on the NYSE.
SECTION 1.82 "SECOND CLOSING STOCK CONSIDERATION" shall mean the number of
shares of May Common Stock determined by dividing the Second Closing Cash Amount
by the Second Closing May Stock Price.
SECTION 1.83 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
SECTION 1.84 "SECURITIES EXCHANGE ACT" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
SECTION 1.85 "SELLER COMMON STOCK" shall mean the Seller Series A Common
Stock and the Seller Series B Common Stock.
SECTION 1.86 "SELLER FILINGS" shall mean the filings made by the Sellers
with the SEC referred to in Section 4.5(c).
SECTION 1.87 "SELLER FINANCIAL STATEMENTS" shall mean the consolidated
balance sheets of the Sellers as of January 28, 1995 and January 29, 1994, and
the related consolidated statements of operations and consolidated statements of
cash flows for each of the three fiscal years ended January 28, 1995, and
January 29, 1994 and January 30, 1993, incorporated by reference in the Annual
Report on Form 10-K of the Seller for the fiscal year ended January 28, 1995, as
filed with the SEC and the unaudited condensed consolidated balance sheet of the
Seller as of October 28, 1995, and the related unaudited condensed consolidated
statements of operations for the nine months and trailing years ended
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October 28, 1995 and October 29, 1994 and statements of cash flows for the
nine-month periods respectively then ended included in the Quarterly Report on
Form 10-Q of the Seller for the quarterly period ended October 28, 1995, as
filed with the SEC.
SECTION 1.88 "SELLER SERIES A COMMON STOCK" shall mean the Series A Common
Stock, par value $1.00 per share, of the Seller.
SECTION 1.89 "SELLER SERIES B COMMON STOCK" shall mean the Series B Common
Stock, par value $1.00 per share, of the Seller.
SECTION 1.90 "SELLERS" shall mean the Seller and/or the Subsidiaries of the
Seller. All acts, representations, warranties and covenants herein of the
"Sellers" shall be deemed those of the Seller on its own behalf and on behalf of
all applicable Subsidiaries of the Seller. All references to "Sellers"
(including, without limitation, as relates to assets, rights, obligations or
liabilities) shall be deemed references to the Seller and/or all applicable
Subsidiaries of the Seller, unless the context clearly indicates otherwise. The
Seller shall cause each of its applicable Subsidiaries to observe and perform
all provisions of this Agreement applicable to such Subsidiaries.
SECTION 1.91 "SIGNIFICANT SUBSIDIARY" shall mean any "significant
subsidiary" within the meaning of Rule 1.02 of Regulation S-X of the SEC.
SECTION 1.92 "STOCK CONSIDERATION" shall mean the First Closing Stock
Consideration plus the Second Closing Stock Consideration.
SECTION 1.93 "SUBSIDIARIES" when used in reference to any other Person
shall mean any corporation of which outstanding securities having ordinary
voting power to elect a majority of the board of directors of such corporation
are owned directly or indirectly by such other Person.
SECTION 1.94 "TAXES" shall mean all taxes, however denominated, including
any interest, penalties or additions to tax that may become payable in respect
thereof, imposed by any Government, which taxes shall include, without
limitation, all income taxes, payroll and employee withholding taxes,
unemployment, insurance, social security, sales and use taxes, excise taxes,
franchise taxes, gross receipt taxes, occupation taxes, real and personal
property taxes, stamp taxes, transfer taxes, workmen's compensation taxes and
other obligations of the same or a similar nature, whether arising before, on or
after the Effective Time; and "Tax" shall mean any one of the foregoing.
SECTION 1.95 "TAX RETURNS" shall mean all returns, reports, schedules and
other information filed or required to be filed with any taxing authority with
respect to Taxes.
SECTION 1.96 "TICKETED RETAIL PRICE" shall mean the lower of (a) the lower
of (i) the lowest ticketed retail price on the sales floor of the applicable
merchandise marked down in accordance with GAAP to reflect customary markdowns
for aged merchandise and (ii) the lowest sale price at which the applicable
merchandise was offered for sale or sold, excluding "Temporary Markdowns", and
(b) the lowest price at which the applicable merchandise is reflected in
accordance with GAAP on the books and records of the Seller. The term "Temporary
Markdowns" shall mean any non-permanent markdowns which meet all of the
following criteria: (1) such markdowns are less than 41% off the original
ticketed retail price on the sales floor, which original ticketed retail price
shall be the same as originally reflected on the Seller's stock ledger, and (2)
such markdowns (at whatever rate or rates less than 41%) have been taken for
less than (x) 10 consecutive days, (y) 14 days in the 21-day period prior to the
First Closing, and (z) two out of three days in a weekend (Friday, Saturday and
Sunday) for less than the three weekends, during which the Department Stores are
open for business, immediately prior to the First Closing.
SECTION 1.97 "TRADING DAY" shall mean a day on which the NYSE is open for
the transaction of business and the May Common Stock actually trades on such
exchange.
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SECTION 1.98 "TRANSFERRING EMPLOYEES" shall have the meaning set forth in
Section 7.1 of this Agreement.
SECTION 1.99 "WARN" shall mean the Worker Adjustment and Retraining
Notification Act.
ARTICLE II
PURCHASE AND SALE; THE FIRST CLOSING
SECTION 2.1 Purchase and Sale of the Department Store Assets. Subject to
the satisfaction of all of the conditions to each party's obligations set forth
in Article VIII (or, with respect to any condition not satisfied, the waiver
thereof by the party or parties for whose benefit the condition exists), on the
First Closing Date the Sellers will sell, convey, assign, transfer and deliver
all of the Department Store Assets, and the Buyer will purchase, acquire, accept
and pay for, as hereinafter provided, the Department Store Assets and will
assume the Assumed Department Store Liabilities.
SECTION 2.2 Consideration for the Department Store Assets.
(a) The aggregate consideration for the Department Store Assets shall
consist of (i) the First Closing Stock Consideration, and (ii) the assumption by
the Buyer of the Assumed Department Store Liabilities.
(b) Notwithstanding anything in this Agreement to the contrary, the Buyer
will not assume or otherwise be liable or responsible for the Excluded
Liabilities or any other liabilities or obligations of the Sellers except to the
extent provided in Section 2.2(a) hereof with respect to the Assumed Department
Store Liabilities.
SECTION 2.3 Time and Place of First Closing. Subject to the terms and
conditions of this Article II, the First Closing will take place at the offices
of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022, at 9:30 a.m. (local time) on the First Closing Date or at such other
place or time or both as the parties may agree.
SECTION 2.4 Deliveries by the Seller. At the First Closing, the Sellers
shall deliver the following to the Buyer:
(a) The Closing Cash Transfer, if any, by wire transfer of immediately
available funds to a bank account of the Buyer designated by the Buyer at
least two Business Days prior to the First Closing Date.
(b) A duly executed Bill of Sale together with such other appropriate
instruments of transfer as the Buyer may reasonably request, transferring to
the Buyer all of the personal and intangible property as of the Effective
Time which is included in the Department Store Assets.
(c) Special warranty deeds, in recordable form, with respect to the
Department Store Real Property.
(d) Duly executed instruments of assignment of the Department Store
Leases, in recordable form.
(e) Duly executed instruments of assignment of the Department Store
Space Leases, in recordable form.
(f) Duly executed instruments of assignment of the Other Department
Store Contracts.
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(g) Duly executed instruments of assignment of the Department Store
Intellectual Property in form suitable for recording in the appropriate
office or bureau, and the original certificates, if available, of the
Department Store Intellectual Property together with any powers of attorney
necessary to make the conveyance effective.
(h) Duly executed instruments of assignment of the Accounts Receivable.
(i) Duly executed instruments of assignment of $9,200,000 in award and
proceeds for the condemnation of the distribution center at 4800 South
Island Avenue, Philadelphia, Pennsylvania.
(j) The estoppel certificates contemplated by Section 8.3(d).
(k) The Department Store Files and Records.
(l) Copies of all consents obtained as contemplated by Section 8.1(f).
(m) An Undertaking and Indemnity Agreement substantially in the form of
Exhibit C, together with any other instruments of assumption relating to the
Excluded Liabilities which may be reasonably requested by the Buyer, duly
executed by the Seller.
(n) The certificates contemplated by Section 8.3(c).
(o) Such other and further instruments of conveyance, assignment and
transfer as the Buyer may reasonably request for the effective conveyance
and transfer of any of the Department Store Assets.
(p) Possession of the Department Store Assets (including the Department
Store Cash).
SECTION 2.5 Deliveries by the Buyer. At the First Closing, the Buyer shall
deliver the following to the Seller:
(a) Stock certificates representing the First Closing Estimated Stock
Delivery.
(b) An executed Undertaking and Indemnity Agreement substantially in the
form of Exhibit C, together with any other instruments of assumption
relating to the Assumed Department Store Liabilities which may be reasonably
requested by the Seller, duly executed by the Buyer.
(c) The certificates contemplated by Section 8.2(c).
SECTION 2.6 Escrow Deliveries. At the First Closing, the following shall
be delivered in connection with the escrow created by the Escrow Agreement:
(a) The Buyer shall deliver duly signed counterparts of the Escrow
Agreement to the Seller and the Escrow Agent.
(b) The Seller shall deliver duly signed counterparts of the Escrow
Agreement to the Buyer and the Escrow Agent.
(c) The Escrow Agent shall deliver duly signed counterparts of the
Escrow Agreement to the Buyer and the Seller.
(d) The Buyer shall deliver the Escrowed Stock Consideration to the
Escrow Agent.
SECTION 2.7 Escrow. At or prior to the First Closing, the Buyer and the
Seller shall enter into the Escrow Agreement. At the First Closing, the Buyer
shall deposit with the Escrow Agent, in trust,
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the Escrowed Stock Consideration. The Escrow Agent shall hold the Escrowed Stock
Consideration in accordance with the terms of the Escrow Agreement.
SECTION 2.8 Purchase Price Adjustment.
(a) Within 60 days following the First Closing Date, the Seller shall, at
its expense, cause the Preliminary Closing Date Balance Sheet to be prepared and
delivered to the Buyer. The Preliminary Closing Date Balance Sheet will present
fairly the financial position of the Department Store Division as of the
Effective Time, all in conformity with GAAP, and will be accompanied by
schedules prepared in the form of Schedule 1.15 (Closing Balance Sheet Net
Working Capital Amount) and Schedule 1.6 (Assumed Long-Term Liabilities Amount),
setting forth the amounts specified therein and taken or derived from the
Preliminary Closing Date Balance Sheet (such schedules being collectively called
the "Preliminary Closing Schedules"). The Preliminary Closing Date Balance Sheet
and the Preliminary Closing Schedules shall, in addition to the other provisions
of this Agreement, be prepared in accordance with the following principles and
requirements:
(i) On the Inventory Date, the Sellers shall undertake and complete a
physical count of all Department Store Inventory and the Department Store
Cash while the Department Stores are closed to the public. The cost of
taking such physical count shall be shared one-half by the Sellers and
one-half by the Buyer. At its own cost, the Buyer shall have the right to
observe such physical count. The procedures used to count the Department
Store Inventory and the Department Store Cash shall be in accordance with
the Hartz Data Scan Inventory System (or similar type), mutually agreed upon
between the Buyer and the Sellers and in accordance with GAAP, with such
other safeguards as may reasonably be requested by the Buyer or the Sellers.
Upon completion of the physical count and preliminary calculation of the
Closing Balance Sheet Inventory Amount and the Department Store Cash, Seller
shall include with the Preliminary Closing Schedules a summary of such
calculations together with copies of all work papers, backup calculations
and information as Buyer may reasonably request in order to verify the
Seller's calculations.
(ii) The Preliminary Closing Schedules shall be accompanied by a summary
of the calculation of the Closing Balance Sheet Accounts Receivable Amount
and the Miscellaneous Current Assets (as defined in Schedule 1.15) together
with copies of all work papers, backup calculations and information as the
Buyer may reasonably request in order to verify the Seller's calculations.
(iii) The Preliminary Closing Schedules shall be accompanied by a
summary of the calculation of the Closing Balance Sheet Payables Amount and
the Other Current Liabilities (as defined in Schedule 1.15) together with
copies of all work papers, backup calculations and information as the Buyer
may reasonably request in order to verify the Seller's calculations.
(iv) The Preliminary Closing Schedules shall be accompanied by a summary
of the calculation of the Assumed Long-Term Liabilities Amount together with
copies of all work papers, backup calculations and information as the Buyer
may reasonably request in order to verify the Seller's calculations.
(v) The Preliminary Closing Schedules shall be accompanied by a summary
of the calculation of the following items together with copies of all work
papers, backup calculations and information as the Buyer may reasonably
request in order to verify the Seller's calculations:
(1) Accrued vacation pay liability and related Taxes as provided in
Section 7.4(a);
(2) Employee Pension Benefit Plan deficiency as provided in Section
7.5(d) and in accordance with Schedule 7.5;
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(3) The "rule of 70" (as defined in Schedule 7.5) additional amount
as provided in Section 7.5(d) and in accordance with Schedule 7.5;
(4) The Rabbi Trust Funding Amount (as defined in Section 7.6);
(5) The amounts added to other Current Liabilities in Schedule 1.15
or deducted from the amount of $320,000,000 set forth in Schedule 1.56,
as provided in Section 7.7; and
(6) The amounts added to Other Current Liabilities in Schedule 1.15
and/or deducted from the amount of $320,000,000 (as adjusted, if at all,
pursuant to Section 2.8(a)(v)(5)) set forth in Schedule 1.56, as provided
in Section 7.8.
The Preliminary Closing Date Balance Sheet shall be accompanied by an
unqualified opinion of Ernst & Young LLP to the effect that the Preliminary
Closing Date Balance Sheet presents fairly the financial position of the
Department Store Division as of the First Closing Date and has been prepared in
accordance with GAAP. The Buyer and the Seller shall fully cooperate in good
faith in the preparation of the Preliminary Closing Date Balance Sheet and the
Preliminary Closing Schedules, such cooperation to include, without limiting the
generality of the foregoing, full access to the books and records of the Seller
and the Department Store Files and Records for such purpose.
(b) Upon receipt of the Preliminary Closing Date Balance Sheet and the
Preliminary Closing Schedules, the Buyer and its accountants shall have the
right during the succeeding 30 day period or until the 90th day following the
Effective Time, whichever is longer, to examine, at the Buyer's expense, the
Preliminary Closing Date Balance Sheet and the Preliminary Closing Schedules and
all work papers, backup calculations, information and records used for or
relevant to the preparation of the Preliminary Closing Date Balance Sheet and
the Preliminary Closing Schedules. The Buyer shall notify the Seller in writing
on or before the last day of such period, of any good faith objections to the
Preliminary Closing Date Balance Sheet and the Preliminary Closing Schedules,
setting forth a reasonably specific description of the Buyer's objections and
the dollar amount of each objection, and shall deliver therewith a statement of
all credits given as provided in Section 1.52 which shall be posted to the
Preliminary Closing Schedules. If the Buyer does not deliver such notice or
statement within such period, the Preliminary Closing Date Balance Sheet and the
Preliminary Closing Schedules shall be deemed to have been accepted by the
Buyer.
(c) If the Buyer in good faith objects to the Preliminary Closing Date
Balance Sheet or the Preliminary Closing Schedules, the Seller and the Buyer
shall attempt to resolve any such objections within 15 days after the Seller's
receipt of the Buyer's objections. If the Seller and the Buyer are unable to
resolve the matter within such 15 day period, they shall jointly appoint a
mutually acceptable firm of independent accountants of national reputation which
is one of the so-called "big six" (or, if they cannot agree on a mutually
acceptable firm, they shall cause their respective accounting firms to select
such firm) within three (3) days following the end of such 15 day period. The
fees of such selected independent public accountants shall be divided equally
between the Buyer and the Seller. The Buyer and the Seller shall provide such
accounting firm full cooperation. Such firm shall be instructed to reach its
conclusion regarding the disputes within 15 Business Days of such instruction.
Such firm's resolution of the disputes shall be rendered in a written decision
determining all disputes and shall be conclusive and binding upon the Buyer and
the Seller. The Preliminary Closing Schedules after the acceptance thereof by
the Buyer or the resolution of all disputes in connection therewith are together
referred to herein as the "Closing Settlement Schedule."
(d) Promptly after the Closing Settlement Schedule has come into existence,
the Buyer and the Seller shall jointly prepare Schedule 1.56 (the First Closing
Stock Consideration Schedule) and compare the amount of the First Closing Stock
Consideration set forth in the First Closing Stock Consideration Schedule with
the sum of the First Closing Estimated Stock Delivery plus the Escrowed
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Stock Consideration. If the First Closing Stock Consideration is greater than or
equal to such sum, the Escrow Agent shall deliver all of the Escrowed Stock
Consideration and the Escrowed Dividends (as defined in the Escrow Agreement) to
the Seller and the Buyer shall issue and deliver the balance of the undelivered
First Closing Stock Consideration to the Seller directly. If the First Closing
Stock Consideration is equal to or exceeds the First Closing Estimated Stock
Delivery by a number of shares that is less than the Escrowed Stock
Consideration, then the Escrow Agent shall deliver that number of shares of the
Escrowed Stock Consideration equal to such excess, if any, to the Seller and the
balance to the Buyer, and shall distribute the Escrowed Dividends to the Seller
and the Buyer in the same ratio it distributes the Escrowed Stock Consideration
to the Seller and the Buyer. If the First Closing Stock Consideration is less
than the First Closing Estimated Stock Delivery, then the Escrow Agent shall
deliver all the shares of the Escrowed Stock Consideration and the Escrowed
Dividends to the Buyer, and the Seller shall return to the Buyer a number of
shares of May Common Stock equal to the difference between the First Closing
Estimated Stock Delivery and the First Closing Stock Consideration. In the event
that the Seller or the Buyer shall be required, pursuant to this Section 2.8(d),
to deliver to the other party shares of May Common Stock outside of escrow, the
shares delivered by the Seller shall be accompanied by a cash payment equal to
the amount of all cash dividends paid on, or for which there is a record date
for, such shares, from the Effective Time to the date of delivery of such
shares, and the shares delivered by the Buyer shall be accompanied by a number
of additional shares equal to the quotient of (i) the cash dividends that would
have been paid on, or for which there would have been a record date for, such
shares, from the Effective Time to the date of delivery of such shares, had such
shares been delivered at the First Closing, divided by (ii) the closing price
per share of May Common Stock as reported on the NYSE Consolidated Tape on the
day before the day on which this Agreement is executed and delivered.
ARTICLE III
THE SECOND CLOSING
SECTION 3.1 Purchase and Sale of the Second Closing Cash Amount. Subject to
the continued satisfaction of the conditions to each party's obligations set
forth in Article VIII (or, with respect to any condition not satisfied, the
waiver thereof by the party or parties for whose benefit the condition exists),
on the Second Closing Date the Seller will sell, convey, assign, transfer and
deliver the Second Closing Cash Amount, and the Buyer will purchase, acquire,
accept and pay for, as hereinafter provided, the Second Closing Cash Amount.
SECTION 3.2 Consideration for the Second Closing Cash Amount. The aggregate
consideration for the Second Closing Cash Amount shall consist of the Second
Closing Stock Consideration.
SECTION 3.3 Time and Place of Second Closing. Subject to the terms and
conditions of this Article III, the Second Closing will take place at the
offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New
York 10022, at 9:30 a.m. (local time) on the Second Closing Date or at such
other place or time or both as the parties may agree; provided, that in no event
will the Second Closing Date be earlier than 30 days following the First Closing
date nor later than the Business Day preceding the first anniversary of the
First Closing Date.
SECTION 3.4 Deliveries by the Seller. At the Second Closing, the Seller
shall deliver to the Buyer cash equal to the Second Closing Cash Amount by wire
transfer of immediately available federal funds to a bank account of the Buyer
designated by the Buyer at least two Business Days prior to the Second Closing
Date.
SECTION 3.5 Deliveries by the Buyer. At the Second Closing, the Buyer shall
deliver to the Seller stock certificates representing the Second Closing Stock
Consideration.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
SECTION 4.1 Corporate Organization. Each of the Seller and the Department
Store Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has corporate
power to own all of its properties and assets and to carry on its business as it
is now being conducted, and is duly qualified to do business and is in good
standing in all jurisdictions where its ownership, operation or leasing of
property or assets or the conduct of its business requires it to be so
qualified, except in such jurisdictions, if any, where the failure to be so
qualified or in good standing would not, individually or in the aggregate, have
a Material Adverse Effect. Each of the Seller and the Department Store
Subsidiaries has all necessary Government authorizations to own, lease and
operate all of its properties and assets and to carry on its business as now
being conducted, except any such authorizations the failure to obtain which
would not have or would not be reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect. True and complete copies of the Articles
and Bylaws of the Seller and similar charter documents for each of the
Department Store Subsidiaries as currently in effect have been provided to the
Buyer. Schedule 4.1 sets forth a complete and correct list of all jurisdictions
in which the Seller and each of its Subsidiaries are qualified or licensed to
carry on the business of the Department Store Division.
SECTION 4.2 Due Authorization. Other than the requisite approval of this
Agreement by the holders of Seller Common Stock, the execution, delivery and
performance of this Agreement and the Escrow Agreement have been duly authorized
by all necessary corporate action on the part of the Sellers and this Agreement
has been duly executed, and at the First Closing the Escrow Agreement will be
executed, by a duly authorized officer of the Seller and this Agreement
constitutes and, upon execution the Escrow Agreement will constitute, a valid
and binding agreement of the Sellers, enforceable against them in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
subject to general principles of equity (regardless of whether enforcement is
sought in equity or law).
SECTION 4.3 Department Store Subsidiaries Stock. Schedule 4.3 sets forth (a)
the name of all Department Store Subsidiaries, (b) the capitalization thereof
and the percentage of each class of capital stock owned by the Seller or any of
its Subsidiaries, and (c) the jurisdiction of incorporation of such Department
Store Subsidiaries. Except as set forth on Schedule 4.3, the Seller owns,
directly or indirectly, all of the issued and outstanding capital stock of each
of the Department Store Subsidiaries free and clear of any Lien.
SECTION 4.4 Consents and Approvals; No Violation. Subject to (a) the
requisite approval of this Agreement by the holders of the Seller Common Stock,
(b) the expiration or earlier termination of all waiting periods under the HSR
Act, and (c) compliance with all applicable requirements of the Securities Act
and the Exchange Act, the execution and delivery of this Agreement and the
Escrow Agreement do not, and the consummation of the transactions contemplated
hereby and thereby will not, (i) violate or conflict with any provision of the
Seller's Articles or Bylaws or other similar charter documents of any of its
Subsidiaries, (ii) except as set forth in Schedule 4.4 hereto, violate or
conflict with or result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of, any note, bond, mortgage, indenture, license, lease, agreement or other
instrument or obligation to which the Sellers are a party or by which the
Sellers or any of the Department Store Assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents either have been obtained by the
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Sellers or the obtaining of which has been waived by the Buyer, or (iii) violate
any order, writ, injunction, decree, arbitration award, statute, rule or
regulation applicable to the Sellers or any of the Department Store Assets
(other than any applicable "bulk sales" laws), excluding from the foregoing
clauses (ii) and (iii) such defaults and violations which, individually or in
the aggregate, would not have a Material Adverse Effect.
SECTION 4.5 Financial Statements; SEC Filings.
(a) True and complete copies of the Seller Financial Statements have been
made available by the Seller to the Buyer. The Seller Financial Statements have
been prepared in accordance with GAAP applied on a consistent basis, except as
noted in the Seller Financial Statements, and present fairly the consolidated
financial position of the Sellers at the respective dates thereof and the
consolidated results of operations and changes in financial position of the
Sellers for the periods respectively then ended subject, in the case of
unaudited interim statements, to normal year-end adjustments. The Seller
Financial Statements referred to in this Agreement shall be deemed to include
any notes and schedules to such financial statements.
(b) The Seller has previously furnished to the Buyer the unaudited pro forma
consolidated statements of operations and changes in financial position of the
Department Store Division for each of the three years ended January 29, 1994,
January 28, 1995, and February 3, 1996, respectively, and the Department Store
Division Balance Sheet. The pro forma financial statements described in this
Section 4.5(b) are collectively referred to herein as the "Pro Forma Department
Store Division Financial Statements." Except as set forth in the notes to the
Pro Forma Department Store Division Financial Statements, (i) the Department
Store Division Balance Sheet presents fairly the financial position of the
Department Store Division as of the date thereof, and the statements of
operations included in the Pro Forma Department Store Division Financial
Statements present fairly the results of operations of the Department Store
Division for the respective period therein set forth; and (ii) each of the
fiscal year end Pro Forma Department Store Division Financial Statements was
prepared on a basis consistent with the accounting principles, methods and
practices employed in the preparation and presentation of the Seller's audited
financial statements for the same periods and for prior periods.
(c) Since January 1, 1993, the Sellers have filed with the SEC all forms,
reports and documents required to be filed by them pursuant to the Securities
Act and the Exchange Act, all of which, as of their respective filing dates,
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act. The Seller has heretofore made available to
the Buyer a true and complete copy of each registration statement, final
prospectus and definitive proxy statement filed by the Sellers with the SEC
since January 1, 1993, and each report filed by the Sellers with the SEC since
January 1, 1993; none of the Seller Filings as of the respective dates on which
they were filed with the SEC contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
SECTION 4.6 Absence of Changes. Except as disclosed in Schedule 4.6 hereto,
since the date of the Department Store Division Balance Sheet, the business of
the Department Store Division has been conducted in the ordinary course and
there has not been:
(a) any Material Adverse Effect or any event which is reasonably likely to
result in a Material Adverse Effect;
(b) any change by the Seller in the accounting methods, principles or
practices relating to the Department Store Division, other than changes required
by generally accepted accounting principles;
(c) any acquisition of, or commitment to acquire, any Department Store
Assets, or any entry or commitment to enter into any Department Store Contracts,
or any undertaking or commitment to incur
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or undertake any Assumed Department Store Liabilities, in any such case which is
material to the Department Store Division.
For purposes of this Section 4.6, a Material Adverse Effect shall not be
deemed to include any effect upon the business, prospects, results of
operations, properties, assets, liabilities or condition (financial or
otherwise) of the Department Store Division taken as a whole arising out of or
resulting from the execution of this Agreement and the Escrow Agreement or the
consummation of the transactions contemplated hereby and thereby.
SECTION 4.7 Absence of Undisclosed Liabilities. The Sellers have no
liabilities or obligations of any kind whatsoever, whether or not accrued and
whether or not contingent or absolute, determined or determinable, that are
Assumed Department Store Liabilities, other than (a) liabilities and obligations
which are disclosed or accrued in the Department Store Division Balance Sheet or
the notes thereto or the Schedules to this Agreement, (b) liabilities and
obligations incurred on behalf of the Department Store Division in connection
with this Agreement and the Escrow Agreement and the transactions contemplated
hereby and thereby, and (c) liabilities and obligations incurred in the ordinary
course of business after the date of the Department Store Division Balance
Sheet, none of which, either individually or in the aggregate, have a reasonable
likelihood of resulting in a Material Adverse Effect.
SECTION 4.8 Litigation. Except as disclosed in Schedule 4.8, in the Seller
Filings, the Seller Financial Statements or the Pro Forma Department Store
Division Financial Statements, there are no claims, actions, suits, proceedings
or investigations pending or, to the best knowledge of the Seller, threatened
against the Sellers, the Department Store Division or the Department Store
Assets before any Government which, individually or in the aggregate, have a
reasonable likelihood of resulting in a Material Adverse Effect. The Sellers are
not subject to any outstanding order, writ, injunction or decree which has had
or could be reasonably expected to have a Material Adverse Effect.
SECTION 4.9 Taxes. The Sellers have duly and timely filed or caused to be
filed, or will duly and timely file or cause to be filed, all income Tax Returns
and all other material Tax Returns required to be filed at or before the
Effective Time, taking into account any extension for time to file granted to or
obtained on behalf of the Sellers. All such Tax Returns (including amendments)
are, or will be when filed, complete and accurate in all material respects. The
Sellers have paid (or there has been paid on their behalf), or have established,
or, with respect to Taxes which are or will be due but not yet payable as of the
Effective Time, will establish, reserves which are adequate for the payment of,
all Taxes for all taxable periods (or portions thereof) ending on or before the
Effective Time. The Sellers are not delinquent in the payment of any Tax. Except
as set forth in Schedule 4.9, no material deficiencies for any Tax have been
proposed, asserted or assessed (tentatively or definitely), in each case by any
taxing authority, against the Sellers. Except as set forth on Schedule 4.9, as
of the date of this Agreement, there are no pending requests for waivers of the
time to assess any such Tax. The federal income Tax Returns of the Seller and
each of its Subsidiaries that has been a member of the affiliated group of
corporations of which the Seller is the common parent for all periods during its
existence have been audited by the Internal Revenue Service through the taxable
year ended on the date set forth on Schedule 4.9 and the federal income Tax
Returns of each of its Subsidiaries that has not been a member of the affiliated
group of corporations of which the Seller is the common parent for all periods
during its existence have been audited through the taxable year ended on the
date set forth on Schedule 4.9. Except as set forth on Schedule 4.9, no employee
benefit plan for which the Sellers file, or are required to file, an Internal
Revenue Service Form 5500 is currently under employee plan examination by the
Internal Revenue Service. Neither the Sellers nor any representative of such
benefit plans has received verbal or written notification from the Internal
Revenue Service of an impending employee plan examination. The Sellers have not
filed an election under Section 341(f) of the Code to be treated as a consenting
corporation.
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SECTION 4.10 Title and Related Matters.
(a) Schedule 1.37 is a true and complete schedule of all of the Department
Store Real Property owned in fee by the Sellers. The Sellers have good and
marketable title to the Department Store Land described on Schedule 1.31 and the
Improvements located thereon, all of which will be free and clear of any Lien,
at the Effective Time. After the Effective Time, the Buyer will have, good and
marketable title (such as any reputable title insurance company licensed to do
business in the state in which such Department Store Real Property is located
will approve and insure without exceptions other than Permitted Encumbrances) to
all of the Department Store Real Property free and clear of any Lien. Each of
the agreements under which the Sellers own the Department Store Real Property is
valid and binding and in full force and effect and no notice of default or
termination thereunder has been given or received by the Sellers which describes
a default which has not been cured, and to the best knowledge of the Sellers, no
events have occurred which would, with the giving of notice or passage of time
or both, give the Sellers the right to deliver a notice of default or give a
third party the right to deliver a notice of default to the Sellers.
(b) Except as set forth on Schedule 4.10(b) and subject to Permitted
Encumbrances, the Sellers have, and after the Effective Time, the Buyer will
have, good and marketable title to all of the Department Store Assets (other
than the Department Store Real Property, as provided in Section 4.10(a), and the
Department Store Leases, as provided in Section 4.11), subject to no Lien.
(c) The Seller is entitled to receive from the City of Philadelphia on or
before February 1, 1997, and has the right to assign to the Buyer as provided
herein, an award and proceeds in the amount of $9.2 million from the
condemnation by the City of Philadelphia of the Seller's distribution center at
4800 South Island Avenue, Philadelphia, Pennsylvania. Except as set forth in
Schedule 4.10(c), there are no conditions to the assignment to the Buyer, or the
receipt by the Buyer pursuant thereto, of such award and proceeds.
SECTION 4.11 Department Store Leases. Schedule 1.32 and Schedule 1.39 set
forth, respectively, a true and complete list of (a) all Department Store Leases
(including amendments, modifications and supplements or other agreements), and
(b) all Department Store Space Leases, including without limitation, subleases,
licenses and other occupancy agreements (including amendments, modifications and
supplements or other agreements). The legal descriptions for each of the
Department Store Leases are set forth in Schedule 1.32. Each of the Department
Store Leases and each of the Department Store Space Leases is valid, binding and
in full force and effect, all rent and other sums and charges payable by or to
the Sellers thereunder are current within applicable grace and notice periods,
and no notice of default or termination under any Department Store Leases or
Department Store Space Leases has been given or received by the Sellers which
describes a default which has not been cured, and to the best knowledge of the
Sellers, no events have occurred which would, with the giving of notice or the
passage of time or both, constitute a default. None of the Sellers nor any
Affiliates of the Sellers has an ownership, financial or other interest in the
landlord under any Department Store Leases. After the Effective Time, the Buyer
will have, good and marketable title (such as any reputable title insurance
company licensed to do business in the state in which such Department Store
Leases are located will approve and insure without exceptions other than
Permitted Encumbrances) to all of the Department Store Leases subject to no
Lien.
SECTION 4.12 Other Department Store Contracts. Schedule 4.12 sets forth a
true and complete list of each of the Other Department Store Contracts which (a)
is a reciprocal easement agreement or supplemental agreement, or (b) provides
for aggregate future payment of more than $60,000, or (c) has a term exceeding
one year and which may not be cancelled upon ninety or fewer days' notice
without any liability, penalty or premium (other than a nominal cancellation fee
or charge), or (d) is material to the business, operations or financial
condition of the Department Store Division; provided, that Schedule 4.12 does
not list any of the Other Department Store Contracts for the purchase or sale of
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goods or services entered into in the ordinary course of business which may be
cancelled on ninety or fewer days' notice without any liability, penalty or
premium (other than a nominal cancellation fee or charge). Except as set forth
in Schedule 4.12, each of the Other Department Store Contracts is valid, binding
and in full force and effect, and no notice of default or termination under any
Other Department Store Contracts has been given or received by the Sellers which
describes a default which has not been cured, and to the best knowledge of the
Sellers, no events have occurred which would, with the giving of notice or the
passage of time or both, constitute a default.
SECTION 4.13 Department Store Inventory. All Department Store Inventory
included in the Department Store Assets is, and will be as of the Effective
Time, usable and saleable in the ordinary course of business of the Department
Store Division, and will be subject to no Lien at the Effective Time.
SECTION 4.14 Department Store Intellectual Property. Schedule 4.14 sets
forth a true and complete list of all trademarks, service marks, trade names,
brands, private labels, patents, copyrights, know-how or trade secrets and
licenses and rights with respect to the foregoing that the Sellers own or
possess the rights to use relating to the Department Store Division. Subject to
the licenses and other restrictions listed in Schedule 4.14, the Sellers own or
hold, and at the Effective Time, the Buyer will own or hold exclusive rights to
the Department Store Intellectual Property, in each case free from Lien or
restrictions. Except as set forth in Schedule 4.14, nothing has come to the
attention of the Sellers to the effect that: (a) any product, patent, trademark,
service mark, trade name, brand, private label, copyright, know-how, trade
secret or license presently being sold or employed by the Department Store
Division may infringe any rights owned or held by any other Person; (b) the
Sellers do not have exclusive rights to the trade name, trademark and service
mark "Strawbridge & Clothier" or (c) there is pending or, to the best knowledge
of the Sellers, threatened any claim or litigation against the Sellers or the
Department Store Division contesting the rights of the Sellers or the Department
Store Division with respect to any Department Store Intellectual Property.
SECTION 4.15 Employee Benefit Plans.
(a) Schedule 4.15 contains a written list of each Employee Benefit Plan and
benefit practices, policies, programs and arrangements which cover the Seller's
or any of its Subsidiaries' employees, former employees or retired employees,
including each Employee Pension Benefit Plan which is qualified under Section
401(a) of the Code, and all collective bargaining agreements relating to
employee benefits with respect to which the Sellers have incurred, or may incur,
any future obligations to the Sellers' employees, including, without limitation,
all plans, agreements or arrangements relating to deferred compensation,
pensions, profit sharing, retirement income or other benefits, severance
arrangements, health benefits and insurance benefits (other than plans,
arrangements or agreements applying to employees of the Sellers generally which
are funded by insurance) (collectively, the "Seller Plans"). The Seller has
furnished or made available to the Buyer complete and correct copies of all
Seller Plans and the most recent actuarial valuation reports and reports on Form
5500 for the most recent three years for each of the Seller Plans that is a
defined benefit plan (within the meaning of Section 3(35) of ERISA).
(b) Each of the Seller Plans has been administered and operated in
compliance with its terms and applicable law in all material respects,
including, without limitation, in accordance with the Code and ERISA, except
where the failure to be so administered or operated would not have a Material
Adverse Effect. The Seller has received a favorable determination letter from
the IRS with respect to each of the Seller Plans which is intended to be a
"qualified" plan under Section 401(a) of the Code and, to the best knowledge of
the Sellers, the IRS has taken no action to revoke any such letter. Except as
set forth on Schedule 4.15(b), no material liability under ERISA or the Code or
otherwise has been incurred or, to the knowledge of the Sellers, is reasonably
likely to be incurred by the Sellers, with respect to any Seller Plans.
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(c) The Sellers have not engaged in any transaction in connection with which
the Sellers, directly or indirectly, would be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code other than penalties or taxes which would not have or would not be
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect.
(d) There are no actions, suits, claims or proceedings, pending or, to the
best of knowledge of the Sellers, threatened (other than routine claims for
benefits) with respect to:
(i) any Seller Plans or any trust related thereto (other than the
Pension Plans (as defined in Section 7.5(d)) which would be reasonably
likely to result in any liability to the Sellers or to any Seller Plans
which would have or would be reasonably likely to have a Material Adverse
Effect; or
(ii) the Pension Plans or any trust related thereto which would be
reasonably likely to result in any liability to the Sellers or to a Pension
Plan or any trust related thereto, which would adversely affect the funded
status of a Pension Plan which is a defined benefit plan (within the meaning
of Section 3(35) of ERISA).
(e) Except as set forth on Schedule 4.15(b), no liability (other than
liability for premium payments required by Section 4007 of ERISA, which premiums
have been paid when due to the PBGC), exists or has been incurred with respect
to any Seller Plans subject to Title IV of ERISA which would or would be
reasonably likely to have a Material Adverse Effect.
(f) The actuarial present value of all accrued benefits, determined in
accordance with actuarial assumptions and methods set forth in the most recently
completed actuarial valuation report, under each of the Seller Plans which is a
defined benefit plan within the meaning of Section 3(35) of ERISA and which is
subject to Subtitles C and D of Title IV of ERISA (each such plan being
hereinafter referred to as a "Title IV Plan") and maintained or contributed to
by the Sellers, as from time to time in effect, did not, as of the date of the
most recently completed annual actuarial valuation for each such plan, exceed
the fair market value of the assets of each of such Seller Plans as of such
date.
(g) There have not been any "reportable events," as that term is defined in
Section 4043 of ERISA, with respect to any Title IV Plan required to be reported
to the PBGC since January 31, 1993.
(h) None of the Seller Plans subject to Part 3 of Subtitle B of Title I or
to Title II of ERISA nor any trusts have incurred any "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA or Section 412 of
the Code (whether or not waived), since January 31, 1993, and full payment has
been made of all contributions required to be made under the terms of each of
the Seller Plans.
(i) With respect to the Strawbridge & Clothier Retiree Health Plan described
in Note 5 to the Seller Financial Statements for the fiscal year ended January
28, 1995, which is a program within the Strawbridge & Clothier Medical Plan
(such program, herein called the "Retiree Health Plan"), the Seller has
furnished or made available to the Buyer complete and correct copies of all
Seller Plans which relate to the Retiree Health Plan, copies of all
communications or benefit summaries describing the Retiree Health Plan and the
actuarial valuation reports and reports on Form 5500, if any, for the most
recent three years for each of the Seller Plans that relate to the Retiree
Health Plan.
(j) With respect to the Seller's Deferred Compensation Plan for Key
Executives, described in Note 5 to the Seller Financial Statements for the
fiscal year ended January 28, 1995 ("Seller SERP"), the Seller has furnished or
made available to the Buyer complete and correct copies of the Seller SERP
documents, including trust agreements and insurance policies, if any, and
actuarial or other valuation reports prepared for the Seller SERP for the most
recent three years. The Sellers have not done and shall not do anything that
increases the present value of benefits accrued under the Seller SERP over the
present value of such benefits accrued as of January 1, 1996.
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SECTION 4.16 Employment and Severance Agreements. Except as set forth on
Schedule 4.16, there are no employment, severance or termination agreements to
which the Sellers or the Department Store Division is a party and which are
Other Department Store Contracts.
SECTION 4.17 Accounts Receivable. The Accounts Receivable are genuine and
represent the valid and binding obligation of the obligor thereon, enforceable
in accordance with their terms, subject to any bankruptcy, insolvency and
similar laws affecting creditors' rights generally, and will be subject to no
Lien at the Effective Time.
SECTION 4.18 Assets Necessary to the Business. Except as set forth in
Schedule 4.18, the Department Store Assets constitute all of the assets
necessary to operate the Department Stores as traditional department stores.
SECTION 4.19 Proxy Statement/Prospectus; Registration Statement. None of the
information supplied or to be supplied by the Seller specifically for inclusion
or incorporation by reference in (a) the Buyer Registration Statement, (b) the
Proxy Statement/Prospectus, and (c) any other document to be filed with the SEC
or any Government by the Sellers or the Buyer in connection with the
transactions contemplated by this Agreement ("Other Filings") will, at the
respective times filed with the SEC or such Government and, in addition, (i) in
the case of the Proxy Statement/Prospectus, at the date it or any amendment or
supplement is mailed to shareholders, at the time of the meeting of shareholders
of the Seller to be held in connection with the Reorganization and at the
Effective Time, and (ii) in the case of the Buyer Registration Statement, when
it becomes effective under the Securities Act and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Exchange Act, except that no
representation is made by the Seller with respect to statements made therein
based on information supplied by the Buyer specifically for inclusion or
incorporation by reference in the Proxy Statement/Prospectus.
SECTION 4.20 Brokers and Finders. Except for Peter J. Solomon Company
Limited and Lehman Brothers, whose fees the Seller shall be solely responsible
for, no financial adviser, broker, agent or finder has been retained by the
Sellers in connection with this Agreement or any transaction contemplated hereby
and, except for Peter J. Solomon Company Limited and Lehman Brothers, no such
financial adviser, broker, agent or finder is entitled to any fee or other
compensation from the Sellers on account of this Agreement or any transaction
contemplated hereby.
SECTION 4.21 Pennsylvania Business Corporation Law. The Pennsylvania
Business Corporation Law anti-takeover provisions are inapplicable to this
Agreement and the Escrow Agreement and the transactions contemplated hereby and
thereby.
SECTION 4.22 Voting Requirement. The affirmative vote of a majority of votes
entitled to be cast by the holders of the Seller Series A Common Stock and the
Seller Series B Common Stock, voting separately as a series and together, at a
meeting of holders of outstanding shares of Seller Common Stock at which there
is a quorum, in favor of this Agreement and the transactions contemplated hereby
are the only votes of the holders of any class or series of the Seller's capital
stock necessary to approve this Agreement, the Escrow Agreement and the
transactions contemplated hereby and thereby under any applicable law, rule or
regulation or pursuant to the requirements of the Seller's Articles and Bylaws.
SECTION 4.23 Labor Matters. There is no unfair labor practice complaint
against the Sellers pending before the National Labor Relations Board or any
other Government performing similar functions. There is no proceeding with
respect to the Sellers actually pending before the National Labor
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Board. There is no labor strike, dispute, slowdown or stoppage actually pending
or, to the best knowledge of the Sellers, threatened against or involving the
Sellers. There is no pending representation question respecting the employees of
the Sellers. No labor grievance has been filed with the Sellers which has had or
may have a Material Adverse Effect on the Sellers, and no arbitration proceeding
under any collective bargaining agreement, which has had or may have such an
effect, is pending or, to the Sellers' knowledge, threatened. No collective
bargaining agreement is currently being negotiated by the Sellers. Schedule 7.2
sets forth a complete and accurate list of all collective bargaining agreements
affecting any employees of the Department Store Division.
SECTION 4.24 Insurance. Schedule 4.24 contains an accurate and complete
description of all policies of liability, fire, workers' compensation and other
forms of insurance owned or held by the Sellers and covering the Department
Store Division or any of the Seller Plans. All such policies are valid and
enforceable and in full force and effect, are underwritten by unaffiliated
financially sound and reputable insurers, are sufficient for all applicable
requirements of law and provide insurance, including, without limitation, fire,
general liability and product liability insurance, in such amounts and against
such risks as is customary for companies engaged in similar businesses to
protect the Department Store Assets.
SECTION 4.25 Environmental. Schedule 4.25 contains an accurate and complete
description of all environmental reports known to the Sellers that affect any of
the Department Store Assets, and the Sellers have delivered a complete copy of
each such report to the Buyer. Except as set forth in Schedule 4.25 or in the
reports listed therein, the Sellers have no knowledge of the presence or release
of any toxic substance or hazardous material or of any other environmental
condition or contamination in or from the Department Store Assets.
SECTION 4.26 Disclosure. No representation or warranty by the Sellers in
this Agreement and no statement contained in any document (including, without
limitation, financial statements, disclosure schedules and the confidential
selling memorandum), certificate or other writing furnished or to be furnished
by the Sellers pursuant to the provisions hereof contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact necessary to make the statements herein or therein not misleading, it being
understood that as used in this Section "material" means material to the
Department Store Division taken as a whole.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
SECTION 5.1 Corporate Organization. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, has corporate power to own all of its properties and assets and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in all jurisdictions where its ownership,
operation or leasing of property or assets or the conduct of its business
requires it to be so qualified, except in such jurisdictions, if any, where the
failure to be so qualified or in good standing would not, individually or in the
aggregate, have a Material Adverse Effect. The Buyer has all necessary
Government authorizations to own, lease and operate all of its properties and
assets and to carry on its business as now being conducted, except any such
authorizations the failure to obtain which would not have or would not be
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect. True and complete copies of the Articles of Incorporation and Bylaws of
the Buyer as currently in effect have been provided to the Seller.
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SECTION 5.2 Capitalization. The authorized capital stock of the Buyer
consists of 51,323 shares of Preferred Stock, no par value, of which 11,974 were
issued and outstanding as of February 3, 1996, 73,273 shares of $1.80 Preference
Stock, no par value, of which 26,653 were issued and outstanding as of February
3, 1996, 9,878 shares of 3-3/4% Cumulative Preference Stock, par value $100.00
per share, of which no shares were issued and outstanding as of February 3,
1996, 25,000,000 shares of Preference Stock, including ESOP Preference Shares,
par value $0.50 per share, of which 722,126 were issued and outstanding as of
February 3, 1996, and 700,000,000 shares of May Common Stock, of which
248,871,118 were issued and outstanding and 64,765,878 were held in treasury by
the Buyer as of February 3, 1996. There are no outstanding obligations, options
or rights to acquire shares of May Common Stock or any outstanding securities or
other instruments convertible into shares of May Common Stock, other than
pursuant to this Agreement, as disclosed in the Buyer Filings or the Buyer
Financial Statements or employee stock options.
SECTION 5.3 Subsidiaries Stock; Significant Subsidiaries.
(a) Except as set forth in the Buyer Financial Statements or the Buyer
Filings or in Schedule 5.3, the Buyer owns, directly or indirectly, all of the
outstanding shares of capital stock of its Subsidiaries free and clear of any
Lien and has made no material investment in, or material advance to, any
company, partnership, joint venture or other business association or entity,
other than Buyer's Subsidiaries. There are no outstanding options, warrants or
other rights to acquire, nor any outstanding securities convertible into,
capital stock of any class of any Subsidiaries of the Buyer. There are no voting
trusts or other agreements or understandings to which the Buyer or any Buyer's
Subsidiaries is a party or is bound with respect to the voting of the capital
stock of the Buyer or any Buyer's Subsidiaries. All of the outstanding shares of
capital stock of the Buyer's Subsidiaries owned directly or indirectly by the
Buyer have been validly issued and are fully paid, non-assessable and free of
preemptive rights.
(b) Each Significant Subsidiary of the Buyer is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has corporate power and all necessary Government
authorizations to own, operate or lease all of its properties and assets and to
carry on its business as it is now being conducted, except any such
authorizations the failure to obtain which would not have or would not be
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect or prevent the consummation of the transactions contemplated hereby and
by the Escrow Agreement, and is duly qualified to do business and is in good
standing in each jurisdiction where its ownership, operation, or leasing of
property or the conduct of its business requires such qualification, except in
such jurisdictions, if any, where the failure to be so qualified or in good
standing would not have or would not be reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect.
SECTION 5.4 Due Authorization. The execution, delivery and performance of
this Agreement and the Escrow Agreement have been duly authorized by all
necessary corporate action on the part of the Buyer and this Agreement has been
duly executed, and at the First Closing the Escrow Agreement will be executed,
by a duly authorized officer of the Buyer and this Agreement constitutes and,
upon execution the Escrow Agreement will constitute, a valid and binding
agreement of the Buyer, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and subject to general
principles of equity (regardless of whether enforcement is sought in equity or
law).
SECTION 5.5 Consents and Approvals; No Violation. Subject to (a) the
expiration or earlier termination of all waiting periods under the HSR Act, (b)
compliance with all applicable requirements of the Securities Act and the
Exchange Act, and (c) the approval for listing, subject to official notice of
issuance, of the Stock Consideration on the NYSE, the execution and delivery of
this Agreement and the Escrow Agreement do not, and the consummation of the
transactions contemplated hereby and
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thereby will not, (i) violate or conflict with any provision of the Buyer's
Restated Articles of Incorporation or By-laws, (ii) except as set forth in
Schedule 5.5, violate or conflict with or result in a default (or give rise to
any right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of, any note, bond, mortgage, indenture, license,
lease, agreement or other instrument or obligation to which the Buyer or any of
its Subsidiaries is a party or by which the Buyer or any of its Subsidiaries or
any of their respective properties or assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents either have been obtained by the Buyer or the
obtaining of which has been waived by the Seller, or (iii) violate any order,
writ, injunction, decree, arbitration award, statute, rule or regulation
applicable to the Buyer, any of its Subsidiaries or any of their respective
properties or assets (other than any applicable "bulk sales" laws), excluding
from the foregoing clauses (ii) and (iii) such defaults and violations which,
individually or in the aggregate, would not have a Material Adverse Effect.
SECTION 5.6 Financial Statements; SEC Filings.
(a) True and complete copies of the Buyer Financial Statements have been
made available by the Buyer to the Seller. The Buyer Financial Statements have
been prepared in accordance with GAAP applied on a consistent basis, except as
noted in the Buyer Financial Statements, and present fairly the consolidated
financial position of the Buyer and its Subsidiaries at the respective dates
thereof and the consolidated results of operations and changes in financial
position of the Buyer and its Subsidiaries for the periods respectively then
ended subject, in the case of unaudited interim statements, to normal year-end
adjustments. The Buyer Financial Statements referred to in this Agreement shall
be deemed to include any notes and schedules to such financial statements.
(b) Since January 1, 1993, each of the Buyer and any of its Subsidiaries
that is required to make filings under the Securities Act or the Exchange Act
has filed with the SEC all forms, reports and documents required to be filed by
it pursuant to the Securities Act and the Exchange Act, all of which, as of
their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act. The Buyer
has heretofore made available to the Seller a true and complete copy of each
registration statement, final prospectus and definitive proxy statement filed by
the Buyer or any of its Subsidiaries with the SEC since January 1, 1993, and
each report filed by the Buyer or its Subsidiaries with the SEC since January 1,
1993; none of the Buyer Filings as of the respective dates on which they were
filed with the SEC contained any untrue statement of a material fact or omitted
to state a material fact necessary to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
SECTION 5.7 Absence of Changes. Except as disclosed in Schedule 5.7, the
Buyer Filings or the Buyer Financial Statements, and except as contemplated by
this Agreement, since January 28, 1995, the Buyer and its Subsidiaries have
conducted their respective businesses in the ordinary course and there has not
been:
(a) any Material Adverse Effect or any event which is reasonably likely
to result in a Material Adverse Effect;
(b) any change by the Buyer in the accounting methods, principles or
practices, other than changes required by generally accepted accounting
principles;
(c) any material amendment or termination by the Buyer or its
Subsidiaries of any contract, agreement or license which is material to the
Buyer and its Subsidiaries taken as a whole;
(d) any entering into by the Buyer or its Subsidiaries of any contract,
agreement or license which is material to the Buyer and its Subsidiaries
taken as a whole;
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(e) any indebtedness incurred by the Buyer or its Subsidiaries in
respect of borrowed money or any commitment in respect of borrowed money
entered into by the Buyer or its Subsidiaries other than in the ordinary
course of business; or
(f) any revaluation by the Buyer of any of its assets, including without
limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business.
SECTION 5.8 Absence of Undisclosed Liabilities. There are no liabilities or
obligations of the Buyer or its Subsidiaries of any kind whatsoever, whether or
not accrued and whether or not contingent or absolute, determined or
determinable, that are material to the Buyer and its Subsidiaries taken as a
whole, other than (a) liabilities or obligations which are disclosed, accrued or
reserved against in the Buyer Financial Statements, (b) liabilities and
obligations disclosed in the Buyer Filings or on any of the Schedules to this
Agreement, (c) liabilities incurred on behalf of the Buyer in connection with
this Agreement, and (d) liabilities incurred in the ordinary course of business
since October 28, 1995, none of which, either individually or in the aggregate,
are reasonably likely to have a Material Adverse Effect.
SECTION 5.9 Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of the Buyer, threatened against the
Buyer or its Subsidiaries before any domestic or foreign court or governmental
or regulatory authority or body which, individually or in the aggregate, have a
reasonable likelihood of resulting in a Material Adverse Effect. Neither the
Buyer nor any of its Subsidiaries is subject to any outstanding order, writ,
injunction or decree which has had or could be reasonably expected to have a
Material Adverse Effect.
SECTION 5.10 Taxes. The Buyer and its Subsidiaries have duly and timely
filed or caused to be filed, or will duly and timely file or cause to be filed,
all income Tax Returns and all other material Tax Returns required to be filed
at or before the Effective Time, taking into account any extension for time to
file granted to or obtained on behalf of the Buyer and its Subsidiaries. All
such Tax Returns (including amendments) are, or will be when filed, complete and
accurate in all material respects. The Buyer and its Subsidiaries have paid (or
there has been paid on their behalf), or have established, or, with respect to
Taxes which are or will be due but not yet payable as of the Effective Time,
will establish, reserves which are adequate for the payment of, all Taxes for
all taxable periods (or portions thereof) ending on or before the Effective
Time. Neither the Buyer nor any of its Subsidiaries is delinquent in the payment
of any Tax. No material deficiencies for any Tax have been proposed, asserted or
assessed (tentatively or definitely), in each case by any taxing authority,
against the Buyer or any of its Subsidiaries. Except as set forth on Schedule
5.10, as of the date of this Agreement, there are no pending requests for
waivers of the time to assess any such federal Tax. The federal income Tax
Returns of the Buyer and each of its Subsidiaries that has been a member of the
affiliated group of corporations of which the Buyer is the common parent for all
periods during its existence have been audited by the Internal Revenue Service
through the taxable year ending February 2, 1991 and the federal income Tax
Returns of each of its Subsidiaries that has not been a member of the affiliated
group of corporations of which the Buyer is the common parent for all periods
during its existence have been audited through the taxable year ending February
2, 1991.
SECTION 5.11 Employee Benefit Plans.
(a) Schedule 5.11 contains a written list of every Employee Pension Benefit
Plan which is "qualified" under Section 401(a) of the Code and which covers
current employees of the Buyer. The Buyer has furnished or made available to the
Seller complete and correct copies of all such plans and the most recent
actuarial valuation report for each the such plan that is a defined benefit plan
(within the meaning of Section 3(35) of ERISA). None of the such plans is a
Multiemployer Plan.
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(b) Each of the plans referred to in clause (a) above has been administered
and operated in compliance with its terms and applicable law in all material
respects, including, without limitation, in accordance with the Code and ERISA,
except where the failure to be so administered or operated would not have a
Material Adverse Effect. The Buyer has received a favorable determination letter
from the IRS with respect to each of such plans and, to the best knowledge of
the Buyer, the IRS has taken no action to revoke any such letter. No material
liability under ERISA or the Code or otherwise has been incurred or, to the best
knowledge of the Buyer, is reasonably likely to be incurred by the Buyer, with
respect to any of such plans.
(c) Neither the Buyer nor, to the best knowledge of the Buyer, any of its
Subsidiaries has engaged in any transaction in connection with which the Buyer
or any of its Subsidiaries, directly or indirectly, would be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code other than penalties or taxes which would not have or
would not be reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect.
(d) There are no actions, suits, claims or proceedings, pending or, to the
best knowledge of the Buyer, threatened (other than routine claims for
benefits), which would be reasonably likely to result in any liability to the
Buyer or to any of its Subsidiaries with respect to any of the plans referred to
in clause (a) above or any trust related thereto which would have or would be
reasonably likely to have a Material Adverse Effect.
(e) No liability (other than liability for premium payments required by
Section 4007 of ERISA, which premiums have been paid when due to the PBGC),
exists or has been incurred with respect to any of the plans referred to in
clause (a) above subject to Title IV of ERISA which would or would be reasonably
likely to have a Material Adverse Effect.
(f) The actuarial present value of all accrued benefits, determined in
accordance with actuarial assumptions and methods set forth in the most recently
completed actuarial valuation report, under each of the plans referred to in
clause (a) above which is a Title IV Plan and maintained or contributed to by
the Buyer and any of its Subsidiaries, as from time to time in effect, did not,
as of the date of the most recently completed annual actuarial valuation for
each such plan, exceed the value of the assets of each such plan as of such
date.
(g) There have not been any "reportable events", as that term is defined in
Section 4043 of ERISA, with respect to any Title IV Plan required to be reported
to the PBGC since January 31, 1993.
(h) None the plans referred to in clause (a) above subject to Part 3 of
Subtitle B of Title I or to Title II of ERISA nor any trusts have incurred any
"accumulated funding deficiency", as such term is defined in Section 302 of
ERISA or Section 412 of the Code (whether or not waived), since January 31,
1993, and full payment has been made of all contributions required to be made
under the terms of each such plan.
SECTION 5.12 Proxy Statement/Prospectus; Registration Statement. None of the
information supplied by the Buyer specifically for inclusion or incorporation by
reference in (a) the Buyer Registration Statement, (b) the Proxy
Statement/Prospectus, and (c) the Other Filings will, at the respective times
filed with the SEC or such Government and, in addition, (i) in the case of the
Proxy Statement/Prospectus, at the date it or any amendment or supplement is
mailed to shareholders, at the time of the meeting of shareholders of the Seller
to be held in connection with the Reorganization and at the Effective Time, and
(ii) in the case of the Buyer Registration Statement, when it becomes effective
under the Securities Act and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Buyer Registration
Statement will comply as to form in all material respects with the provisions of
the Securities Act, except that no representation is made by the Buyer with
respect to statements made therein based on
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information supplied by the Seller specifically for inclusion or incorporation
by reference in the Buyer Registration Statement.
SECTION 5.13 Brokers and Finders. Except for Gleacher Natwest & Co., whose
fees the Buyer shall be solely responsible for, no financial adviser, broker,
agent or finder has been retained by the Buyer in connection with this Agreement
or any transaction contemplated hereby and, except for Gleacher, Natwest & Co.,
no such financial adviser, broker, agent or finder is entitled to any fee or
other compensation from the Buyer on account of this Agreement or any
transaction contemplated hereby.
SECTION 5.14 Ownership of Seller Common Stock. Immediately prior to entering
into this Agreement, neither the Buyer nor any of its Subsidiaries owned any
shares of Seller Common Stock.
ARTICLE VI
COVENANTS OF THE PARTIES
SECTION 6.1 Conduct of Business of the Department Store Division. Except as
expressly provided in this Agreement, during the period from the date of this
Agreement to the Effective Time, the Seller will and will cause the Department
Store Division to conduct its business and operations according to its ordinary
and usual course of business.
(a) Without limiting the generality of the foregoing, and, except as
otherwise expressly provided in this Agreement, prior to the Effective Time,
without the prior written consent of the Buyer, the Seller will not and will
not permit any of its Subsidiaries or the Department Store Division to:
(i) create, incur or assume any long-term debt (including obligations
in respect of leases), or except in the ordinary course of business under
existing lines of credit, create, incur, assume, maintain or permit to
exist any short-term debt (other than intercompany loans and advances to
or from any Department Store Subsidiaries in a net aggregate amount at
any one time outstanding not exceeding $100,000), if, in either such
case, such long-term or short-term debt would constitute Assumed
Department Store Liabilities or a liability of any Department Store
Subsidiaries;
(ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other Person, if such assumption, guarantee,
endorsement or other liability would constitute Assumed Department Store
Liabilities or a liability of any Department Store Subsidiaries;
provided, that the Seller, the Department Store Division and the
Department Store Subsidiaries may endorse negotiable instruments in the
ordinary course of business;
(iii) make any loans, advances or capital contributions to, or
investments in, any other Person, if the receivable with respect to such
loan would constitute Department Store Assets;
(iv) without the consent of the Buyer which shall not be unreasonably
withheld, increase in any manner the compensation of any of the
Department Store Division employees, except such increases and promotions
as are granted pursuant to normal periodic performance reviews and
related compensation and benefit increases (but not any general
across-the-board increases) or normal promotions to fill positions being
vacated (provided that the foregoing shall not apply to any non-Affected
Employees so long as the same does not in any way affect the obligations
or liabilities of the Buyer under this Agreement, particularly Article
VII); or pay or agree to pay any pension, retirement allowance or other
employee benefit not required or permitted by any existing plan,
agreement or arrangement to any Affected Employees (as
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defined in Section 7.5(a)); or commit itself to any additional pension,
profit-sharing, bonus, incentive, deferred compensation, stock purchase,
stock option, stock appreciation right, group insurance, severance pay,
retirement or other employee benefit plan, agreement or arrangement, or
to any employment agreement or consulting agreement with or for the
benefit of any Affected Employees, or to amend any of the Seller Plans
(including without limitation the Employee Pension Benefit Plan, the
Employee Welfare Benefit Plan, the Savings Plan (as defined in Section
7.5(b)), the Retiree Health Plan (as defined in Section 4.15(i)) and the
Seller SERP (as defined in Section 4.15 (j))) in which any Affected
Employees, participate or are parties;
(v) permit any of its current insurance (or reinsurance) policies to
be cancelled or terminated or any of the coverage thereunder to lapse if
such policy covers the Department Store Assets or any Department Store
Division employees, former employee or retired employee, or insures
risks, contingencies or liabilities which could result in Assumed
Department Store Liabilities or a liability of any Department Store
Subsidiaries, unless simultaneously with such termination, cancellation
or lapse, replacement policies providing coverage equal to or greater
than the coverage remaining under those cancelled, terminated or lapsed
policies are in full force and effect;
(vi) (x) sell, lease or transfer any Department Store Premises, (y)
create any Lien on any Department Store Assets; or (z) except in the
ordinary course of business sell, transfer or otherwise dispose of or
agree to sell, transfer or otherwise dispose of, any other Department
Store Assets;
(vii) without the consent of the Buyer which shall not be
unreasonably withheld, amend any charter document of any of the
Department Store Subsidiaries, or sell transfer or divest any interest in
any of the Department Store Subsidiaries;
(viii) amend, modify, supplement or terminate any Department Store
Leases or any Department Store Space Leases or any Other Department Store
Contracts with respect to the Department Store Real Property or enter
into any new agreement with respect to the Department Store Real Property
or the Department Store Leased Real Property (except, with the consent of
the Buyer which shall not be unreasonably withheld, the Sellers may
execute subordination agreements, estoppel certificates and similar
instruments required to be executed pursuant to the terms of the
Department Store Leases in respect of the Department Store Leased Real
Property; provided, the Seller shall deliver to the Buyer copies of such
proposed subordination agreements, estoppel certificates and similar
instruments no less than two Business Days before the execution thereof);
(ix) waive or release any rights of any material value of or with
respect to the business of the Department Store Division;
(x) without the consent of the Buyer which shall not be unreasonably
withheld, change any accounting methods, principles or practices relating
to the Department Store Division, other than changes required by
generally accepted accounting principles;
(xi) without the consent of the Buyer which shall not be unreasonably
withheld, enter into any other agreement, commitments or contracts,
except agreement, commitments or contracts made in the ordinary course of
business and of the usual size and duration;
(xii) without the consent of the Buyer which shall not be
unreasonably withheld, permit any right with respect to Department Store
Intellectual Property to lapse or be cancelled;
(xiii) take any other action which would cause any of the
representations and warranties of the Seller set forth in Article IV not
to be true and correct as of the date of this Agreement
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and as of the First Closing Date as though made as of such date, except
as expressly contemplated by this Agreement;
(xiv) open, at any Clover store, new proprietary credit card accounts
that would be Accounts Receivable;
(xv) permit deferred billing for any purchases on Accounts
Receivable;
(xvi) without the consent of the Buyer which shall not be
unreasonably withheld, modify any terms, policies, practices or
procedures relating to the Accounts Receivable; or
(xvii) enter into any agreement to do any of the foregoing.
(b) Without limiting the generality of the preceding obligation of the
Seller to cause the Department Store Division to conduct its business and
operations according to its ordinary course of business, the Seller shall
and shall cause each of its Subsidiaries and the Department Store Division
to:
(i) perform their respective obligations under the Department Store
Contracts and the Permitted Encumbrances in accordance with their terms,
including the making of all payments when due;
(ii) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to the Department Store
Assets and Assumed Department Store Liabilities;
(iii) pay in full the cost of all work which is performed in the
Department Store Premises promptly after it is completed and in any event
prior to the Effective Time;
(iv) immediately notify the Buyer if the Seller receives any notices
from any lessor, Government, insurance company or other Person of any
default or the need for any repairs, alterations or improvements to the
Department Store Premises, or that any of the Department Store Premises
are or may be in violation of any law, and promptly cure the default or
cause compliance at the Seller's cost;
(v) immediately notify the Buyer if the Seller receives any notices
of or otherwise becomes aware of any condemnation proceeding affecting
the Department Store Premises;
(vi) obtain the Buyer's approval, which shall not be unreasonably
withheld, before (x) renewing, or (y) electing not to renew any
Department Store Leases or Department Store Space Leases;
(vii) obtain the Buyer's approval, which shall not be unreasonably
withheld, before (x) renewing, or (y) electing not to renew any material
Department Store Contracts;
(viii) maintain all insurance policies and name the Buyer as
additional insured/loss payee on all policies that relate to the
Department Store Assets;
(ix) immediately notify the Buyer of any pending or threatened
investigation by or proceeding before the IRS or Department of Labor
relating to any Seller Plans which are defined benefit pension plans;
(x) cancel, as and when reasonably requested by the Buyer, Department
Store Purchase Orders slated for delivery after the Effective Time; and
(xi) maintain and comply in all material respects with the Seller
Plans.
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SECTION 6.2 Disposition of the Excluded Assets.
(a) During the period from the date of this Agreement until the Second
Closing Date the Seller shall use best efforts to consummate the Disposition.
(b) The parties intend that the Disposition will not create, give rise to or
result in any liability or obligation to the Buyer. In this regard, the Seller
will (i) on or prior to the First Closing Date with respect to any Disposition
that occurs and is consummated on or prior to the First Closing Date, or on or
prior to the Second Closing Date but after the First Closing Date with respect
to any Disposition that occurs or is consummated after the First Closing Date
but before the Second Closing Date, pay or cause to be paid or satisfy or cause
to be satisfied any liabilities or obligations arising from or otherwise
attributable to the Disposition that become due on or prior to the First Closing
Date or the Second Closing Date, as the case may be and (ii) establish an
adequate reserve for any known, actual or contingent liabilities or obligations
of the Seller or any of its Subsidiaries arising from or attributable to the
Disposition, which reserve shall become part of the Dissolution Escrow and Trust
to be established under Section 6.13 of this Agreement.
SECTION 6.3 Access and Investigation.
(a) During the period from the date of this Agreement to the Effective Time
the Buyer at its discretion may locate one or more of its representatives at the
headquarters of the Department Store Division. During such period the Seller
will cause its representatives and those of the Department Store Division to
consult as requested by the Buyer on a regular basis with such representatives
of the Buyer and to discuss the ongoing operations of the Department Store
Division. The Seller will promptly notify the Buyer of any significant change in
the normal course of business of the Department Store Division and of any
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) by or of any Government, or the institution or threat
of any significant litigation, in each case involving the Department Store
Division, and will keep the Buyer fully informed of such events and permit the
Buyer's representatives access to all material prepared in connection therewith.
(b) Between the date of this Agreement and the Effective Time,
representatives of the Buyer, including, without limitation, directors,
officers, accountants, attorneys and financial advisors, may make such
investigation of the business and operations of the Department Store Division,
the Department Store Assets and the Assumed Department Store Liabilities,
including the confirmation of Department Store Cash, the Department Store
Inventory and the Department Store Accounts Receivable, as it deems necessary or
advisable, but such investigation shall not affect any representations and
warranties of the Sellers hereunder.
(c) Between the date of this Agreement and the Effective Time, the Seller
agrees to permit the representatives of the Buyer to have access during normal
business hours, upon reasonable notice, to all Department Store Files and
Records and all other books and records of the Sellers, including tax returns
and accountants' work papers, which in any way involve or relate to the
Department Store Division, the Department Store Assets or the Assumed Department
Store Liabilities.
(d) Until the Effective Time, all information obtained by the Buyer and its
representatives pursuant to this Section 6.3 shall be kept confidential in
accordance with the terms and conditions of the Confidentiality Agreement, dated
November 9, 1995, between the Buyer and Peter J. Solomon Company Limited, on
behalf of the Seller.
SECTION 6.4 Proxy Statement/Prospectus; Buyer Registration Statement.
(a) Promptly after the execution of this Agreement, the Buyer and the Seller
shall cooperate with each other and use all reasonable efforts to prepare and,
as soon as is reasonably practicable, file with the SEC the Proxy
Statement/Prospectus, together with appropriate forms of proxy, with respect to
the shareholder meeting of the Seller referred to in Section 6.5, and the Buyer
shall file the Buyer Registration Statement under the Securities Act for the
purpose of registering the Stock Consideration issuable pursuant to Articles II
and III hereof, which shall contain the Proxy Statement/Prospectus.
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The parties shall use all reasonable efforts to have the Buyer Registration
Statement declared effective under the Securities Act, the Proxy
Statement/Prospectus cleared by the SEC as promptly as practicable after filing
and, as promptly as practicable after the Proxy Statement/Prospectus has been so
cleared and the Buyer Registration Statement declared effective, shall mail the
Proxy Statement/Prospectus that is a part of the Buyer Registration Statement to
the shareholders of the Seller as of the record date for the shareholder meeting
referred to in Section 6.5. The Buyer and the Seller shall also take such
actions as reasonably may be required to be taken under applicable "blue sky"
laws in connection with the issuance of the Stock Consideration. The Buyer and
the Seller each agree to correct any information provided by it for use in the
Buyer Registration Statement or the Proxy Statement/Prospectus which shall have
become false or misleading in any material respect and shall take all steps
necessary to cause the Buyer Registration Statement and the Proxy
Statement/Prospectus as so corrected to be filed with the SEC to be disseminated
to the shareholders of the Seller Common Stock as and to the extent required by
applicable law.
(b) Each of the parties hereto shall notify the other party hereto promptly
of the receipt by it of any comments of the SEC and of any request by the SEC
for amendments or supplements to the Proxy Statement/Prospectus or the Buyer
Registration Statement and will supply the other party hereto with copies of all
correspondence between it and its representatives, on the one hand, and the SEC
or the members of its staff or any other Government official, on the other hand,
with respect to the Proxy Statement/Prospectus or the Buyer Registration
Statement. The Buyer and the Seller each shall use all reasonable efforts to
respond promptly to any comments made by the SEC or any other Government
official with respect to the Proxy Statement/Prospectus or the Buyer
Registration Statement.
(c) Prior to the Effective Time, the Seller shall cause to be delivered to
the Buyer a letter identifying all persons who may be deemed to have been at the
time of the record date for the shareholder meeting referred to in Section 6.5,
"affiliates" of the Seller for purposes of Rule 145 under the Securities Act.
The Seller shall provide the Buyer with such information and documents as the
Buyer shall reasonably request for purposes of reviewing such letter. The Seller
will use its reasonable best efforts to obtain from each Person who is
identified in such letter as an affiliate of the Seller after the date of this
Agreement and prior to the Effective Time a written agreement, in a form
reasonably satisfactory to the Buyer, that such affiliate will not sell, offer
to sell or otherwise dispose of any of the May Common Stock received by such
affiliate in the Reorganization otherwise than within the limits and in
accordance with the provisions of Rule 145, as amended from time to time, or
except in a transaction that, in the opinion of legal counsel reasonably
satisfactory to the Buyer, is exempt from registration under the Securities Act;
provided that in no event will such affiliate sell, offer to sell or otherwise
dispose of any shares of May Common Stock prior to the publication of financial
results covering at least 30 days of post-Effective Time of the Buyer's use of
the Department Store Assets as required by SEC Accounting Series Release No.
135. The Buyer Registration Statement will include such information as may be
requested by the Seller to permit resales of the May Common Stock received by a
Person who may be deemed to be an underwriter of May Common Stock pursuant to
Rule 145, and the effectiveness of the Buyer Registration Statement under the
Securities Act and applicable "blue sky" laws shall be maintained for as long as
is possible after the Effective Time without being required to file a
post-effective amendment containing updated financial statements. Each of the
Buyer and such affiliates will provide customary indemnification to one another
with respect to the foregoing.
SECTION 6.5 Shareholder Meeting. The Seller shall take all action necessary
in accordance with applicable law and its Articles and Bylaws to convene a
meeting of its shareholders as promptly as possible for the purpose of obtaining
shareholder approval of the Reorganization. The Proxy Statement/Prospectus shall
contain the recommendation of the Board of Directors of the Seller that the
shareholders of the Seller vote to approve the Reorganization, and the Seller
shall use its reasonable best efforts to solicit from shareholders of the Seller
proxies in favor of such approval.
SECTION 6.6 Acquisition Proposals. Unless and until this Agreement shall
have been terminated pursuant to the terms hereof, except as otherwise
contemplated by this Agreement, the Seller will
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not (and will not permit any of its Subsidiaries to and will use its reasonable
best efforts to cause its officers, directors and employees and any investment
banker, attorney, accountant or other agent retained by it or any of its
Subsidiaries not to) initiate or solicit, directly or indirectly, any proposal
or offer to acquire all or any substantial part of the business and properties
or capital stock of the Seller or any of its Subsidiaries, whether by merger,
purchase of assets, tender offer or otherwise (an "Acquisition Proposal"), or
initiate, directly or indirectly, any contact with any Person in an effort to or
with a view towards soliciting any Acquisition Proposal except as expressly
provided in Section 6.2 hereof in respect of the Disposition. In the event the
Seller or any of its Subsidiaries shall receive an Acquisition Proposal, the
Seller shall immediately inform the Buyer as to any such Acquisition Proposal
and the details thereof and shall deliver to the Buyer a copy of any letter,
proposal or other document in which an Acquisition Proposal is expressed.
SECTION 6.7 Consents. The Buyer and the Seller shall use their respective
reasonable best efforts to obtain all consents and approvals required in
connection with, and waivers of any violations, breaches and defaults that may
be caused by, the consummation of the transactions contemplated by this
Agreement or the Escrow Agreement.
SECTION 6.8 Filings. The Buyer and the Seller shall, as promptly as
practicable, make any required filings and any other required submissions under
any law, statute, order, rule or regulation with respect to the transactions
contemplated by this Agreement or the Escrow Agreement and shall cooperate with
each other with respect to the foregoing.
SECTION 6.9 Best Efforts; Further Assurances.
(a) Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use its reasonable best efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations, including, without limitation,
the Pennsylvania Business Corporation Law, or to remove any judgments,
injunctions, orders, decrees or other impediments or delays, legal or otherwise,
to consummate the transactions contemplated by this Agreement and the Escrow
Agreement.
(b) If at any time after the Effective Time any further action is necessary
or desirable to carry out the purposes of this Agreement or the Escrow
Agreement, the proper officers and directors of the parties hereto shall take,
or cause to be taken, all such necessary action.
(c) Neither the Seller nor the Buyer shall knowingly take any action that,
or knowingly fail to take any action the failure of which, would reasonably
likely jeopardize the Reorganization contemplated herein to qualify as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 6.10 Publicity. The initial press release(s) with respect to the
execution of this Agreement shall be acceptable to the Buyer and the Seller.
Thereafter, so long as this Agreement is in effect, neither the Buyer or the
Seller nor any Subsidiaries of either shall issue or cause the publication of
any press release or other announcement with respect to this Agreement, the
Escrow Agreement or the transactions contemplated hereby or thereby without
prior consultation with the other party, except as may be required by law or by
any listing agreement with a national securities exchange.
SECTION 6.11 Collective Bargaining Agreements. Nothing contained in this
Agreement shall require the Buyer to assume, adopt or otherwise be bound by the
terms of any collective bargaining agreement to which the Seller or any of its
Subsidiaries has been, is now or shall become, a party, and the Buyer expressly
disclaims any intent or obligation to assume, adopt or otherwise be bound by the
terms of any such collective bargaining agreement.
SECTION 6.12 NYSE Listing. To the extent necessary under applicable rules
and regulations of the NYSE, the Buyer shall use all reasonable efforts to
prepare and submit to the NYSE a listing application covering the Stock
Consideration and shall use all reasonable efforts to obtain, prior to the
Effective Time, approval for the listing of such shares, upon official notice of
issuance.
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SECTION 6.13 Dissolution; Dissolution Escrow and Trust.
(a) Within 12 months after the First Closing Date, the Seller will effect
the Dissolution pursuant to which the Seller will distribute in complete
liquidation the shares of May Common Stock received as the Stock Consideration
(other than those shares subject to the Dissolution Escrow and Trust described
below) and all other assets that were retained by the Seller and not transferred
to the Buyer pursuant to this Agreement (other than those assets subject to the
Dissolution Escrow and Trust described below) to the holders of the Seller
Common Stock.
(b) The Seller will, prior to the Dissolution (i) cause to be paid or
satisfied all of the Seller's and its Subsidiaries' liabilities that become due
on or prior to the date of Dissolution, and (ii) establish an escrow and trust
(the "Dissolution Escrow and Trust") the terms of which will qualify it as a
liquidating trust for U.S. federal income tax purposes containing cash (or, to
the extent, the Seller's available cash shall be insufficient, shares of May
Common Stock received as Stock Consideration) and, to the extent determined by
the Seller, other assets in an amount (the "Dissolution Escrow Amount")
reasonably believed by the board of directors of the Seller to satisfy the
requirements of the Pennsylvania Business Corporation Law and be sufficient to
pay or adequately provide for all known, actual or contingent liabilities or
obligations of the Seller or any of its Subsidiaries, or arising out of the
transactions contemplated by this Agreement and the Escrow Agreement that may be
asserted against the Seller or any of its Subsidiaries by the Buyer or any of
its Subsidiaries, following the Effective Time or the Trustee under the
Dissolution Escrow and Trust. In addition to the Dissolution Escrow Amount, the
Seller shall transfer to the Dissolution Escrow and Trust any Excluded Assets
that the Seller is unable to sell, dispose of or otherwise liquidate on or prior
to the date the Seller commences its Dissolution; such transfer shall be for the
primary purpose of liquidating the Excluded Assets. The Seller shall prepare, in
good faith, a written preliminary estimate of the Dissolution Escrow Amount and
shall deliver a copy thereof to the Buyer at least 45 days prior to the date of
Dissolution for the Buyer's information. Written notice of the determination of
the Dissolution Escrow Amount by the Seller's board of directors and the terms
thereof, including copies of the minutes of any meeting or any consents related
thereto, shall be delivered to the Buyer for the Buyer's information at least 10
Business Days prior to the date of Dissolution.
(c) The Dissolution Escrow and Trust shall be established with an
independent third party escrow agent reasonably acceptable to the Buyer pursuant
to an escrow and trust agreement in form prepared by the Sellers' counsel and
delivered to the Buyer within 30 days from the date hereof for the Buyer's
reasonable approval.
SECTION 6.14 Sales and Transfer Taxes. All sales and transfer Taxes and
fees, including without limitation, any real estate transfer (subject to the
next sentence) or gains Taxes, patent and trademark transfer Taxes and recording
fees, incurred in connection with the transactions contemplated by this
Agreement will be borne by the Seller, and the Seller will, at its own expense,
file all necessary Tax Returns and other documentation with respect to all such
sales, transfer and recording Taxes and fees, and, if required by law, the Buyer
will join in the execution of any such Tax Returns or other documentation. The
Buyer shall be responsible for the lesser of (a) one-half or (b) $1,700,000 of
the total real estate transfer taxes arising in connection with the transfer of
the Department Store Assets. The Sellers shall provide the Buyer with copies of
any Tax returns or other documentation relating to such real estate transfer
Taxes at least 20 business days prior to the due date thereof, accompanied by a
statement setting forth the calculation of the Buyer's share of any Taxes shown
due and owing on such Tax returns, which share shall be calculated in accordance
with the immediately preceding sentence (the "Buyer's Transfer Taxes"). The
Buyer shall have the right to review such Tax returns prior to their filing. If
the Buyer disputes the amount of the Buyer's Transfer Taxes, the Buyer and the
Sellers shall consult and resolve in good faith the amount due and owing by the
Buyer. Upon agreement, the Buyer shall issue a check or checks payable directly
to the relevant Taxing authorities in an amount or amounts equal in the
aggregate to the Buyer's Transfer Taxes and shall deliver such check(s) to the
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Sellers not later than three business days before the due date of the relevant
Tax returns. The Sellers shall include such check(s) in the filing of any such
Tax return to which such check(s) relate(s).
SECTION 6.15 Use of Name. The Buyer will use a trade name consisting of or
containing the word "Strawbridge" to identify its traditional department store
operations (including those currently operating under the trade name Hecht's) in
the Philadelphia area continually following the Effective Time unless the
Buyer's traditional department store operations in the United States are
operated under less than three trade names.
SECTION 6.16 Temporary Use of Corporate Offices. For a period of 12 months
after the Effective Time, the Buyer shall grant to the Seller a license to
continue to use the ninth and tenth floors and portions of the eighth (for
Accounts Payable), eleventh (for Human Resources) and lower level (for Mail
Room) floors of the Main Store at 801 Market Street for, and limited to,
corporate offices of the Seller for the sole purpose of winding up the Seller's
business to effectuate the Dissolution. The Seller shall pay a pro rata share of
real and personal property taxes and property and general liability insurance
incurred by the Buyer for such Main Store. The Seller may cause an early
termination of the license or portions thereof by giving 30 days' notice thereof
to the Buyer. All costs directly relating to the use of the space by the Seller,
including without limitation utilities, telecommunications, security, supplies
and janitorial services during the term of the license shall be borne by the
Seller. The Buyer reserves the right to relocate, at its cost, such space within
or without the building. During the term of the license, the Buyer shall also
permit the Seller to use, on a non-exclusive basis, all telecommunication
equipment, furniture and furnishings located in such space that are Department
Store Equipment, Machinery and Fixtures, without any additional cost or fee. The
Seller agrees to use the space in a good and orderly fashion, to abide by rules,
regulations and security measures reasonably established by the Buyer for access
to and use of such space, and to return the same and the Department Store
Equipment, Machinery and Fixtures contained therein, in the same condition as at
the Effective Time, ordinary wear and tear and damage caused by casualty
excepted. The Buyer shall have reasonable access to and through the space
occupied by the Seller for maintenance and other operational purposes related to
the Main Store. The Seller shall indemnify, defend and hold harmless the Buyer
and its officers, directors, employees, agents and contractors from and against
any and all claims, demands, causes of action, losses, damages, liabilities,
cost and expenses (including, without limitation, attorneys' fees and
disbursements), for uninsured physical damage to such space or death or bodily
injury suffered or incurred by the Buyer or any other Person and arising out of
or in connection with the use of such space, or caused by the Seller, its
employees or agents during the term of the license.
SECTION 6.17 Temporary Continuation of R.D.I. Contract. For the period
between the Effective Time and January 15, 1997, the Seller shall maintain the
Seller's contract, dated October 26, 1981, as supplemented June 5, 1995, with
Retail Distributors, Inc. (the "RDI Contract") so that Retail Distributors, Inc.
shall provide to the Buyer with respect to the Buyer's merchandise the same
receiving, marking, warehousing, packing, distribution and other services as it
presently provides to the Seller under the RDI Contract. The Buyer may cause an
early termination of this services agreement by giving 30 days' notice thereof
to the Seller. The Buyer shall pay a pro rata share of real and personal
property taxes and property and general liability insurance incurred by the
Seller for such distribution center. In addition, all fees and expenses, not
otherwise included above, payable by the Seller to Retail Distributors, Inc.
under the RDI Contract for services provided to the Buyer at the distribution
center, after deducting all rents payable to the Seller by Retail Distributors,
Inc. under the RDI Contract, during the term of this services agreement between
the Seller and the Buyer shall be borne by the Buyer; provided, however, that in
no event shall the Buyer be responsible for or charged with any fees, expenses
or other costs or liabilities for or associated with termination of the RDI
Contract, reduction in the level or type of requested services, transfer of
work, discontinuance of business, severance, ERISA, WARN, trade union claims, or
other similar or dissimilar claims or obligations under the RDI Contract.
SECTION 6.18 Island Avenue Condemnation. The Sellers shall take all actions
necessary to (a) enable the Sellers to carry out the provisions of Section 6.17,
and (b) satisfy the conditions set forth in
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Schedule 4.10(c), including all environmental remediation, so that the Buyer
shall receive from the City of Philadelphia the sum set forth in Section 4.10(c)
on or before the date set forth in Section 4.10(c).
SECTION 6.19 Department Store Space Leases. The Sellers shall cause, prior
to the First Closing Date, all of the Department Stores Space Leases noted as
required to be terminated on Schedule 1.39 to be terminated so that the
occupants thereunder shall have vacated the Department Store Premises prior to
the Effective Time and removed all personal property owned by such parties
without damaging the Department Store Premises. All liability which may arise in
connection with the existence or termination of the such Department Store Space
Leases shall be borne solely by the Sellers.
ARTICLE VII
EMPLOYEES AND EMPLOYEE PLANS
SECTION 7.1 Offer of Employment.
(a) The Buyer shall offer to hire, effective as of the Effective Time, in a
comparable position at locations reasonably determined by the Buyer, Seller's
full-time regular and part-time regular sales and sales support associates and
their supervisory personnel in the Department Stores and the Seller's associates
in the Service Building and the Eighth & Filbert Parking Garage described on
Schedule 1.24 (but excluding all corporate and regional employees of the
Seller), provided that such employees are not on leave on the day immediately
prior to the First Closing Date. The Buyer shall also offer to hire any
employees who are on approved leave of absence who would otherwise be within the
class of employees to whom offers have to be made, but for their leave status,
whose reemployment rights are guaranteed by law. The Buyer may also offer to
hire such other of the Seller's employees as the Buyer notifies Seller that it
intends to make offers of employment to, but such offer will not necessarily be
in a comparable position. The employees who are offered employment pursuant to
this Section 7.1(a) are referred to as the "Employment Offerees." The employees
who accept such offers of employment by the Effective Time pursuant to this
Section 7.1(a) shall become employees of the Buyer as of the Effective Time or,
if on leave, as of the date of resumption of employment, and are referred to as
the "Transferring Employees." Except for the Employment Offerees offered
employment pursuant to the first and second sentences of this Section 7.1(a),
the Buyer shall have no obligations or liabilities to make offers to or
otherwise hire any employees of the Seller. The Seller will have sole
responsibility for any obligations or liabilities to all of the Sellers'
employees at all locations under WARN, except only that the Buyer will have sole
responsibility for any obligations and liabilities to the Transferring Employees
under WARN to the extent that WARN thresholds are exceeded as a result of
actions taken by the Buyer after the Effective Time.
(b) Except as otherwise provided in this Article VII, the employment of the
Transferring Employees shall be upon such terms and conditions as the Buyer, in
its sole discretion, shall determine. From and after the Date of this Agreement,
upon the Buyer's request, the Seller shall provide the Buyer reasonable access
to and copies of all data (including computer data) regarding the dates of hire,
hours, compensation and job description of the Employment Offerees and such
other employment records covering employees of the Department Store Division as
the Buyer may reasonably request.
(c) Transferring Employees shall receive credit for all periods of
employment with the Seller from the most recent date of hire by the Seller prior
to the Effective Time under each Buyer's Employee Benefit Plan for purposes of
eligibility and vesting.
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SECTION 7.2 Collective Bargaining Agreements. All collective bargaining
agreements that apply to any employees, former employees or retired employees in
the Department Store Division are listed on Schedule 7.2. The Buyer shall not
assume and shall have no responsibility in any way relating to any collective
bargaining agreements, including, without limitation, those listed on Schedule
7.2.
SECTION 7.3 Severance Plans. The Buyer shall not adopt and shall have no
responsibility in any way relating to any severance, salary continuation or
termination pay plans of the Seller for the benefit of any employees of the
Seller; provided, however, the Buyer shall recognize, for severance purposes,
all service with the Seller that the Buyer recognizes under each Buyer's
Employee Benefit Plan for purposes of eligibility and vesting pursuant to
Section 7.1(c).
SECTION 7.4 Employee Benefit Plans.
(a) With respect to each employee, former employee and retired employee (and
their dependents), the Seller will retain responsibility for (i) except as
otherwise provided in Section 7.7, any and all obligations, whenever incurred,
under any Seller's Employee Welfare Benefit Plan, and (ii) any and all claims
whenever incurred, whether or not reported, for all worker's compensation,
unemployment compensation and other government mandated benefits (collectively
referred to herein as "Welfare Type Plans"). Except as otherwise provided in
Section 7.7, the Buyer does not assume any obligations under any Seller's
Employee Welfare Benefit Plan or Welfare Type Plans, and neither the Buyer nor
any Buyer's Employee Welfare Benefit Plan, programs, practices or arrangements
will have any liability for any claim for benefits under any Seller's Employee
Welfare Benefit Plan or Welfare Type Plans, including, without limitation,
retiree benefit plans, whenever incurred, of any employee, former employee or
retired employee of the Seller. The Seller shall take no actions on or after the
date hereof that will increase benefits under the Seller's group health plans;
provided, however, that such modifications of benefits and premium as have been
communicated to employees prior to the date of this Agreement that are scheduled
for July 1, 1996, shall not be considered an increase in benefits for the
purpose hereof. All liability for accrued but unpaid vacation of all employees,
excluding Transferring Employees, shall be the responsibility of the Seller. The
accrued but unpaid vacation with respect to Transferring Employees shall be
credited to the Buyer at First Closing by including in Other Current Liabilities
as identified on Schedule 1.15, an amount equal to the accrued vacation pay
liability and related Taxes determined, as of the Effective Time, in accordance
with GAAP and such accrued vacation pay shall be paid to Transferring Employees
by the Buyer at or prior to termination of employment with the Buyer.
(b) Effective at the Effective Time, Transferring Employees and their
eligible dependents shall be eligible to enroll in such Employee Welfare Benefit
Plan as the Buyer shall make available to new employees hired at the Department
Stores by the Buyer after the Effective Time and shall otherwise be subject to
the terms and conditions of such Plans; provided that Transferring Employees who
participated in the Seller's Employee Welfare Benefit Plan which provides
medical benefits at the Effective Time shall be eligible to enroll in the
Buyer's Employee Welfare Benefit Plan which provides medical benefits without
application of (i) any waiting periods, (ii) any evidence of insurability
restriction or (iii) any preexisting physical or mental condition restrictions
except to the extent and duration that any waiting periods, evidence of
insurability restriction or preexisting mental or physical condition
restrictions were not satisfied under the Seller's Employee Welfare Benefit Plan
as of the Effective Time.
(c) The Seller shall have sole responsibility for "continuation coverage"
obligations under the Seller's group health plans to all of the Seller's
employees, and "qualified beneficiaries" of such employees for whom a
"qualifying event" occurs with respect to the Seller's group health plans. The
Buyer shall have responsibility only for "continuation coverage" benefits
payable under the Buyer's group health plans to all Transferring Employees and
"qualified beneficiaries" of Transferring Employees for whom a "qualifying
event" occurs with respect to the Buyer's group health plans after the
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Effective Time. The phrases "continuation coverage," "qualified beneficiaries"
and "qualifying event" shall have the meaning ascribed to them in Section 4980B
of the Code and Section 601-608 of ERISA.
(d) Except as specifically provided herein with respect to any Seller's
Employee Benefit Plan, the Seller shall be solely liable for making any and all
payments as are required by and under such Seller's Employee Benefit Plan to
Transferring Employees, other current and former employees of the Seller, and
their respective covered dependents pursuant to their terms or pursuant to
applicable law, and neither the Buyer nor any Buyer's Employee Benefit Plan,
programs, practices or arrangements will have any liability with respect to any
Seller's Employee Benefit Plan.
(e) Except as otherwise provided in Sections 7.5, 7.6 and 7.7, neither the
Buyer nor any Buyer's Employee Benefit Plan, programs, practices or arrangements
will have any liability for post-retirement or post-termination benefits to any
of the Seller's employees, former employees or retired employees, including
without limitation the Transferring Employees who are, or become, eligible for
retirement at or after the Effective Time.
SECTION 7.5 Retirement Savings Plan and Pension Benefit Plan.
(a) The term "Affected Employees" with respect to a particular Employee
Pension Benefit Plan shall mean all Transferring Employees, former employees and
retired employees who, as of the Effective Time, were participants (within the
meaning given to such term in section 3(7) of ERISA) in the Seller's Employee
Pension Benefit Plan.
(b) The Seller will maintain its current 401(k) retirement savings plan (the
"Savings Plan") and Employee Pension Benefit Plan as they apply to all employees
on the same terms and conditions from the date hereof until the First Closing.
(c) Contributions by Affected Employees to the Seller's Savings Plan shall
cease at the Effective Time. Contributions made by Affected Employees through
the First Closing Date shall be matched by the Seller to the extent permitted by
the terms of the Savings Plan and such matching Contribution shall be made as
soon as practicable after the First Closing Date. The Seller shall take such
action as is necessary, if any, with respect to the Savings Plan to vest each of
the Affected Employees to a level of 100% of all of his/her Accounts (as defined
in the Savings Plan), whether attributable to individual or Seller
contributions, and as permitted under the terms of the Saving Plan to effect
distribution to each of the Affected Employees who (i) is a Transferring
Employee, (ii) immediately prior to the First Closing Date was a participant in
the Savings Plan and (iii) in the case of a participant whose interest in the
Savings Plan exceeds $3,500, consents to such distribution, of 100% of any and
all of such Affected Employees' Accounts under the Savings Plan, determined as
of the date such determination would have been made had such Affected Employees
terminated employment on the First Closing Date. Such distribution shall be made
as soon after the First Closing Date as practicable and as permitted under
applicable law (including ERISA and the Code) and in accordance with all other
provisions of the Savings Plan.
(d) As soon as practicable after the Effective Time, the Seller shall cause
the trustees for the Seller's Employee Pension Benefit Plan to apportion the
assets comprising the Employee Pension Benefit Plan in accordance with the
requirements of Section 414(l) of the Code and regulations thereunder such that,
effective as of the Effective Time, the amount of assets (consisting of cash or,
to the extent agreed by the Buyer and the Seller, marketable securities) equal
in value to the present value of the accrued benefits under the Employee Pension
Benefit Plan (valued as determined by the Seller's enrolled actuary and verified
by the Buyer's actuary, with service for eligibility and benefit accruals
determined pursuant to the actuarial method and assumptions shown on Schedule
7.5 and subject to the limitations imposed by Section 414(l) of the Code and
regulations thereunder) of the Affected Employees will be transferred, as soon
as practicable following filing of the forms required by the IRS, to the trust
forming a part of the Buyer's retirement plan (the "May Retirement Plan"). The
Buyer will cause the May
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Retirement Plan to provide with respect to the Affected Employees (i) who are
Transferring Employees full credit for all continuous employment and service
with the Seller for purposes of eligibility and vesting thereunder as well as
full (i.e., 100%) vesting of accrued benefits derived from the Employee Pension
Benefit Plan through the Effective Time, (ii) who are retired employees, an
accrued benefit equal to the retired employee's accrued benefit under the
Employee Pension Benefit Plan, and (iii) who are former employees, an accrued
benefit equal to such former employee's accrued benefit under the Employee
Pension Benefit Plan. Upon the receipt by the May Retirement Plan of the assets
so apportioned and transferred, neither the Seller nor the Employee Pension
Benefit Plan shall have any further liability with respect to any Affected
Employees. The Seller shall cause the Employee Pension Benefit Plan to be
amended, and the Buyer shall cause the May Retirement Plan to be amended, in
each case as necessary or appropriate to effect the transfers contemplated by
this Section 7.5(d). If, and to the extent that, it is determined that the
assets of the Employee Pension Benefit Plan are insufficient to permit the
transfer in full of the present value of accrued benefits described in this
Section 7.5(d), the Other Current Liabilities as identified in Schedule 1.15
shall be increased for the amount of such insufficiency. In addition, and
whether or not there is such a deficiency, there shall be added to the Other
Current Liabilities in Schedule 1.15 for the "rule of 70" (as defined in
Schedule 7.5) associates the amount determined in accordance with paragraph 8 of
Schedule 7.5. The Buyer shall not be responsible for any benefits payable under
the Employee Pension Benefit Plan with respect to Employees who are not Affected
Employees and no assets relating to such other employees will be transferred to
the May Retirement Plan. Prior to the transfer of assets described in Section
7.5(d), the Seller shall satisfy the Buyer that there are no operational or
other defects in the Employee Pension Benefit Plan which would lead the IRS to
threaten to or act to disqualify the Employee Pension Benefit Plan, or otherwise
impose taxes or penalties on the Employee Pension Benefit Plan that would result
in a liability to the Buyer or the May Retirement Plan.
(e) The Buyer shall not assume any obligations with respect to any
Multiemployer Plan.
(f) Affected Employees who are not Transferring Employees shall have the
benefits provided for such Affected Employees in Section 7.5(d). Affected
Employees who are Transferring Employees shall become members of the May
Retirement Plan as of the Effective Time and shall be entitled to enroll in The
May Department Stores Company Profit Sharing Plan (the "May Profit Sharing
Plan") on the first day of the calendar quarter coincident with or next
following the Effective Time. Transferring Employees who at the Effective Time
are not participants in the Employee Pension Benefit Plan shall be eligible for
membership in the May Retirement Plan and the May Profit Sharing Plan pursuant
to the terms and conditions of such latter plans.
SECTION 7.6 Supplemental Executive Retirement Plan. The Sellers shall
administer and be liable for the payment of benefits under the Seller SERP
accrued prior to the Effective Time that are due before the Effective Time. No
benefits shall accrue under the Seller SERP after the Effective Time. The Buyer
shall assume the administration and the liability for the payment of benefits
accrued under the Seller SERP prior to the Effective Time that are due after the
Effective Time. Other Current Liabilities in Schedule 1.15 shall be increased by
$13,300,000 less the fair market value of the assets held in the trust for the
Seller SERP (the "Rabbi Trust") at the Effective Time and which are transferred
to the Buyer with the Rabbi Trust at the Effective Time (the "Rabbi Trust
Funding Amount"). The Seller shall notify the Buyer at least 20 Business Days
prior to the First Closing if the Seller elects to have the Buyer place in the
Rabbi Trust the Rabbi Trust Funding Amount, in which event the Buyer will do so
at the Effective Time provided that all steps, if any, necessary to make the
Buyer the sponsor of the Rabbi Trust have been taken, and Other Current
Liabilities in Schedule 1.15 shall be further increased by $2,500,000. At no
time shall the Buyer (i) modify the Seller SERP to reduce the benefits of, or
the present value of any benefit of, any participant in the Seller SERP, (ii)
merge or consolidate the Seller SERP or the Rabbi Trust with any other benefit
plan or arrangement, (iii) terminate the Seller SERP or the Rabbi Trust before
the full discharge of the Buyer's liabilities, (iv) add additional participants
to the Seller SERP or so modify the Rabbi Trust as to increase the class
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of claimants thereunder, or (v) take any other action the effect of which would
be to divert the assets of the Rabbi Trust to any purpose other than the
required payment of benefits to or on behalf of the persons who are participants
in the Seller SERP at the Effective Time, subject however, to the continuing
conventional exposure of such trust to the creditors of the sponsor thereof.
SECTION 7.7 Retiree Health Plan. The Sellers shall administer and be liable
for the payment of claims for benefits "incurred" under the Retiree Health Plan
before the Effective Time. If, at its election, the Seller requests the Buyer to
do so by notice given to the Buyer at least 20 business days before the First
Closing, the Buyer shall assume the administration and the liability for the
payment of claims for benefits "incurred" under the Retiree Health Plan after
the Effective Time. If the Seller's election is (a) to not so request the Buyer,
the amount of $320,000,000 set forth on Schedule 1.56 shall be reduced by
$13,800,000 to $306,200,000, or (b) to so request the Buyer, the Other Current
Liabilities in Schedule 1.15 shall be increased by $34,500,000. Claims for
benefits will be deemed "incurred" on the date that the services giving rise to
the expenses were rendered; provided, however, that, with respect to
hospitalization, claims incurred for services or treatments related to the
hospitalization (for example, physician visits, radiology and pathology fees and
expenses during hospitalization) shall be deemed to be incurred on the date of
admission to the hospital.
SECTION 7.8 Consulting Contracts. The Sellers have employment contracts with
those executives who are listed on a schedule dated April 3, 1996, which the
Seller has previously furnished to the Buyer. The Buyer is not assuming such
contracts nor any obligations pursuant thereto; provided, however, that if, as
of the Effective Time, by notice given to the Buyer at least 20 business days
before the First Closing, the Sellers and one or more of such executives
terminate such contracts and such executives elect to execute consulting
contracts with and to the satisfaction of the Buyer in the form of Schedule 7.8
for the term and the monetary compensation set forth for such executives on that
schedule, the Other Current Liabilities in Schedule 1.15 shall be increased by
the amounts shown as total compensation on such schedule for such electing
executives. To the extent any one or more of such executives do not execute a
consulting contract with the Buyer as in this Section 7.8 provided, the amount
of $320,000,000 (as adjusted, if at all, pursuant to Section 7.7) set forth on
Schedule 1.56 shall be reduced by 40% of the amounts shown as total compensation
on such schedule for such executives who do not execute such consulting
contract.
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to the Obligations of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the transactions
contemplated by Articles II and III shall be subject to the fulfillment at or
prior to the First Closing Date of each of the following conditions:
(a) The Reorganization shall have been approved by the shareholders of
the Seller by the vote required by the Pennsylvania Business Corporation Law
and the Seller's Articles and Bylaws.
(b) All waiting periods (and any extension thereof) applicable to the
consummation of the transactions contemplated by Article II and Article III
under the HSR Act shall have expired or been terminated.
(c) No preliminary or permanent injunction or other order, decree or
ruling issued by a Government nor any statute, rule, regulation or executive
order promulgated or enacted by a Government shall be in effect which would
prevent the consummation of the transactions contemplated by this Agreement
or the Escrow Agreement.
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(d) The Registration Statement shall be effective under the Securities
Act and no "stop order" shall have been issued with respect to the
Registration Statement and no proceeding for such purpose shall have been
commenced.
(e) The May Common Stock constituting the Stock Consideration shall have
been approved for listing by the NYSE, subject to official notice of
issuance.
(f) All licenses, permits, consents, approvals, waivers, authorizations,
qualifications and orders of any Government and parties to any contracts and
leases with the Sellers as are necessary in connection with the consummation
of the transactions contemplated by this Agreement or the Escrow Agreement
shall have been obtained.
(g) The Seller shall have received the written opinion of Morgan, Lewis
& Bockius LLP, substantially in the form of such opinion described in the
Proxy Statement/Prospectus, to the effect that the transactions contemplated
hereby qualify as a tax-free reorganization under Section 368(a)(1)(C) of
the Code.
SECTION 8.2 Additional Conditions to the Obligations of the Seller. The
obligation of the Seller to effect the transactions contemplated by Articles II
and III is also subject to each of the following conditions:
(a) The Buyer shall in all material respects have performed each
obligation to be performed by it hereunder on or prior to the First Closing
Date.
(b) The representations and warranties of the Buyer set forth in this
Agreement shall be true and correct in all material respects at and as of
the First Closing Date as if made at and as of such time, except to the
extent that any such representation or warranty is made as of a specified
date, in which case such representation or warranty shall have been true and
correct as of such date.
(c) The Buyer shall have delivered such certificates as are reasonably
requested by the Seller certifying the satisfaction of the foregoing
conditions.
SECTION 8.3 Additional Conditions to the Obligations of the Buyer. The
obligation of the Buyer to effect the transactions contemplated by Articles II
and III is also subject to each of the following conditions:
(a) The Sellers shall in all material respects have performed each
obligation to be performed by them hereunder on or prior to the First
Closing Date.
(b) The representations and warranties of the Seller set forth in this
Agreement shall be true and correct in all material respects at and as of
the First Closing Date as if made at and as of such time, except to the
extent that any such representation or warranty is made as of a specified
date, in which case such representation or warranty shall have been true and
correct as of such date.
(c) The Seller shall have delivered such certificates as are reasonably
requested by the Buyer certifying the satisfaction of the foregoing
conditions.
(d) The Seller shall have delivered to the Buyer estoppel certificates
from all parties to the material Department Stores Contracts that are not
inconsistent with the Sellers' representations and warranties set forth in
this Agreement and that do not disclose any defaults by the Sellers
thereunder.
(e) A title company reasonably acceptable to the Buyer and the Sellers
shall have issued to the Buyer commitments for the Department Store Premises
reasonably acceptable to the Buyer and consistent with the provisions of
this Agreement.
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(f) Prior to the First Closing Date, the Seller shall have taken all
steps necessary to consummate the Reorganization other than the filing of
the Articles of Dissolution of the Seller with the Department of State of
the Commonwealth of Pennsylvania each in a form and by a method acceptable
to the Buyer.
ARTICLE IX
TERMINATION AND ABANDONMENT
SECTION 9.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time:
(a) by mutual consent of the Seller and the Buyer; or
(b) by the Buyer, if there has been a material violation or breach by
the Sellers of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of the Buyer impossible and such violation or breach has not
been waived by the Buyer; or
(c) by the Seller, if there has been a material violation or breach by
the Buyer of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligation of the Seller impossible and such violation or breach has not
been waived by the Seller; or
(d) by either the Seller or the Buyer, if a Government shall have issued
an order, decree or ruling or promulgated or enacted any statute, rule,
regulation or executive order, in each case, permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement; provided, that any such order, decree or ruling shall have become
final and nonappealable; or
(e) by either the Seller or the Buyer, if at the shareholders meeting of
the Seller contemplated by Section 6.5 the Reorganization and any other
transactions contemplated hereby that are required to be approved by the
shareholders of the Seller shall fail to be approved by such shareholders by
the vote required by the Pennsylvania Business Corporation Law and the
Seller's Articles; or
(f) by the Buyer, if the Seller shall have (i) withdrawn, modified or
amended in any respect its approval or recommendation of the Reorganization
or the other transactions contemplated hereby that are required to be
approved by the shareholders of the Seller, (ii) failed to include in the
Proxy Statement/Prospectus such recommendation (including the recommendation
that the shareholders of the Seller vote in favor of the Reorganization and
such other transactions), (iii) taken any public position inconsistent with
such recommendation or (iv) if the board of directors of the Seller shall
have resolved to do any of the foregoing; or
(g) by either the Seller or the Buyer, if through no fault of the party
electing to terminate, the Effective Time has not occurred on or before
September 30, 1996.
SECTION 9.2 Procedure and Effect of Termination. In the event of termination
of this Agreement and abandonment of the transactions contemplated hereby by the
parties pursuant to Section 9.1 (d), (e) or (g), written notice thereof shall
forthwith be given to the other party, and this Agreement shall terminate and
the transactions contemplated hereby shall be abandoned, without further action
by any of the parties hereto. If this Agreement is terminated pursuant to
Section 9.1 (a), (d), (e) or (g), no party hereto shall have any liability or
further obligation to the other party to this Agreement pursuant to this
Agreement. Nothing contained herein shall affect the Option Agreement.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1 Survival of Representations and Warranties. None of the
representations and warranties made in this Agreement shall survive the
Effective Time for a period of more than 12 months.
SECTION 10.2 Costs and Expenses. Except as otherwise specifically provided
herein, all legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
SECTION 10.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile transmission to the parties at the following addresses or at such
other addresses as shall be specified by the parties by like notice; provided,
that a notice of change of address shall be effective only upon receipt thereof:
If to the Buyer to:
The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: Louis J. Garr, Jr., Esq.
General Counsel
Facsimile Number: 314-342-6384
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: J. Michael Schell, Esq.
Facsimile Number: 212-735-2000
If to the Seller to:
Strawbridge & Clothier
801 Market Street
Philadelphia, Pennsylvania 19107
Attention: Francis R. Strawbridge III, Chairman
Facsimile Number: 215-629-6833
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Attention: Donald A. Scott
Facsimile Number: 215-963-5299
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SECTION 10.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 10.5 Entire Agreement. This Agreement, the Escrow Agreement, the
Confidentiality Agreement, the Option Agreement and the documents contemplated
hereby and thereby constitute the entire agreement among the parties with
respect to the subject matter hereof and thereof and supersede all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and thereof.
SECTION 10.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 10.7 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
(without regard to the principles of conflicts of law thereof).
SECTION 10.8 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.
SECTION 10.9 Assignment. This Agreement and all the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
their rights hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties.
SECTION 10.10 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
SECTION 10.11 Specific Performance. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the Commonwealth of Pennsylvania or State of New York,
this being in addition to any other remedy to which such party is entitled at
law or in equity. In addition, each of the parties hereto (i) consents to submit
itself to the personal jurisdiction of any Federal court located in the
Commonwealth of Pennsylvania or State of New York in the event any dispute
arises out of this Agreement or any of the transactions contemplated by this
Agreement, (ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iii)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
Federal court sitting in the Commonwealth of Pennsylvania or State of New York.
SECTION 10.12 No Third Party Beneficiary. Except for the Seller, the Buyer
and their respective Affiliates and Employee Benefit Plan, no Person is intended
to nor shall be a beneficiary of this Agreement or any provision hereof.
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IN WITNESS WHEREOF, this Agreement has been signed by the duly authorized
officers of each of the parties hereto as of the day and year first written
above.
THE MAY DEPARTMENT STORES COMPANY
By: /s/ Thomas A. Hays
..................................
Name: Thomas A. Hays
Title: Deputy Chairman
STRAWBRIDGE & CLOTHIER
By: /s/ Francis R. Strawbridge
..................................
Name: Francis R. Strawbridge, III
Title: Chairman
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Exhibit A Option Agreement
Exhibit B Escrow Agreement
Exhibit C Undertaking and Indemnity Agreement
Schedules*
1.3 Extended Age Departments
1.6 Assumed Long-Term Liabilities Amount
1.7 Bill of Sale
1.15 Closing Balance Sheet Net Working Capital Amount
1.24 Department Store Distribution Centers
1.26 Department Store Division Balance Sheet
1.31 Department Store Land
1.32 Department Store Leases
1.37 Department Store Real Property
1.38 Department Stores
1.39 Department Store Space Leases
1.50 Additional Excluded Assets
1.56 First Closing Stock Consideration
4.1 Jurisdictions Qualifications
4.3 Department Store Subsidiaries
4.4 Seller Violations
4.6 Seller Absence of Change
4.8 Litigation
4.9 Tax Matters
4.10(b) Permitted Encumbrances
4.10(c) Island Avenue Condemnation
4.12 Other Department Store Contracts
4.14 Department Store Intellectual Property
4.15 Seller Employee Benefit Plans
4.15(b) Seller Plans Liabilities
4.16 Employment and Severance Agreements
4.18 Assets Necessary to the Business
4.24 Insurance
4.25 Environmental Disclosures
5.3 Buyer Subsidiaries Ownership
5.5 Buyer Violations
5.7 Buyer Absence of Change
5.10 Buyer Tax Matters
5.11 Buyer Employee Pension Benefit Plans
7.2 Collective Bargaining Agreements
7.5 Actuarial Method and Assumptions
7.8 Consulting Contract Form
- ------------
* Both May and Strawbridge & Clothier agree to furnish supplementally a copy of
any omitted schedules to the Commission upon request.
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<PAGE>
EXHIBIT A
ASSET OPTION AGREEMENT
ASSET OPTION AGREEMENT (the "Option Agreement"), dated as of April , 1996,
between The May Department Stores Company, a New York corporation (the "Buyer"),
Strawbridge & Clothier, a Pennsylvania corporation (the "Seller"), S&C, Cherry
Hill, Inc., a Pennsylvania corporation ("CHI") and S&C, Concord, Inc., a
Pennsylvania corporation ("CI"); the Seller, CHI and CI herein collectively, the
"Sellers."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Buyer and the Seller propose to enter into an Asset Purchase
Agreement, as of the date hereof (the "Asset Purchase Agreement"), which
provides, among other things, that upon the terms and subject to the conditions
set forth in the Asset Purchase Agreement, the Sellers and other Subsidiaries of
the Seller will sell to the Buyer the Department Store Assets and some or all of
the Disposition Proceeds in exchange for the assumption by the Buyer of the
Assumed Department Store Liabilities and the issuance and delivery by the Buyer
of the Stock Consideration; and
WHEREAS, as a condition to the willingness of the Buyer to enter into the
Asset Purchase Agreement, the Buyer has required that the Sellers agree, and the
Sellers have agreed, to grant the Buyer the Option (as hereinafter defined), on
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, to induce the Buyer to enter into and in consideration of
the entering into the Asset Purchase Agreement and of the mutual covenants and
agreements set forth herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Grant of Option. The Sellers hereby grant to the Buyer an irrevocable
option (the "Option") to purchase "Option Store A," "Option Store B," "Option
Store C" and "Option Store D," as such department stores are described on Annex
I (each an "Option Store," and collectively, the "Option Stores"). The aggregate
consideration for the Option Stores shall be $56,240,000 ($18,960,000 for Option
Store A; $20,640,000 for Option Store B; $12,480,000 for Option Store C (less an
amount computed for such Option Store pursuant to Section 1.6(b) of the Asset
Purchase Agreement) and $4,160,000 for Option Store D (less an amount computed
for such Option Store pursuant to Section 1.6(b) of the Asset Purchase
Agreement)) and the assumption of the Option Store Liabilities as defined in
Annex I. The cash amount payable for the Option Stores is referred to herein in
the aggregate and as to each of the Option Stores separately, as the "Purchase
Price."
2. Exercise of Option.
(a) Subject to the provisions set forth below, the Buyer may exercise the
Option as to any or all of the Option Stores (at any one time prior to the
termination of the Option pursuant to Section 21) upon the occurrence of one or
more of the following events: (i) the acquisition of the beneficial ownership by
any person, entity or group (as such terms are used in the Securities Exchange
Act) other than the Buyer or any of its Affiliates of 25% or more of the voting
power of the outstanding shares of the Seller Common Stock on a fully diluted
basis; or (ii) the execution by the Seller of an agreement relating to, or the
consummation of, a merger, consolidation or other similar business combination
of the Seller; or (iii) the Asset Purchase Agreement has been terminated
pursuant to Section 9.1(b), 9.1(e) or 9.1(f) thereof.
(b) If the Buyer wishes to exercise the Option, the Buyer shall give a
written notice to the Seller of its exercise of the Option, which notice shall
specify the Option Stores with respect to which the Buyer is exercising the
Option (such Option Stores are sometimes referred to hereinafter as the
"acquired
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<PAGE>
Option Stores"). The closing of the purchase of an Option Store pursuant to the
Option (each such transaction, a "Closing") shall be subject to the expiration
or early termination of the waiting period under the HSR Act, if applicable, and
the obtaining of any other required regulatory approvals and shall take place at
the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York,
New York 10022, on a date and at a time designated by the Buyer at the time that
it gives notice of its exercise of the Option with respect to such Option Store.
3. Escrow. As promptly as practicable, but in no event later than 10:30 a.m.
New York City time on April 19, 1996, (i) the Buyer and the Sellers shall
execute an escrow agreement (the "Option Escrow Agreement") in a form acceptable
to both the Buyer and the Seller with a mutually acceptable party (the "Option
Escrow Agent") and (ii) the Sellers shall deliver to the Option Escrow Agent all
those transfer documents required pursuant to Section 5 of this Option Agreement
which, as of such date, have been executed by the appropriate parties.
4. Sale of the Option Stores.
(a) Subject to the terms and conditions of this Option Agreement, if the
Option has been exercised, on the date of the Closing, the Buyer shall deliver
to the Seller by wire transfer of immediately available funds to a bank account
designated at least two Business Days before the Closing by the Seller an amount
equal to the Purchase Price of the acquired Option Stores. If the Buyer
exercises the Option with respect to Option Store A, the Seller shall sell,
transfer, convey, assign and deliver to Buyer, and the Buyer shall purchase,
acquire and accept from the Seller, the "Option Store A Assets (as defined in
Annex I), and the Buyer shall assume the "Option Store A Liabilities" (as
defined in Annex I); if the Buyer exercises the Option with respect to Option
Store B, CHI shall sell, transfer, convey, assign and deliver to Buyer, and the
Buyer shall purchase, acquire and accept from CHI, the "Option Store B Assets"
(as defined in Annex I), and the Buyer shall assume the "Option Store B
Liabilities" (as defined in Annex I); if the Buyer exercises the Option with
respect to Option Store C, CI shall sell, transfer, convey, assign and deliver
to the Buyer the "Option Store C Assets" (as defined in Annex I), and the Buyer
shall assume the "Option Store C Liabilities" (as defined in Annex I); and if
the Buyer exercises the Option with respect to Option Store D, the Seller shall
sell, transfer, convey, assign and deliver to the Buyer the "Option Store D
Assets" (as defined in Annex I), and the Buyer shall assume the "Option Store D
Liabilities" (as defined in Annex I) provided, however, that, subject to the
Buyer's approval as to manner and form, the Seller shall make such adjustments
as to the rights, contracts, properties, assets and goodwill to be purchased and
the liabilities and obligations to be assumed as shall be necessary to settle
the obligations, rights and accounts existing between the acquired Option
Stores, on the one hand, the Seller, its Affiliates and other divisions, on the
other hand, at the time of the Closing so that such obligations, rights and
accounts are settled and cancelled as of the Closing and are not transferred to
or assumed by the Buyer. The Option Store A Assets, the Option Store B Assets,
the Option Store C Assets and the Option Store D Assets are referred to herein
collectively as the "Option Store Assets;" and the Option Store A Liabilities,
the Option Store B Liabilities, the Option Store C Liabilities and the Option
Store D Liabilities are referred to herein collectively as the "Option Store
Liabilities."
(b) At Closing (with respect to the Option Stores acquired at such Closing),
the Sellers shall deliver possession of the Option Stores "broom clean" and free
of all occupancies except for Department Store Space Leases, if any.
5. Transfer Documents. The sale of the Option Store Assets to the Buyer
shall be effected by the delivery by the Seller to the Buyer of (i) such bills
of sale, special warranty deeds, endorsements, assignments and other instruments
of conveyance and transfer as are necessary or appropriate to vest in the Buyer
good and marketable title (such as any reputable title insurance company
licensed to do business in the state in which such Option Store is located will
approve and insure without exceptions other than Permitted Encumbrances) to the
Option Store Assets free and clear of any Lien, and (ii) all
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<PAGE>
contracts, commitments, books, records and other data in the possession of the
Seller or any of its Affiliates relating to the Option Store Assets. Assumption
of the Option Store Liabilities by the Buyer shall be effected by the delivery
by the Buyer to the Sellers of such instruments as are necessary or appropriate
to effect the assumption by the Buyer of the Option Store Liabilities. As soon
as possible after the execution and delivery of this Option Agreement,
representatives of the Buyer and the Seller shall commence and complete
preparation of all conveyance and assumption documents necessary or appropriate
to vest in the Buyer ownership of the Option Store Assets and to effect the
assumption by the Buyer of the Option Store Liabilities, as contemplated by this
Option Agreement. If requested by either party, such documents shall be executed
by the appropriate parties and placed in escrow with the Option Escrow Agent.
All such documents shall be delivered by the Option Escrow Agent to the
appropriate party at the Closing in conformity with this Option Agreement upon
tender of payment to the Seller of the applicable Purchase Price in accordance
with Section 4.
6. HSR Act Filings; Approvals. The Sellers and the Buyer shall each use its
best efforts promptly to prepare and to make such filings and provide such
information as may be required under the HSR Act, and any other filings which
may be required with respect to the purchase of the Option Stores pursuant to
the Option.
7. Covenants of the Sellers. Until the Closing (with respect to the Option
Stores acquired at such Closing) or the termination of this Option Agreement,
each of the Sellers covenants and agrees that, unless the Buyer shall otherwise
consent in writing, it shall, and shall cause each of its Affiliates to:
(a) operate and maintain the Option Stores only in the usual, regular
and ordinary course;
(b) not pledge, sell, lease, transfer, dispose of or otherwise encumber
("Transfer"), or enter into any agreement for the Transfer of, (i) all or
any part of the Option Store Assets consisting of real estate or interests
in real estate or (ii) all or any part of the Option Store Assets consisting
of other fixed assets to the extent that such Transfer would be inconsistent
with the continued operation of the Option Stores in a manner consistent
with past practice;
(c) keep all the Option Store Assets insured (to an extent substantially
consistent with the Seller's practice with respect to its other assets)
against any loss, either by fire, other casualty, or theft and shall give
notice to the Buyer of any loss involving any of the Option Store Assets if
such loss is at least $200,000 or more and discuss with the Buyer whether
the proceeds of any claim made in connection with the loss should be used to
replace any property damage or loss. The Seller shall cause the Buyer to be
named as loss payee, as its interest may appear, on all fire and casualty
policies that provide coverage for the Option Stores. Any proceeds not used
to replace lost or damaged property shall be for the account of the Buyer if
the Closing is consummated;
(d) maintain all the books, accounts and records relating to the Option
Stores in the usual, regular and ordinary manner;
(e) promptly advise the Buyer in writing of any material adverse change
in the condition of any of the Option Stores;
(f) use its reasonable best efforts to comply in all material respects
with the provisions of all laws, regulations, ordinances and judicial
decrees applicable to the conduct of the Option Stores;
(g) promptly notify the Buyer of the institution of any legal proceeding
which is reasonably likely, individually or in the aggregate, to have a
material adverse effect on the operations of any of the Option Stores; and
(h) not take or omit to take any other action nor enter into any
agreement which would have the effect of (i) frustrating the purpose of this
Option Agreement or (ii) preventing or disabling the
B-57
<PAGE>
Seller from selling or delivering the Option Stores to the Buyer upon
exercise of the Option or otherwise performing its obligations under this
Option Agreement.
Anything in this Option Agreement to the contrary notwithstanding, nothing
in this Option Agreement shall prohibit the Seller from consummating a
transaction described in clause (ii) of Section 2(a) hereof, or entering into
any agreement relating to such transaction so long as such transaction or
agreement is, to the extent that it involves the Option Store Assets, subject to
the Option and the Buyer's rights hereunder.
8. Representations and Warranties of the Seller. Each of the Sellers hereby
represents and warrants to the Buyer as follows:
(a) Due Authorization. This Option Agreement has been duly authorized by
all necessary corporate action on its part, has been duly executed by its
duly authorized officer, and constitutes its valid and binding agreement
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors rights generally and subject to general principles of
equity (regardless of whether enforcement is sought in equity or law).
(b) Due Organization. It is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has the requisite corporate power to enter into and perform
this Option Agreement.
(c) Conflicting Instruments. Neither its execution or delivery nor its
performance of this Option Agreement nor the consummation by it of the
transactions contemplated hereby will violate in any material respect (with
or without the giving of notice or the lapse of time, or both), or require
any material consent, approval, filing or notice under, any provision of law
applicable to it or any of its Affiliates (other than the HSR Act), or will
require any consent, approval or notice under or will conflict with, or
result in the breach or termination of any provisions of, or constitute a
default under or allow the acceleration of the performance of, any of its
obligations or any of its Affiliates under, or result in the creation of a
Lien upon any of the Option Store Assets, pursuant to, any term of its
Articles of Incorporation or By-laws or those of its Affiliates or any term
of any note, bond, mortgage, indenture, lease, license agreement, or other
instrument or any writ, injunction, order, judgment, arbitration award,
decree, rule or regulation of any Government to which it is a party or by
which it, any of its Affiliates or any of the Option Store Assets is subject
or bound, other than violations, conflicts, breaches, terminations or
defaults which, individually or in the aggregate, would not have a material
adverse effect on the operations, assets, liabilities or condition of any
Option Store.
(d) Title. It owns and holds the Option Store Assets free and clear of
all Lien, except for liens for real property taxes not yet due and payable
without interest or penalty and except for Permitted Encumbrances.
(e) Environmental. Schedule 4.25 to the Asset Purchase Agreement
contains an accurate and complete description of all environmental reports
known to the Sellers that affect any of the Option Store Assets, and the
Sellers have delivered a complete copy of each such report to the Buyer.
Except as set forth in Schedule 4.25 to the Asset Purchase Agreement or in
the reports listed therein, the Sellers have no knowledge of the presence or
release of any toxic substance or hazardous material or of any other
environmental condition or contamination in or from the Option Store Assets.
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<PAGE>
9. Representations and Warranties of the Buyer. The Buyer hereby represents
and warrants to the Sellers as follows:
(a) Due Authorization. This Option Agreement has been duly authorized by
all necessary corporate action on the part of the Buyer, has been duly
executed by a duly authorized officer of the Buyer and constitutes a valid
and binding agreement of the Buyer enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors rights generally and
subject to general principles of equity (regardless of whether enforcement
is sought in equity or law).
(b) Due Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and
has the requisite corporate power to enter into and perform this Option
Agreement.
10. Indemnification. From and after the Closing, each of the Sellers, on the
one hand, and the Buyer, on the other hand, shall indemnify and hold the other
harmless against any loss, liability, damage or expense (including, without
limitation, reasonable attorneys' fees) sustained by it resulting from any
inaccuracy in any of its representations, warranties or breach of any covenants
contained in this Option Agreement as to which a claim has been made within 18
months after the Closing. This Section 10 is not intended to be exclusive of any
other rights or remedies under this Option Agreement arising as a matter of law
or otherwise.
11. Tax Indemnification. The Seller shall pay or otherwise be responsible
for (and shall indemnify and hold harmless the Buyer, any Affiliates thereof and
the Option Stores against) any liability for Taxes (i) arising from or
attributable to any income taxes imposed on the gain, if any, realized on the
transfer of the Option Stores, (ii) for any sales, use, real property, transfer
or gains or other similar taxes arising from the transfer of the Option Stores
and (iii) with respect to the acquired Option Stores for any taxable period
ending (or deemed pursuant to this paragraph to end) on or before the date of
the Closing. Any Taxes for a taxable period beginning before the date of the
Closing and ending after such date shall be deemed for the purposes of the
preceding sentence to be apportioned between a taxable period ending on and
including the same date as the Closing and a taxable period commencing the date
following the Closing on the same basis as the Tax is imposed, based, where
relevant, on the actual operations of the acquired Option Stores in such
periods.
12. Consents. Each of the Sellers shall, and shall cause each of its
Affiliates to, give all required notices and use its best efforts to obtain
prior to the Closing all material licenses, permits, consents, approvals,
authorization, qualifications and orders of all Person relating to the acquired
Option Stores as may be required in order to enable the Sellers to perform their
obligations hereunder, including, without limitation all consents and approvals
required to permit them to make the sale to the Buyer contemplated herein and to
enable the Buyer to enjoy after the Closing all rights and benefits presently
enjoyed by the Sellers in respect of the acquired Option Stores; provided,
however, that no contract shall be amended to increase the amount payable
thereunder in order to obtain any such consent, approval or authorization or
otherwise without obtaining the prior written consent of the Buyer.
13. Survival. All the covenants, representations and warranties contained
herein shall survive the Closing and shall be deemed to have been made as of the
date hereof and as of the date of the Closing.
14. Specific Performance. The Sellers acknowledge that money damages are an
inadequate remedy for breach of this Option Agreement. Therefore, the Sellers
agree that the Buyer shall be entitled to an injunction or injunctions to
prevent breaches of this Option Agreement and to enforce specifically the terms
and provisions of this Option Agreement in any court of the United States
located in the Commonwealth of Pennsylvania or State of New York, this being in
addition to any other remedy to which such party is entitled at law or in
equity. In addition, each of the Sellers (i) consents to submit
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<PAGE>
itself to the personal jurisdiction of any Federal court located in the
Commonwealth of Pennsylvania or State of New York in the event any dispute
arises out of this Option Agreement or any of the transactions contemplated by
this Option Agreement, (ii) agrees that it will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any such
court, and (iii) agrees that it will not bring any action relating to this
Option Agreement or any of the transactions contemplated by this Option
Agreement in any court other than a Federal sitting in the Commonwealth of
Pennsylvania or State of New York.
15. Further Assurances. In the event the Buyer exercises the Option, each of
the Sellers and the Buyer each 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.
16. Cost and Expenses. Except as otherwise specifically provided herein, all
legal and other costs and expenses incurred in connection with this Option
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
17. Transfer Taxes. In the event the Buyer exercises the Option, the Sellers
and the Buyer shall each pay one-half of all sales, use, transfer and like
Taxes, if any, required to be paid in connection with the transfer of the
acquired Option Stores.
18. Parties in Interest; Assignments. This Option Agreement is binding upon
and is solely for the benefit of the parties hereto, their respective Affiliates
and their respective successors and assigns. The Buyer may cause one or more
direct or indirect wholly owned Subsidiaries designated by it to carry out all
or part of the transactions contemplated by this Option Agreement.
19. Amendments. This Option Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
20. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by registered or certified mail, postage prepaid, or by facsimile
transmission to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice; provided, that a
notice of change of address shall be effective only upon receipt thereof:
If to the Buyer to:
The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: Louis J. Garr, Jr., Esq.
General Counsel
Facsimile Number: 314-342-6384
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: J. Michael Schell, Esq.
Facsimile Number: 212-735-2000
B-60
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If to the Sellers to:
Strawbridge & Clothier
801 Market Street
Philadelphia, Pennsylvania 19107
Attention: Francis R. Strawbridge III, Chairman
Facsimile Number: 215-629-6833
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Attention: Donald A. Scott
Facsimile Number: 215-963-5299
21. Termination. The Option shall expire on the earlier of (i) the Effective
Time, or (ii) the date the Asset Purchase Agreement has been terminated pursuant
to Section 9.1(a) or 9.1(c) thereof, or (iii) the later of (A) the date 270 days
after the Asset Purchase Agreement has been terminated pursuant to Section
9.1(b), 9.1(d), 9.1(e) or 9.1(f) thereof, (B) if an "Extension Event" (as
defined below) has occurred, 730 days after the Asset Purchase Agreement has
been terminated pursuant to Section 9.1(e) thereof, or (C) 10 days following
consummation or termination of any agreement entered into by the Seller during
the term of this Option Agreement providing for an Extension Event (but with
respect to the foregoing clauses (ii) or (iii) only if the notice of exercise of
the Option shall not have been given prior to that date); provided that if the
Option cannot be exercised as of the termination date by reason of any
injunction, order or similar restraint issued by a court of competent
jurisdiction, the term of the Option shall extend until the tenth business day
after such injunction, order or similar restraint shall have been dissolved or
when such injunction, order or restraint shall have become permanent and no
longer subject to appeal, as the case may be. "Extension Event" means the
occurrence of one or more of the following events: (i) the acquisition of the
beneficial ownership by any person, entity or group (as such terms are used in
the Securities Exchange Act) other than the Buyer or any of its Affiliates of
25% or more of the voting power of the outstanding shares of the Seller Common
Stock on a fully diluted basis; or (ii) the execution by the Seller of an
agreement relating to, or the consummation of, a merger, consolidation or other
similar business combination of the Seller.
22. Applicable Law. This Option Agreement shall be governed by and construed
in accordance with the laws of the State of New York (without regard to the
principles of conflict of law thereof).
23. Counterparts. This Option Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
24. Descriptive Headings; Defined Terms. 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 Option Agreement. All terms used
herein with initial capital letters and not otherwise defined herein shall have
the meaning ascribed to them in the Asset Purchase Agreement.
25. No Excuse for Breach of Agreement. Neither this Option Agreement nor
anything contained in it shall relieve any party to the Asset Purchase Agreement
from its breach of the Asset Purchase Agreement nor limit any claim or remedy
for such breach by an aggrieved party to the Asset Purchase Agreement.
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IN WITNESS WHEREOF, this Option Agreement has been signed by the duly
authorized officers of each of the parties hereto as of the day and year first
written above.
THE MAY DEPARTMENT STORES COMPANY
By
.....................................
Name:
Title:
STRAWBRIDGE & CLOTHIER
By
.....................................
Name:
Title:
S&C, CHERRY HILL, INC.
S&C, CONCORD, INC.
By By
.................................... .....................................
Name: Name:
Title: Title:
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ANNEX I TO EXHIBIT A
1. Description of the Option Stores:
A. "Option Store A" means the Department Store Real Property for the Willow
Grove Park "Strawbridge & Clothier" store.
B. "Option Store B" means the Department Store Real Property for the Cherry
Hill Mall "Strawbridge & Clothier" store.
C. "Option Store C" means the Department Store Leased Real Property for the
Concord Mall "Strawbridge & Clothier" department store.
D. "Option Store D" means the Department Store Leased Real Property for the
Concord Mall "Strawbridge & Clothier" home furnishings store.
2. Description of Option Store Assets:
A. "Option Store A Assets" shall mean the Department Store Real Property,
the Department Store Equipment, Machinery and Fixtures, and that portion of the
Other Department Store Contracts described in Section 1.68(b) of the Asset
Purchase Agreement, as each of the foregoing relates to Option Store A.
B. "Option Store B Assets" shall mean the Department Store Real Property,
the Department Store Equipment, Machinery and Fixtures, and that portion of the
Other Department Store Contracts described in Section 1.68(b) of the Asset
Purchase Agreement, as each of the foregoing relates to Option Store B.
C. "Option Store C Assets" shall mean the Department Store Leased Real
Property, the Department Store Equipment, Machinery and Fixtures, and that
portion of the Other Department Store Contracts described in Section 1.68(b) of
the Asset Purchase Agreement, as each of the foregoing relates to Option Store
C.
D. "Option Store D Assets" shall mean the Department Store Leased Real
Property, the Department Store Equipment, Machinery and Fixtures, and that
portion of the Other Department Store Contracts described in Section 1.68(b) of
the Asset Purchase Agreement, as each of the foregoing relates to Option Store
D.
3. Description of Option Store Liabilities:
A. "Option Store A Liabilities" shall mean the liabilities, obligations and
duties of the Seller accruing and arising after the Closing under the Department
Store Contracts that relate to Option Store A, except that with respect to Other
Department Store Contracts such liabilities, obligations and duties shall be
limited to the agreements and commitments referenced in Section 1.68(b) of the
Asset Purchase Agreement.
B. "Option Store B Liabilities" shall mean the liabilities, obligations and
duties of CHI accruing and arising after the Closing under the Department Store
Contracts that relate to Option Store B, except that with respect to Other
Department Store Contracts such liabilities, obligations and duties shall be
limited to the agreements and commitments referenced in Section 1.68(b) of the
Asset Purchase Agreement.
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C. "Option Store C Liabilities" shall mean the liabilities, obligations and
duties of the Seller accruing and arising after the Closing under the Department
Store Contracts that relate to Option Store C, except that with respect to Other
Department Store Contracts such liabilities, obligations and duties shall be
limited to the agreements and commitments referenced in Section 1.68(b) of the
Asset Purchase Agreement.
D. "Option Store D Liabilities" shall mean the liabilities, obligations and
duties of CI accruing and arising after the Closing under the Department Store
Contracts that relate to Option Store D, except that with respect to Other
Department Store Contracts such liabilities, obligations and duties shall be
limited to the agreements and commitments referenced in Section 1.68(b) of the
Asset Purchase Agreement.
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EXHIBIT B
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of April , 1996, (the "Escrow Agreement") among
The May Department Stores Company, a New York corporation (the "Buyer"),
Strawbridge & Clothier, a Pennsylvania corporation (the "Seller"), and ,
as Escrow Agent ("Escrow Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Buyer and the Seller propose to enter into an Asset Purchase
Agreement, as of the date hereof (the "Asset Purchase Agreement"), which
provides, among other things, that upon the terms and subject to the conditions
set forth in the Asset Purchase Agreement, the Sellers and other Subsidiaries of
the Seller will sell to the Buyer the Department Store Assets and some or all of
the Disposition Proceeds in exchange for the assumption by the Buyer of the
Assumed Department Store Liabilities and the issuance and delivery by the Buyer
of the Stock Consideration; and
WHEREAS, pursuant to the Asset Purchase Agreement, the Buyer and the Seller
have agreed that the Escrowed Stock Consideration be delivered at the First
Closing in escrow pending final determination of the First Closing Stock
Consideration;
NOW, THEREFORE, in consideration of the foregoing premises and of the
respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Appointment of Escrow Agent. The Buyer and the Seller hereby appoint
, as Escrow Agent hereunder, and hereby accepts the appointment as
Escrow Agent and agrees to act as Escrow Agent pursuant to the terms and
conditions contained herein.
2. Delivery of Escrowed Stock Consideration. At the First Closing, the Buyer
will deliver to the Escrow Agent and the Escrow Agent will accept delivery from
the Buyer of stock certificates representing the Escrowed Stock Consideration,
accompanied by a stock power duly executed in blank or a duly executed
instrument of transfer, with all necessary stock transfer tax stamps affixed and
cancelled and any other documents that are necessary to transfer good and
marketable title to the Escrowed Stock Consideration.
3. Acknowledgment of Receipt. At the First Closing upon receipt by the
Escrow Agent of the stock certificates representing the Escrowed Stock
Consideration and of the other instruments called for in Section 2, the Escrow
Agent will execute and deliver to the Buyer and the Seller an Acknowledgment of
Receipt substantially in the form attached hereto as Annex I.
4. Rights with Respect to Escrowed Stock Consideration.
(a) Dividends. The Buyer is hereby authorized to deliver directly to the
Escrow Agent, to be held in escrow hereunder, the following (i) any and all
securities (whether or not securities of the Buyer) or property distributed by
the Buyer in connection with any dividend or distribution on or with respect to
the Escrowed Stock Consideration, or any split-up, combination,
recapitalization, reclassification, merger, consolidation or other event
relating to or affecting any securities then held in escrow hereunder and (ii)
any dividend payments (including regular quarterly cash dividends) and all
interest payments on or with respect to securities held in escrow hereunder. All
securities (other than the Escrowed Stock Consideration), property, funds and
other assets delivered into escrow, or invested or reinvested, pursuant to this
Section 4 are herein called "Escrowed Dividends."
B-65
<PAGE>
(b) Distribution. Subject to the provisions of this Escrow Agreement, the
Escrow Agent will invest and reinvest all funds held in escrow hereunder from
time to time in such United States Treasury Bills maturing not more than 180
days after the date of purchase as are directed by the Seller; provided,
however, that in the event the Escrow Agent is not in receipt of any investment
instructions with respect to any funds, the Escrow Agent is hereby authorized to
deposit all such funds in a Bank money market interest bearing account
until instructions are received from the Seller.
(c) Voting. The Escrow Agent shall vote all shares of May Common Stock or
other securities held in escrow hereunder in accordance with the written
instructions received by the Escrow Agent from the Seller, and in the absence of
such instruction shall not vote such shares of May Common Stock or other
securities.
5. Release of Escrowed Property. The Escrow Agent will hold the Escrowed
Stock Consideration and the Escrowed Dividends (collectively, the "Escrowed
Property") in its possession until receipt of instructions with respect to the
release thereof signed jointly by the Buyer and the Seller (the "Instructions").
The Escrow Agent shall release the Escrowed Property in strict compliance with
the Instructions.
6. Settlement of Disputes. If any dispute arises under this Escrow Agreement
with respect to the delivery, ownership or right of possession of any of the
Escrowed Property, or the duties of the Escrow Agent hereunder, or as to any
other matter arising out of or relating to this Escrow Agreement, such dispute
shall be settled by mutual agreement of the Buyer and the Seller (evidenced by
appropriate Instructions to the Escrow Agent), or by a binding written
arbitration decision, or by a final order, decree or judgment of a court of
competent jurisdiction of the United States of America located in the
Commonwealth of Pennsylvania or the State of New York or in any Pennsylvania or
New York State Court (the time for appeal having expired and no appeal having
been perfected), all costs and expenses of which (including reasonable
attorneys' fees) shall be borne by the party against which the dispute is
settled. The Escrow Agent shall be under no duty whatsoever to institute or
defend any such proceedings. Prior to the settlement of any such dispute, the
Escrow Agent is authorized and directed to retain the Escrowed Property in its
possession.
7. Concerning the Escrow Agent.
(a) Fees and Expenses. The Escrow Agent shall be paid a fee of $ for
its services hereunder and shall be reimbursed for all reasonable expenses,
disbursements and advances incurred or made by the Escrow Agent in the
performances of its duties hereunder, such fee and reimbursement to be paid by
50% by the Seller and 50% by the Buyer.
(b) Resignation of Escrow Agent. The Escrow Agent may resign and be
discharged from its duties hereunder at any time by giving notice of such
resignation to each of the Buyer and the Seller specifying a date when such
resignation shall take effect. Upon such notice, a successor to the Escrow Agent
(the "Successor Escrow Agent") shall be appointed with the unanimous consent of
the Buyer and the Seller, such Successor Escrow Agent to become Escrow Agent
hereunder upon the resignation date specified in such notice. If the Buyer and
the Seller are unable to agree upon a Successor Escrow Agent within 24 hours
after such notice, the Escrow Agent shall be entitled to appoint the Successor
Escrow Agent. The Buyer and the Seller shall have the right at any time upon
unanimous consent to substitute a new entity as the Successor Escrow Agent for
the Escrow Agent then acting. The Escrow Agent shall continue to serve until the
Successor Escrow Agent accepts the escrow by written notice thereof to the Buyer
and the Seller and receives the Escrowed Property. For purposes of this Escrow
Agreement, Escrow Agent shall mean the entity executing this Escrow Agreement
and any and all successors appointed pursuant to this Section 6(b), while acting
in such capacity.
B-66
<PAGE>
(c) Duties of Escrow Agent. The Escrow Agent undertakes to perform such
duties as are specifically set forth herein and may conclusively rely and shall
be protected in acting or refraining from acting on any written notice,
instrument or signature believed by it to be genuine and to have been signed or
presented on behalf of the Buyer and the Seller by the proper person or persons
duly authorized to do so. The Escrow Agent shall have no responsibility for the
contents of any writing contemplated herein and may rely without any liability
upon the contents thereof.
(d) Liability of Escrow Agent. The Escrow Agent shall not be liable for any
action taken or omitted by it in good faith and believed by it to be authorized
hereby or within the rights or powers conferred upon it hereunder, nor for any
action take or omitted by it in good faith and in accordance with advice of
counsel (which counsel may be of the Escrow Agent's own choosing), and shall not
be liable for any mistake of fact or error of judgment or for any acts or
omissions of any kind unless caused by its willful misconduct or gross
negligence.
(e) Indemnification of Escrow Agent. The Buyer and the Seller agree
severally to indemnify the Escrow Agent and hold it harmless against any and all
liabilities incurred by it hereunder as a consequence of such party's action,
and the Buyer and the Seller agree jointly and severally to indemnify the Escrow
Agent and hold it harmless against any and all liabilities incurred by it
hereunder which are not a consequence of any party's action, except in either
case for liabilities incurred by the Escrow Agent resulting from its willful
misconduct or gross negligence.
8. Miscellaneous.
(a) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by registered or certified mail, postage prepaid, or by facsimile
transmission to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice; provided, that a
notice of change of address shall be effective only upon receipt thereof:
If to the Buyer to:
The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: Louis J. Garr, Jr., Esq.
General Counsel
Facsimile Number: 314-342-6384
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: J. Michael Schell, Esq.
Facsimile Number: 212-735-2000
If to the Sellers to:
Strawbridge & Clothier
801 Market Street
Philadelphia, Pennsylvania 19107
Attention: Francis R. Strawbridge III, Chairman
Facsimile Number: 215-629-6833
B-67
<PAGE>
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Attention: Donald A. Scott
Facsimile Number: 215-963-5299
If to the Escrow Agent to:
Attention:
Facsimile Number:
(b) Binding Effect; Benefits. This Escrow Agreement shall be binding upon
and inure to the benefit of the parties to this Escrow Agreement and their
respective successors and permitted assigns. Nothing in this Escrow Agreement,
express or implied, is intended or shall be construed to give any person other
than the parties to this Escrow Agreement or their respective successors or
permitted assigns any legal or equitable right, remedy or claim under or in
respect of any agreement or any provision contained herein.
(c) Amendment. This Escrow Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
(d) Applicable Law. This Escrow Agreement shall be governed by and construed
in accordance with the laws of the State of [New York] (without regard to the
principles of conflicts of law thereof).
(e) Descriptive Headings; Defined Terms. The descriptive headings contained
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 Escrow Agreement. All
terms used herein with initial capital letters and not otherwise defined herein
shall have the meaning ascribed to them in the Asset Purchase Agreement.
(f) Termination; Effectiveness. The Escrow Agent shall have no further
obligations under this Escrow Agreement and this Escrow Agreement shall
terminate and be of no further force and effect upon the delivery of the
Escrowed Property by the Escrow Agent pursuant to Section 2. Notwithstanding
anything in the preceding sentence to the contrary, the obligations of the Buyer
and the Seller pursuant to Section 6(a) and Section 6(e) shall continue beyond
the termination of this Escrow Agreement.
(g) Counterparts. This Escrow Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
B-68
<PAGE>
IN WITNESS WHEREOF, this Escrow Agreement has been signed by the duly
authorized officers of each of the parties hereto as of the day and year first
written above.
THE MAY DEPARTMENT STORES COMPANY
By
.....................................
Name:
Title:
STRAWBRIDGE & CLOTHIER
By
.....................................
Name:
Title:
ESCROW AGENT
By
.....................................
Name:
Title:
B-69
<PAGE>
EXHIBIT C
UNDERTAKING AND INDEMNITY AGREEMENT
UNDERTAKING AND INDEMNITY AGREEMENT, dated as of April , 1996. between The
May Department Store Company, a New York corporation (the "Buyer"), and
Strawbridge & Clothier, a Pennsylvania corporation (the "Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller, has entered into the Asset Purchase Agreement (the
"Asset Purchase Agreement"), dated as of the date hereof, with the Buyer;
WHEREAS, all terms used herein with initial capital letters and not
otherwise defined herein shall have the meaning ascribed to them in the Asset
Purchase Agreement;
WHEREAS, the Asset Purchase Agreement contemplates, among other things, that
the Seller will sell to the Buyer the Department Store Assets and some or all of
the Disposition Proceeds in exchange for the assumption by the Buyer of the
Assumed Department Store Liabilities and the indemnification of the Seller by
the Buyer with respect to the Assumed Department Store Liabilities; and
WHEREAS, the Asset Purchase Agreement also contemplates that the Seller will
retain the Excluded Liabilities and indemnify the Buyer with respect to the
Excluded Liabilities;
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual
agreements, provisions and covenants contained in the Asset Purchase Agreement,
and intending to be legally bound hereby, the parties hereto agree that on and
after the date hereof:
1. The Buyer assumes and undertakes to pay or otherwise discharge, and will
indemnify and hold the Seller harmless against, all Assumed Department Store
Liabilities in accordance with the terms hereof and of the Asset Purchase
Agreement.
2. In the event the Buyer fails to pay or otherwise discharge directly any
of the Assumed Department Store Liabilities and the Seller thereafter pays or
discharges such Assumed Department Store Liabilities, then the amount of any
such Assumed Department Store Liabilities paid or discharged by the Seller and
subject to indemnification hereunder shall be the amount of such Assumed
Department Store Liabilities after giving effect (as determined in good faith
and certified by the Seller without any right of investigation or verification
by the Buyer) to any increases or reductions in the liability of the Seller for,
or recoveries by the Seller of, Taxes which have resulted or will result from
(a) incurring or suffering such Assumed Department Store Liabilities and (b)
receiving any indemnification payment hereunder.
3. The indemnity provided for the Seller hereby shall extend to, and the
amount of any Assumed Department Store Liabilities incurred or suffered by the
Seller and indemnifiable hereunder shall include, subject to paragraph 9 below,
all costs and expenses of the Seller including reasonable fees and expenses of
attorneys (at the trial and appellate levels and otherwise) incident to matter
indemnified against and to any such Assumed Department Store Liabilities.
4. Within 45 days after receipt by the Buyer from the Seller of a statement
setting forth the amount of each payment claimed by the Seller to be owing to it
as described herein, together with a list identifying each separate Assumed
Department Store Liabilities for which payment is claimed, the Buyer will pay
the amount set forth in such statement.
B-70
<PAGE>
5. The Seller retains, assumes and undertakes to pay or otherwise discharge,
and will indemnify and hold the Buyer harmless against, all Excluded Liabilities
in accordance with the terms hereof and of the Asset Purchase Agreement.
6. In the event the Seller fails to pay or otherwise discharge directly any
of the Excluded Liabilities and the Buyer thereafter pays or discharges such
Excluded Liabilities, then the amount of any such Excluded Liabilities paid or
discharged by the Buyer and subject to indemnification hereunder shall be the
amount of such Excluded Liabilities after giving effect (as determined in good
faith and certified by the Buyer without any right of investigation or
verification by the Seller) to any increases or reductions in the liability of
the Buyer for, or recoveries by the Buyer of, Taxes which have resulted or will
result from (a) incurring or suffering such Excluded Liabilities and (b)
receiving any indemnification payment hereunder.
7. The indemnity provided for the Buyer hereby shall extend to, and the
amount of any Excluded Liabilities incurred or suffered by the Buyer and
indemnifiable hereunder shall include, subject to paragraph 9 below, all costs
and expenses of the Buyer including reasonable fees and expenses of attorneys
(at the trial and appellate levels and otherwise) incident to matter indemnified
against and to any such Excluded Liabilities.
8. Within 45 days after receipt by the Seller from the Buyer of a statement
setting forth the amount of each payment claimed by the Buyer to be owing to it
as described herein, together with a list identifying each separate Excluded
Liabilities for which payment is claimed, the Seller will pay the amount set
forth in such statement.
9. The Seller or the Buyer, as the case may be, to whom indemnification is
due pursuant hereto is, in this paragraph 9, called the "Indemnitee", and the
Seller or the Buyer, as the case may be, who owes the indemnity pursuant hereto
is, in this paragraph 9, called the "Indemnitor." Upon receipt by the Indemnitor
of written notice from the Indemnitee of the commencement of any action, suit or
proceeding for which indemnification may be sought, the Indemnitor, through
counsel reasonably satisfactory to the Indemnitee, shall assume the defense
thereof, provided, however, that the Indemnitee shall be entitled to participate
in any such action, suit or proceeding with counsel of its own choice but at its
own expense. If the Indemnitor fails to assume the defense within a reasonable
time, the Indemnitee may assume such defense and the reasonable fees and
expenses of its attorneys will be covered by the indemnity provided for hereby.
In no event shall any settlement or compromise of any action, suit or proceeding
or consent to the entry of any judgment (each, a "Settlement") be entered into
by the Indemnitor or the Indemnitee without the other's consent (the granting or
withholding of which shall be promptly and reasonably exercised) unless such
Settlement constitutes, or includes as an unconditional term thereof the
delivery by the claimant or plaintiff to the consenting party of, a written
release of the consenting party from all liability in respect of such action,
suit or proceeding. Neither the Indemnitor nor the Indemnitee shall, without the
other's consent (the granting or withholding of which shall be promptly and
reasonably exercised) enter into any Settlement, or unreasonably refuse to enter
into any Settlement, of any action suit or proceeding that seeks or provides for
equitable relief against the other or otherwise materially affects the
operations of the other.
B-71
<PAGE>
IN WITNESS WHEREOF, this Undertaking and Indemnity Agreement has been signed
by the duly authorized officers of each of the parties hereto as of the day and
year first written above.
STRAWBRIDGE & CLOTHIER
By
...................................
Name:
Title:
THE MAY DEPARTMENT STORES COMPANY
By
...................................
Name:
Title:
B-72
<PAGE>
SCHEDULE 1.6
ASSUMED LONG-TERM LIABILITIES AMOUNT
<TABLE>
<CAPTION>
TOTALS
--------------------------------------
AMOUNT DUE ADJUSTED AMOUNT
AS OF THE IN ACCORDANCE WITH
EFFECTIVE TIME SECTION 1.6
-------------- ------------------
<S> <C> <C>
9.2% Series A Senior Notes due 2004....................... $ $
9.0% Series B Senior Notes due 1999....................... $ $
7.04% Allstate Senior Notes due 1997...................... $ $
10.00% Michael Reich Mortgage Note due 2007............... $ $
8.75% S&C Echelon Equitable Mortgage Note due 1997........ $ $
6 5/8% Notes due 2003..................................... $ $
Payable to PNC for Accounts Receivable.................... $
Present Value of Rental Payments.......................... $
Assumed Long-Term Liabilities Amount (Sec. 1.6)....... $
-------
-------
</TABLE>
B-73
<PAGE>
SCHEDULE 1.15
CLOSING BALANCE SHEET NET WORKING CAPITAL AMOUNT
<TABLE>
<CAPTION>
<S> <C>
Closing Balance Sheet Cash Amount (Sec. 1.13).................. $
Closing Balance Sheet Accounts Receivable Amount (Sec.Sec.
1.12, 1.52)............................................... $
Closing Balance Sheet Inventory Amount (Sec. 1.14)............. $
Miscellaneous Current Assets*.................................. $
Total Current Assets....................................... $
Closing Balance Sheet Payables Amount (Sec. 1.16).............. $
Other Current Liabilities**.................................... $
Less Total Current Liabilities............................. ($)
Closing Balance Sheet Net Working Capital Amount (Sec.
1.15)...................................................... $
----------
----------
</TABLE>
- ------------
* Miscellaneous Current Assets will be equal to the book value determined in
accordance with GAAP, as of the Effective Time, of prepaid rent, prepaid
property taxes and prepaid common area maintenance for periods subsequent to
the Effective Time which relate to the Department Store Real Property.
** Other Current Liabilities will be equal to (I) the book value determined in
accordance with GAAP, as of the Effective Time, of (a) accrued occupancy
costs, (b) interest accrued in respect of all Assumed Long-Term Liabilities,
(c) a reserve in respect of the liabilities for redemption of gift
certificates and similar media which are outstanding, and (d) a reserve for
customer returns of Department Store Inventory determined by multiplying 1
minus the Cost Complement by the product of (i) total sales of the Department
Store Division during the 14 days prior to the Effective Time on which the
Department Stores were open to the public for business and (ii) the ratio of
(x) customer returns of Department Store Inventory during the comparable
prior year period for the 14 day period after the Effective Time to (y) total
sales of the Department Store Division during the comparable prior year
period for the 14 day period prior to the Effective Time, plus (II) all
amounts owing from the Seller to the Buyer computed in accordance with
Sections 2.8(a)(v)(1) (accrued vacation pay), Section 2.8(a)(v)(2) (Employee
Pension Benefit Plan), Section 2.8(a)(v)(3) (rule of 70), Section
2.8(a)(v)(4) (Rabbi Trust Funding Amount), Section 2.8(a)(v)(5) (Retiree
Medical Plan) if the seller makes the Section 7.7 election to have the Buyer
assume, and Section 2.8(a)(v)(6) (Consulting Contracts), plus (III)
$1,700,000, plus (IV) $2,500,000 (Rabbi Trust pre-funding for Seller SERP) if
the Seller makes the election set forth in Section 7.6.
B-74
<PAGE>
SCHEDULE 1.56
FIRST CLOSING STOCK CONSIDERATION SCHEDULE
<TABLE>
<CAPTION>
<S> <C>
"Closing Balance Sheet Net Working Capital Amount".......... $ (a)
Portion of consideration attributable to non-current
assets.................................................... $320,000,000*
Subtotal................................................ $ (b)
"Assumed Long-Term Liabilities Amount"...................... $ (c)
Aggregate Net Consideration Payable..................... $ (d)
Signing Date "May Common Stock" Price................... $ 47.875(e)
"May Common Stock"...................................... (f)
"Payless Spin-Off Equivalent Shares".................... (g)
"First Closing Stock Consideration"......................... (h)
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Dollar amount from Schedule 1.15.
(b) The sum of (a) and $320,000,000*.
(c) Dollar amount from Schedule 1.6.
(d) The dollar amount by which (b) exceeds (c).
(e) The closing price per share of May Common Stock as reported on the NYSE Consolidated
Tape on the day before the day on which the Asset Purchase Agreement is executed and
delivered.
(f) The number of shares of May Common Stock equal to the quotient determined by dividing
(d) by (e).
(g) The Payless Spin-Off Equivalent Shares if, prior to the Effective Time, the record date
for the distribution (the "Payless Spin-Off") by the Buyer to its own public
shareowners of the shares of common stock of Payless ShoeSource, Inc. ("Payless") has
occurred. The "Payless Spin-Off Equivalent Shares" shall mean that number of shares of
May Common Stock equal to the quotient of (A) divided by (B) where (A) is equal to the
product of (1) the number of shares of Payless which would have been distributed in
respect of the number of shares of May Common Stock in (f), multiplied by (2) the
closing price per share of Payless common stock as reported on the NYSE Consolidated
Tape on the first day of "regular way" trading on the NYSE ($28.75), and (B) is the
price per share of the May Common Stock in (e).
(h) The sum of (f) and (g).
</TABLE>
- ------------
* Subject to reduction as provided in Sections 7.7 and 7.8.
B-75
<PAGE>
ANNEX C
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
FOR THE
ACQUISITION OF REAL PROPERTY ASSETS
OF
THE CLOVER DIVISION
OF
STRAWBRIDGE & CLOTHIER
BY
KIMCO REALTY CORPORATION
DATED AS OF MAY 3, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C> <C>
1. Definitions...................................................................... 5
2. Sale and Purchase of Assets...................................................... 7
2.1 Assets to be Purchased.................................................... 7
2.2 Purchase Price............................................................ 8
2.3 Due Diligence Period...................................................... 8
2.4 Assumption of Liabilities and Obligations................................. 9
2.5 Allocation of Purchase Price.............................................. 9
3. Closing.......................................................................... 9
3.1 Time and Place of Closing................................................. 9
3.2 Items to be Delivered at Closing.......................................... 10
3.3 Interim Lease............................................................. 11
3.4 Further Assurances........................................................ 14
4. Representations and Warranties of Seller......................................... 14
4.1 Corporate Organization.................................................... 14
4.2 Due Authorization......................................................... 14
4.3 Consents and Approvals; No Violation...................................... 15
4.4 Absence of Adverse Changes or Events...................................... 15
4.5 Clover Store Assets....................................................... 15
4.6 Other Clover Agreements................................................... 16
4.7 Litigation................................................................ 16
4.8 Franchises, Licenses, Permits, etc........................................ 16
4.9 Employment and Severance Agreements....................................... 17
4.10 Brokers and Finders....................................................... 17
4.11 Environmental............................................................. 17
5. Representations and Warranties of Buyer.......................................... 17
5.1 Corporate Organization.................................................... 17
5.2 Due Authorization......................................................... 17
5.3 Consents and Approvals; No Violation...................................... 17
5.4 Brokers and Finders....................................................... 18
6. Conduct of Business of the Division Prior to Closing............................. 18
6.1 Business.................................................................. 18
6.2 Adverse Changes........................................................... 18
6.3 Maintenance of Properties, Permits, Franchises, Licenses, etc............. 18
6.4 Encumbrances.............................................................. 18
6.5 Mercerville Property...................................................... 18
7. HSR Act.......................................................................... 18
8. Consents and Estoppels........................................................... 19
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
9. Access to Business and Records................................................... 19
<C> <S> <C> <C>
10. Confidential Information......................................................... 20
11. Conditions to Obligation of Buyer to Consummate Acquisition...................... 20
11.1 Representations, Warranties and Covenants of Seller....................... 20
11.2 Pending Litigation........................................................ 20
11.3 HSR Act Compliance........................................................ 20
11.4 Opinion of Counsel for Seller............................................. 20
11.5 Approval of Counsel....................................................... 21
11.6 Closing Documents......................................................... 21
11.7 Third Party Consents and Estoppels........................................ 21
11.8 Title Insurance........................................................... 22
11.9 Clover Space Leases....................................................... 22
12. Conditions to Obligation of Seller to Consummate the Acquisition................. 22
12.1 Representations, Warranties and Covenants of Buyer........................ 22
12.2 Pending Litigation........................................................ 22
12.3 HSR Act Compliance........................................................ 23
12.4 Opinion of Counsel for Buyer.............................................. 23
12.5 Approval of Counsel....................................................... 23
12.6 Closing Documents......................................................... 23
12.7 Shareholder Approval...................................................... 24
12.8 Closing of Sale of Department Store Division.............................. 24
13. Termination of Representations and Warranties.................................... 24
14. Bulk Sales Laws.................................................................. 24
15. Termination of Agreement......................................................... 24
16. Default.......................................................................... 25
17. Waiver of Terms.................................................................. 26
18. Amendment of Agreement........................................................... 26
19. Payment of Expenses.............................................................. 26
20. Cooperation...................................................................... 26
21. Counterparts..................................................................... 26
22. Contents of Agreement, Parties in Interest, Assignment........................... 26
23. Section Headings, Gender and "Person"............................................ 28
24. Notices.......................................................................... 28
25. Prorations....................................................................... 28
26. Casualty and Condemnation........................................................ 28
26.1 Casualty.................................................................. 28
26.2 Condemnation.............................................................. 29
27. Governing Law.................................................................... 29
</TABLE>
C-3
<PAGE>
SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Schedule 2.1(a) Clover Fee Properties
Schedule 2.1(b) Clover Leases
Schedule 2.1(c) Clover Space Leases
Schedule 2.4(a) Other Clover Agreements
Schedule 2.5 Purchase Price Allocation
Schedule 3.3(b) Kohl's Properties
Schedule 3.3(c) Interim Lease Rent Allocation
Schedule 4.5(b) Permitted Exceptions
Schedule 4.7 Litigation
Schedule 4.8 Franchises, Licenses, Permits
Schedule 4.11 Environmental Matters
Schedule 5.3 Consents and Approvals
Schedule 26.2 Schedule of Purchase Price
Adjustments
Exhibit "A" Form of Undertaking and Indemnity
Agreement
</TABLE>
C-4
<PAGE>
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of May 3, 1996, between STRAWBRIDGE & CLOTHIER, a
Pennsylvania Corporation (the "Seller"), and KIMCO REALTY CORPORATION, a
Maryland corporation (the "Buyer").
WHEREAS, the Clover Division of Seller (the "Division") is engaged
principally in the business of operating discount retail stores;
WHEREAS, Seller desires to sell certain assets and properties of the
Division to Buyer, and Buyer desires to acquire the same from Seller, upon and
subject to the terms and conditions hereinafter set forth;
WHEREAS, Seller has by Asset Purchase Agreement dated as of April 4, 1996
(the "May Company Agreement"), between Seller and The May Department Stores
Company (the "May Company") agreed to sell substantially all of Seller's
Department Store assets to May Company; and
WHEREAS, within one year following the sale of Seller's Department Store
assets, Seller contemplates a liquidation and dissolution of Seller pursuant to
the provisions of the May Company Agreement and the Pennsylvania Business
Corporation Law (the "Dissolution").
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Definitions. Certain terms used in this Agreement are defined below,
while other terms are defined elsewhere in this Agreement.
"Affiliate" means a Person controlling, controlled by or under common
control with another Person.
"Assumed Clover Liabilities" is defined in Section 2.4.
"Authorizations" is defined in Section 4.8.
"Business Day" means any day other than Saturday, Sunday and any day that is
a legal holiday or a day on which banking institutions in New York City are
authorized by law or other governmental action to close.
"Buyer" is defined in the preamble.
"Buyer's Cost Reimbursement" is defined in Section 15(b).
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Clover Store Assets" is defined in Section 2.1.
"Clover Fee Properties" is defined in Section 2.1(a). Each of the Clover Fee
Properties is individually referred to as a "Clover Fee Property."
"Clover Leased Properties" is defined in Section 2.1(b). Each of the Clover
Leased Properties is individually referred to as a "Clover Leased Property."
"Clover Leases" is defined in Section 2.1(b).
"Clover Space Leases" is defined in Section 2.1(c).
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"Clover Store Properties" means the Clover Fee Properties and the Clover
Leased Properties. Each of the Clover Store Properties is individually referred
to as a "Clover Store Property."
"Dissolution" is defined in the fourth Whereas clause.
"Division" is defined in the preamble.
"Due Diligence Period" is defined in Section 2.3(a).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations thereunder.
"Identified Property Defects" is defined in Section 2.3(b).
"Identified Title Defect" is defined in Section 4.5(b).
"Initial Closing" is defined in Section 3.1(a).
"Interim Lease" is defined in Section 3.3(a).
"Interim Lease Additional Rent" is defined in Section 3.3(c).
"Interim Lease Rent" is defined in Section 3.3(c).
"Kohl's" means Kohl's Department Stores, Inc., a Delaware corporation.
"Kohl's Corporation" means Kohl's Corporation, a Wisconsin corporation.
"Kohl's Properties" means the Clover Store Properties listed on Schedule
3.3(b). By notice to Seller on or before June 30, 1996, Buyer may add to the
Kohl's Properties list such additional Clover Store Properties that at Closing
will be assigned by Buyer to Kohl's (i.e., as to which Kohl's will be a
Permitted Designee) or retained by Buyer and leased to Kohl's. Buyer may delete
one or more Clover Store Properties from the Kohl's Properties list by notice to
Seller at any time prior to Closing.
"Liquidator" is defined in Section 3.3(f).
"Material Adverse Effect" means (a) with respect to the Clover Store Assets,
any change in or effect on any property or asset included as one of the Clover
Store Assets that is materially adverse to the value thereof or which materially
increases the Assumed Clover Liabilities and (b) with respect to Seller or
Buyer, any change in or effect on the business of Seller or Buyer that is
materially adverse to the financial condition or results of operation of Seller
or Buyer.
"May Company" is defined in the third Whereas clause.
"May Company Agreement" is defined in the third Whereas clause.
"Other Clover Agreements" is defined in Section 2.4(a).
"Permitted Designee" is defined in Section 22(b).
"Permitted Exceptions" is defined in Section 4.5(b).
"Person" is defined in Section 23.
"Purchase Price" is defined in Section 2.2.
"Refusal Offer" is defined in Section 15(b).
"Required Consents and Estoppels" is defined is Section 11.7.
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"Restricted Period" is defined in Section 15(b).
"Seller" is defined in the preamble.
"Subsequent Closing" is defined in Section 3.1(a).
"Threshold Number" means at least two-thirds of the available Clover Store
Properties, including at least all but two of the available Kohl's Properties. A
Clover Store Property and Kohl's Property is "available" unless a Required
Consent and Estoppel for such property has been denied or refused in writing.
"Undertaking and Indemnity Agreement" means an agreement between Seller and
Buyer (or, as applicable, Kohl's or another Permitted Designee) substantially in
the form of Exhibit "A."
2. Sale and Purchase of Assets.
2.1 Assets to be Purchased. At the Closing hereunder, Seller will sell to
Buyer, and Buyer will purchase from Seller, Seller's entire right, title and
interest in and to the following (collectively, "Clover Store Assets"):
(a) the fee simple title of Seller in and to the land described in
Schedule 2.1(a) and the improvements erected thereon, including all
buildings, structures and pylon signs, together with Seller's right, title
and interest in and to all rights of way, easements, reciprocal easement
agreements and other rights of Seller appurtenant to the foregoing, and all
right, title and interest of Seller, if any, in and to any strips or gores
adjoining the property and any land lying in the bed of any street adjoining
the property (collectively, "Clover Fee Properties");
(b) the leasehold interest of Seller (as tenant) in and to the leases
(collectively, "Clover Leases") for the land described in Schedule 2.1(b),
together with Seller's right, title and interest in and to any leasehold
improvements constructed on such land, including all buildings, structures,
equipment and pylon signs, and all rights of way, easements, reciprocal
easement agreements and other rights of Seller appurtenant to the foregoing
(collectively, "Clover Leased Properties");
(c) the leasehold interest of Seller (as landlord or sublandlord) in and
to the leases (collectively, "Clover Space Leases") for spaces within the
Clover Store Properties as described on Schedule 2.1(c);
(d) any and all electrical, plumbing, heating, ventilating and
air-conditioning and other systems and equipment owned by Seller and located
at and used in the operation of the Clover Store Properties (other than
those relating to the business operations of Seller's department store,
including all POS, ticketing and sensormatic systems and equipment, all
furniture, furnishings and trade fixtures, all tools, spare parts and
supplies and all rolling stock, which are not included in the sale);
(e) any and all files, plans, surveys and other documents owned by and
in the possession of Seller and required for the efficient operation of the
Clover Store Properties (other than those relating to the business
operations of Seller's department store, which are not included in the
sale);
(f) any and all licenses, permits, certificates of occupancy (or local
equivalent) in the possession of Seller (other than those relating to the
business operations of Seller's department store, which are not included in
the sale); and
(g) any and all guarantees and warranties covering the construction,
maintenance or operation of the Clover Fee Properties and the Clover Leased
Properties.
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The Clover Store Assets shall exclude: (i) Seller's inventory and
merchandise, (ii) the Division warehouse and distribution facility located in
Howell Township, New Jersey, (iii) the vacant land owned by Seller near the
intersection of Route 295 and Burlington--Mt. Holly Road in Burlington Township,
New Jersey, (iv) cash and accounts receivable, (v) tax refunds and (vi)
insurance policies and claims thereunder (except to the extent set forth in
Section 26.1).
Seller acknowledges that certain of the Clover Store Assets are owned by
Persons who are Affiliates of Seller and not by Seller directly. Notwithstanding
the foregoing, Seller shall take all action necessary to cause its Affiliates to
sell such Clover Store Assets to Buyer as if all Clover Store Assets were owned
directly by Seller.
2.2 Purchase Price. The aggregate purchase price to be paid for the sale of
the Clover Store Assets (the "Purchase Price") shall be:
(a) cash payable to Seller at the Closing in the amount of $40,000,000;
and
(b) Buyer's assumption of the Assumed Clover Liabilities.
2.3 Due Diligence Period.
(a) During the period commencing on the date of this Agreement and ending on
June 12, 1996 (the "Due Diligence Period"), Buyer and its agents, employees,
designees, representatives and independent contractors shall have the right, at
Buyer's risk and expense, during usual business hours and after notice to
Seller, to enter upon the Clover Store Properties in order to conduct surveys,
environmental assessments and such other evaluations thereof as Buyer deems
necessary, subject to the conditions that: (i) all such activity shall be done
in a good and workmanlike manner and the Clover Store Properties shall at all
times be kept in a safe condition, (ii) immediately after each such survey,
assessment or evaluation, Buyer shall restore to their prior condition those
portions of the Clover Store Properties disturbed or damaged by Buyer's
activity, (iii) Buyer shall defend, indemnify and save Seller harmless from and
against all claims, actions, suits, damages, losses, costs and expenses
(including, without limitation, attorneys' fees) instituted against or incurred
by Seller as a result of or relating to any activity on the Clover Store
Properties by Buyer, its agents, employees, designees, representatives and
independent contractors, and (iv) if requested by Seller, Buyer shall provide
Seller with a certificate of comprehensive general liability insurance, in form,
in an amount and issued by a carrier reasonably acceptable to Seller, insuring
Seller from all risks and loss associated with Buyer's exercise of its rights
under this Section. During the Due Diligence Period, Buyer and its agents,
employees, designees, representatives and independent contractors also shall
have the right, at Buyer's expense, to perform such other due diligence
investigations regarding the Clover Store Properties as Buyer deems necessary,
including, without limitation, title, zoning, municipal code compliance and
other investigations.
(b) In the event that (i) Buyer's environmental review reveals the presence
or release of any toxic substance or hazardous material or of any other
environmental condition or contamination in or from any Clover Store Property,
(ii) Buyer's investigations and inspections reveal that any Clover Store
Property is not in good repair, order and condition (reasonable wear and tear
excepted) or the existence of an encroachment or other defect or (iii) Buyer's
investigations and review reveals any Clover Store Property is not in compliance
with legal requirements, Buyer shall notify Seller in writing of all such
observed conditions and defects (collectively, "Identified Property Defects")
prior to the expiration of the Due Diligence Period. Notwithstanding the
foregoing, (i) Buyer may not include as an Identified Property Defect any
encapsulated or otherwise non-friable asbestos containing wrap or insulation
material located in the mechanical room areas of the Clover Store Property
located at Cottman Avenue in Philadelphia, Pennsylvania, and (ii) Buyer may
include as an Identified Property Defect the presence of any other toxic
substance or hazardous material or other environmental condition disclosed by
Seller on Schedule 4.11 only to the extent that the cost to remediate, repair or
otherwise cure the same exceeds $5,000 as reasonably determined by Seller and
Buyer. In the event that the cost of remediating,
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repairing or otherwise curing the Identified Property Defects shall exceed
$1,000,000 as reasonably determined by Seller and Buyer, Buyer may terminate
this Agreement with respect to all (but not less than all) of the Clover Store
Assets unless Seller shall agree in writing to reduce the Purchase Price by an
amount equal to the excess of the cost to remediate, repair or otherwise cure
the Identified Property Defects in excess of $1,000,000. Otherwise, Buyer shall
accept the Clover Store Assets in their "as is" physical condition at the time
of the expiration of the Due Diligence Period (reasonable wear and tear excepted
and subject to the casualty and condemnation provisions expressed in Section
26), and Seller shall have no further obligation to remediate or repair any
Identified Property Defects.
2.4 Assumption of Liabilities and Obligations.
(a) Except as otherwise provided in paragraph (b) of this Section 2.4, at
and effective as of the Closing Buyer shall assume and agree to pay, discharge
and perform, as appropriate, those liabilities and obligations of Seller arising
from and after the Closing Date under the Clover Leases, the Clover Space Leases
and the contracts, agreements and commitments of Seller in respect of the Clover
Store Assets or the Assumed Clover Liabilities listed on Schedule 2.4(a)
(collectively, "Other Clover Agreements").
(b) Notwithstanding paragraph (a) of this Section 2.4, in no event shall
Buyer assume, agree to pay, discharge or perform, or incur, as the case may be,
(i) any liability or obligation in respect of any federal, state or local income
tax incident to or arising as a consequence of the negotiation or consummation
by Seller of this Agreement and the transactions contemplated hereby, (ii) any
obligation to share with or pay over to any landlord under any Clover Lease any
"profit" made or "excess rent" received by Seller as a result of the
transactions contemplated by this Agreement (it being understood that Buyer (and
not Seller) is obligated to pay over to any such landlord any "profit" made or
"excess rent" received by Buyer following the Closing to the extent required
under any Clover Lease) or (iii) any other liabilities and obligations of any
nature whatsoever other than those arising under the Clover Leases, the Clover
Space Leases and the Other Clover Agreements following the Closing.
All of the liabilities and obligations assumed by Buyer pursuant to this
Section 2.4 are hereinafter referred to collectively as the "Assumed Clover
Liabilities".
2.5 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Clover Store Assets as set forth in Schedule 2.5. The parties agree
that neither of them will take any position for income tax purposes that is
inconsistent with the allocation set forth in Schedule 2.5.
3. Closing.
3.1 Time and Place of Closing.
(a) The closing (the "Closing") of the sale and purchase of the Clover Store
Assets shall take place on July 15, 1996, or, if later, the first business day
following the date on which the transactions contemplated by this Agreement and
by the May Company Agreement shall have been approved by the shareholders of
Seller (the "Closing Date"). Seller shall notify Buyer at least 20 days in
advance of the date on which the meeting of Seller's shareholders will occur. If
on the Closing Date, all of the conditions expressed in Sections 11 and 12 to
Buyer's and Seller's obligations hereunder have not been satisfied or waived,
Closing (the "Initial Closing") shall take place on the Closing Date only with
respect to those Clover Store Properties for which all such conditions have been
satisfied or waived, provided that if all such conditions are not satisfied or
waived for at least the Threshold Number of the Clover Store Properties, the
Closing Date shall be adjourned until the fifth business day following the date
on which all such conditions are satisfied or waived for at least the Threshold
Number of the Clover Store Properties, provided that Buyer, at its option, may
elect to initially close on fewer than the Threshold Number of the Clover Store
Properties. Closings for the remaining Clover Store Properties (each, a
"Subsequent Closing") shall take place on a property by property basis on the
fifth business day
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following the date on which all such conditions are satisfied or waived for each
Clover Store Property, except that, if the remaining Clover Store Property is a
Kohl's Property and such fifth business day occurs after October 15, 1996, the
date of the Subsequent Closing for such remaining Kohl's Property shall take
place on the 30th day following the date on which all conditions are satisfied
or waived for such Kohl's Property. Seller and Buyer each shall have a one-time
right to adjourn the Closing Date (and, if Closing does not take place on all of
the Clover Store Properties on the Closing Date, the date on which any
Subsequent Closings take place) by two business days by written notice to the
other party on or before the Closing Date (or, as applicable, the date of any
Subsequent Closing).
(b) The Closing will occur at 9:30 a.m. (local time) on the Closing Date in
the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York
10178, or at such other time and place as the parties shall mutually agree in
writing. Any Subsequent Closings for the remaining Clover Store Properties will
occur at 9:30 a.m. (local time) in such offices, or at such other time and place
as the parties shall mutually agree in writing.
3.2 Items to be Delivered at Closing.
(a) At the Closing, Seller shall deliver the following to Buyer:
(i) special warranty deeds, in recordable form, with respect to the
Clover Fee Properties;
(ii) duly executed instruments of assignment of the Clover Leases, in
recordable form, together with the originals thereof;
(iii) duly executed instruments of assignment of the Clover Space
Leases, in recordable form, together with the originals thereof;
(iv) a duly executed bill of sale transferring to Buyer all of the
personal and intangible property as of the Closing date that is included in
the Clover Store Assets;
(v) the files, plans and surveys described in Section 2.1(e);
(vi) duly executed instruments of assignment of the licenses, permits
and certificates described in Section 2.1(f) and the guarantees and
warranties described in Section 2.1(g), together with the originals thereof;
(vii) the Required Consents and Estoppels in form reasonably acceptable
to Buyer;
(viii) the certificates and opinions required by Sections 11.1 and 11.4;
(ix) duly executed instruments of assignment of the Other Clover
Agreements, together with the originals thereof;
(x) notice to all tenants under the Clover Space Leases in form
reasonably acceptable to Buyer;
(xi) instruments reasonably acceptable to Buyer's title company covering
the release of all mortgages and other liens, including, without limitation,
all Industrial Development Bond mortgages, leases, subleases and other
encumbrances, from the Clover Store Properties;
(xii) such transfer tax forms, affidavits, and the like required for the
recordation of any deed or other instrument assigning or conveying any of
the Clover Store Assets;
(xiii) a FIRPTA affidavit in form satisfactory to Buyer to the effect
that Seller is not a "foreign person;"
(xiv) an Undertaking and Indemnity Agreement duly executed by Seller;
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(xv) such other and further certificates, agreements and documents as
the Buyer may reasonably request for the effective conveyance and transfer
of the Clover Store Properties; and
(xvi) an Interim Lease, duly executed by Seller.
If on the Closing Date, Closing takes place on fewer than all of the Clover
Store Properties, Seller shall deliver the foregoing items to Buyer only with
respect to the Clover Store Properties sold and purchased at such Closing. At
any Subsequent Closings for the remaining Clover Store Properties, Seller shall
deliver the foregoing items to Buyer only with respect to the Clover Store
Properties sold and purchased at such Subsequent Closings.
(b) At the Closing, Buyer shall deliver the following to Seller:
(i) a payment by wire transfer to an account designated by Seller of the
amount stated in Section 2.2(a);
(ii) an Undertaking and Indemnity Agreement, together with any other
instruments of assumption relating to the Assumed Clover Liabilities that
may be reasonably requested by Seller, duly executed by Buyer;
(iii) the certificates and opinions required by Sections 12.1 and 12.4;
(iv) such other and further certificates, agreements and documents as
the Seller may reasonably request for the effective assumption by Seller of
the Assumed Clover Liabilities; and
(v) an Interim Lease, duly executed by Buyer.
If on the Closing Date, Closing takes place on fewer than all of the Clover
Store Properties, Buyer shall deliver the foregoing items to Seller only with
respect to the Clover Store Properties sold and purchased at such Closing. At
any Subsequent Closings for the remaining Clover Store Properties, Buyer shall
deliver the foregoing items to Seller only with respect to the Clover Store
Properties sold and purchased at such Subsequent Closings. The Purchase Price
paid by Buyer at each Closing shall be determined in conformity with the
allocations set forth in Schedule 26.2.
3.3 Interim Lease.
(a) At Closing Buyer (as landlord or sublandlord, as the case may be) and
Seller (as tenant or subtenant, as the case may be) shall enter into a lease
(the "Interim Lease") covering the continued possession and operation of each of
the Clover Store Properties for the purpose of liquidating Seller's inventory
and trade fixtures. At Buyer's option, Kohl's (and not Buyer) may be the
landlord (or sublandlord, as the case may be) on the Interim Lease for the
Kohl's Properties. The provisions of the Interim Lease (i) shall require Seller
to pay all costs and expenses attributable to the Clover Store Properties during
the term thereof as if the Seller continued to own or directly lease the Clover
Store Properties, (ii) shall provide that Buyer (or other landlord or
sublandlord under the Interim Lease) shall incur no cost or expense with respect
to the Clover Store Properties during the term of the Interim Lease and (iii)
shall provide that the Interim Lease Rent shall be an absolute net rent to Buyer
(or other landlord or sublandlord under the Interim Lease), free of all
expenses, charges, diminutions and other deductions. The Interim Lease shall be
in form reasonably acceptable to Seller and Buyer and shall contain the
following provisions.
(b) The term of the Interim Lease for each Clover Store Property that is not
a Kohl's Property shall commence on the date of Closing for such Clover Store
Property and continue until October 1, 1996, provided that Seller may elect by
notice to Buyer at or before the date of Closing (i) not to have an Interim
Lease for a Clover Store Property that is not a Kohl's Property if the date of
Closing for such Clover Store Property occurs after October 1, 1996, or (ii) to
extend the term of the Interim Lease for a Clover Store Property that is not a
Kohl's Property to a date after October 1, 1996, that is not more than
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75 days after the date of Closing for such Clover Store Property. The term of
the Interim Lease for the Kohl's Properties shall be determined as follows:
(i) If the Initial Closing for the Threshold Number of Kohl's Properties
occurs on or before October 15, 1996, the term of the Interim Lease for the
Kohl's Properties conveyed at the Initial Closing shall commence on the date
of such Initial Closing and continue until October 1, 1996, provided that
Seller may elect by notice to Buyer at or before the date of the Initial
Closing to extend the term of the Interim Lease for a Kohl's Property to a
date after October 1, 1996, but not later than October 15, 1996;
(ii) If the Initial Closing for the Threshold Number of Kohl's
Properties occurs after October 15, 1996, the term of the Interim Lease for
the Kohl's Properties conveyed at the Initial Closing shall commence on the
date of such Initial Closing and continue until January 31, 1997, or, if
earlier, with respect to any individual Kohl's Property, the date on which
either Buyer or Kohl's takes possession of such Kohl's Property to make the
same ready for occupancy and use by Kohl's;
(iii) If a Subsequent Closing for any Kohl's Property occurs on or
before October 15, 1996, the term of the Interim Lease for the Kohl's
Property conveyed at the Subsequent Closing shall commence on the date of
such Subsequent Closing and continue until October 1, 1996, provided that
Seller may elect by notice to Buyer at or before the date of the Subsequent
Closing to extend the term of the Interim Lease for such Kohl's Property to
a date after October 1, 1996, but not later than October 15, 1996; and
(iv) If a Subsequent Closing for any Kohl's Property occurs after
October 15, 1996, Seller may elect by notice to Buyer at or before the date
of the Subsequent Closing (aa) not to have an Interim Lease for such Kohl's
Property (but only if the Subsequent Closing occurs on or after the 30th day
following the date on which all conditions are satisfied or waived for such
Kohl's Property as expressed in Section 3.1(a)) or (bb) to have an Interim
Lease for a term that commencing on the date of such Subsequent Closing and
continuing until 30 days thereafter (but, in no event, after January 31,
1997).
(c) At Buyer's option, there may be one Interim Lease covering all of the
Clover Store Properties or multiple Interim Leases each covering one or more of
the Clover Store Properties. In the latter event, all of the Interim Leases
shall contain cross-default clauses on the part of tenant. The net rent payable
to Buyer for each of the Clover Store Properties shall be as set forth in
Schedule 3.3(c) ("Interim Lease Rent"), and shall be payable in advance at
Closing. In addition, Seller shall pay promptly when due during the term of the
Interim Lease all rent and other charges payable under the Clover Leases and the
Other Clover Agreements, together with all real estate taxes, insurance, common
area maintenance costs and utility charges (collectively, "Interim Lease
Additional Rent"), and shall perform and comply with all obligations arising
under the applicable Clover Leases, Clover Space Leases and Other Clover
Agreements. During the term of the Interim Lease, Seller shall be entitled to
receive (or if the same are received directly by Buyer, Seller shall receive a
credit on account of) all rents and other sums payable under the Clover Space
Leases.
(d) Seller shall maintain during the term of each Interim Lease (i)
comprehensive general liability insurance naming Buyer (or other landlord or
sublandlord under the Interim Lease) as an additional insured and (ii) all risk
property insurance for the replacement cost of the Clover Store Property covered
by such Interim Lease. If during the term of an Interim Lease the Clover Store
Property shall be damaged or destroyed by fire or other casualty, Seller shall
assign to Buyer (or other landlord or sublandlord under the Interim Lease) its
entire right, title and interest in and to any proceeds of such insurance with
respect to the Clover Store Property (together with a payment to Buyer (or other
landlord or sublandlord under the Interim Lease) of any deductible amounts
payable under such policies), provided that Seller shall retain the proceeds of
any business interruption insurance maintained by Seller and the proceeds of any
insurance covering Seller's inventory, equipment, trade fixtures
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and other personal property not included in the Clover Store Assets. Seller
shall have no obligation under the Interim Lease to restore or repair any damage
to the Clover Store Property caused by fire or other insured risk. There shall
be no abatement of any Interim Lease Rent or, except as expressly provided in
the applicable Clover Lease, Interim Lease Additional Rent as a result of any
destruction or casualty to a Clover Store Property or any part thereof during
the term of the Interim Lease.
(e) At the expiration of the term of the Interim Lease, Seller shall remove
from each Clover Store Property all of Seller's inventory, equipment, trade
fixtures and other personal property not included in the Clover Store Assets and
leave each Clover Store Property broom clean and in the condition existing at
the time of the Closing (reasonable wear and tear excepted). In the event that
Seller fails to vacate and surrender possession of any of the Kohl's Properties
by the termination date set forth in the Interim Lease for such Kohl's Property,
Seller shall continue to perform and comply with all obligations arising under
the applicable Clover Leases, Clover Space Leases and Other Clover Agreements
and pay promptly when due all Interim Lease Rent and Interim Lease Additional
Rent, and Seller shall continue to receive all rents and other sums payable
under any applicable Clover Space Leases, for the Kohl's Properties not vacated
and surrendered by the applicable termination date until the earlier to occur of
(i) January 31, 1997, or (ii) with respect to any individual Kohl's Property,
the date on which either Buyer or Kohl's takes possession of such Kohl's
Property to make the same ready for occupancy and use by Kohl's, provided that
if Seller fails to vacate and surrender possession of any of the Kohl's
Properties by January 31, 1997, or, if earlier, five business days following the
date on which Seller receives written notice from Buyer or Kohl's stating that
the term of the Interim Lease for a Kohl's Property has expired and demanding
that Seller surrender immediate possession thereof to Buyer or Kohl's, Seller
shall pay as liquidated damages on account of such failure the "150% Holdover
Interim Lease Rent" for such Kohl's Property as set forth in Schedule 3.3(c)
plus all Interim Lease Additional Rent for such Kohl's Property (each calculated
on a per diem basis) during the first 15 days of any such holdover and the "200%
Holdover Interim Lease Rent" for such Kohl's Property as set forth in Schedule
3.3(c) plus all Interim Lease Additional Rent for such Kohl's Property (each
calculated on a per diem basis) for any days thereafter until the date on which
Seller vacates and surrenders possession of such Kohl's Property. In the event
that Seller fails to vacate and surrender possession of any Clover Store
Property that is not a Kohl's Property by the expiration of the term of the
Interim Lease for such Clover Store Property, Seller shall continue to perform
and comply with all obligations arising under the applicable Clover Leases,
Clover Space Leases and Other Clover Agreements and pay promptly when due all
Interim Lease Rent and Interim Lease Additional Rent for the Clover Store
Properties not vacated and surrendered, and Seller shall continue to receive all
rents and other sums payable under any applicable Clover Space Leases, until the
date on which Seller vacates and surrenders possession of such Clover Store
Property. If as a result of Seller's failure to deliver possession of any Clover
Store Property that is not a Kohl's Property by the expiration of the term of
the Interim Lease for such Clover Store Property and, as a result thereof,
Seller is unable to deliver possession of such Clover Store Property to a Person
to whom Buyer has assigned or agreed to lease such Clover Store Property by the
date required by such Person, Seller shall pay as liquidated damages on account
of such failure the "150% Holdover Interim Lease Rent" for such Clover Store
Property as set forth in Schedule 3.3(c) plus all Interim Lease Additional Rent
for such Clover Store Property (each calculated on a per diem basis) during the
first 15 days of any such holdover and the "200% Holdover Interim Lease Rent"
for such Kohl's Property as set forth in Schedule 3.3(c) plus all Interim Lease
Additional Rent for such Clover Store Property (each calculated on a per diem
basis) for any days thereafter until the date on which Seller vacates and
surrenders possession of such Clover Store Property. Notwithstanding the
foregoing, neither Seller nor the Liquidator shall have any right to hold over
or continue in possession of any Clover Store Property after the termination
date set forth in the Interim Lease for such Clover Store Property.
(f) At Seller's election, Seller may nominate the Person or Persons
liquidating Seller's inventory and trade fixtures (the "Liquidator") as the
tenant under the Interim Lease, in which event Seller shall
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guaranty all of the payment and performance obligations of the Liquidator under
the Interim Lease. The liquidation of Seller's inventory and fixtures shall be
conducted in conformity with legal requirements and in a manner that does not
violate applicable provisions of the Clover Leases and the Other Clover
Agreements. In amplification of the foregoing: (i) if at any Clover Store
Property the terms of Clover Lease or Other Clover Agreement prohibit or would
be violated by the conduct of a going-out-of-business sale, there shall be no
going-out-of-business sale at such Clover Store Property, but Seller shall
nevertheless enter into an Interim Lease for such Clover Store Property if
required to do so under Section 3.3(b) and (ii) Seller shall obtain any consents
required under the Clover Leases or Other Clover Agreements to permit Seller or
Seller's Liquidator to enter into such Interim Lease. If any such required
consent under (ii) in the foregoing sentence is not obtained, then there shall
be no Interim Lease covering such Clover Store Property, provided that if such
Clover Store Property is a Kohl's Property, Seller shall nevertheless be
required to give to Buyer (or Kohl's if Kohl's is the Permitted Designee for
such Kohl's Property) a credit at Closing in an amount equal to all Interim
Lease Rent and Interim Lease Additional Rent that would have been payable under
the Interim Lease for any such Kohl's Property required under Section 3.3(b)
throughout the entire term thereof as if such Interim Lease had been executed at
Closing.
3.4 Further Assurances. (a) At or following the Closing, at the request of
Buyer (but at no cost to Seller), Seller shall execute, acknowledge and deliver
to Buyer such other instruments of conveyance and transfer and will take such
other actions and execute and deliver such other documents, certifications and
further assurances as Buyer may reasonably require in order to vest more
effectively in Buyer, or to put Buyer more fully in possession of, any of the
Clover Store Assets, or to better enable Buyer to complete, perform or discharge
any of the Assumed Clover Liabilities assumed by Buyer at the Closing pursuant
to Section 2.4 hereof.
(b) At or following the Closing, Buyer shall cooperate with Seller (but at
no cost to Buyer) in the Dissolution of Seller and, in connection therewith,
shall deliver to Seller such publicly available information regarding Buyer
financial condition as may reasonably be requested by Seller and the claimants
in Seller's Dissolution. At the request of Seller (but at no cost to Buyer),
Buyer also shall execute, acknowledge and deliver to Seller such instruments of
assumption and further assurances as Seller may reasonably require to establish
that Seller has provided adequate security for the payment of Seller's unmatured
contractual obligations with respect to the Assumed Clover Liabilities. If and
to the extent required by any court overseeing the Dissolution of Seller to
satisfy such claims, Buyer shall post or cause to be posted at Buyer's cost
letter of credit or other security of an amount not to exceed $2,000,000 for a
period of not more than 24 months.
4. Representations and Warranties of Seller. The Seller represents and
warrants to Buyer as follows:
4.1 Corporate Organization. The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has corporate power to own all of its properties and assets and
to carry on its business as it is now being conducted, and is duly qualified to
do business and is in good standing in all jurisdictions where its ownership,
operation or leasing of property or assets or the conduct of its business
requires it to be so qualified, except in such jurisdictions, if any, where the
failure to be so qualified or in good standing would not, individually or in the
aggregate, have a Material Adverse Effect. The Seller has all necessary
government authorizations to own, lease and operate all of its properties and
assets and to carry on its business as now being conducted, except any such
authorizations the failure to obtain which would not have or would not be
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect.
4.2 Due Authorization. Other than the requisite approval of this Agreement
by the holders of Seller's common stock, the execution, delivery and performance
of this Agreement has been duly authorized by all necessary corporate action on
the part of Seller and this Agreement has been duly
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executed by a duly authorized officer of Seller and this Agreement constitutes a
valid and binding agreement of Seller, enforceable against it in accordance with
its terms, except (a) as the same may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights, including without limitation, the effect of
statutory or other laws regarding fraudulent conveyances and preferential
transfers, and (b) for the limitations imposed by general principles of equity
(regardless of whether enforcement is sought in equity or law).
4.3 Consents and Approvals; No Violation. Subject to (a) the requisite
approval of this Agreement by the holders of Seller's common stock, (b) the
expiration or earlier termination of all waiting periods under the HSR Act, (c)
the receipt of the consents of the landlords under the Clover Leases to the
extent required thereunder and (d) the receipt of the consents of the parties to
the Other Clover Agreements to the extent required thereunder, the execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, (i) violate or conflict with any provision of
Seller's Articles or Bylaws, (ii) violate or conflict with or result in a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, lease, contract, agreement or other instrument or obligation
to which Seller is a party or by which Seller or any of the Clover Store Assets
may be bound, except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents either have been
obtained by Seller or the obtaining of which has been waived by Buyer, or (iii)
violate any order, writ, injunction, decree, arbitration award, statute, rule or
regulation applicable to Seller or any of the Clover Store Assets, excluding
from the foregoing clauses (ii) and (iii) (x) such defaults and violations
which, individually or in the aggregate, would not have a Material Adverse
Effect and (y) such defaults and violations that arise from and after the
Closing Date as a result any act or omission of Buyer or any change in use or
cessation of use initiated by Buyer.
4.4 Absence of Adverse Changes or Events. Since January 1, 1996, there has
been no change in the Clover Store Assets or Assumed Clover Liabilities which
has materially adversely affected or, in the reasonable judgment of Seller,
might materially adversely affect the Clover Store Assets or Assumed Clover
Liabilities.
4.5 Clover Store Assets.
(a) Schedule 2.1(a) is a true and complete schedule of all of the Clover
Store Properties owned in fee by Seller. Schedule 2.1(b) is a true and complete
schedule of all of the Clover Leased Properties and all Clover Leases, including
any amendments. Schedule 2.1(c) is a true and complete schedule of all Clover
Space Leases, including any amendments. Each of the Clover Leases and the Clover
Space Leases is valid, binding and in full force and effect, all rents and other
sums and charges payable by or to Seller thereunder are current within
applicable notice and grace periods, no notice of default or termination under
any Clover Lease or Clover Space Lease has been given or received by Seller and,
to the knowledge of Seller, no events have occurred that would, with the passage
of time or the giving of notice or both, constitute a default thereunder.
(b) At Closing title to the Clover Store Properties shall be good and
marketable and free and clear of all liens and encumbrances, except the matters
referred to in Schedule 4.5(b) (collectively, "Permitted Exceptions"). Prior to
the expiration of the Due Diligence Period, Buyer shall notify Seller in writing
as to the extent, if any, that title to the Clover Store Properties is not in
conformity with the requirements of this Agreement (each an "Identified Title
Defect"). If Seller is unable to deliver at Closing title with respect to any
Clover Store Property in conformity with the requirements of this Agreement,
Buyer shall have the right, at Buyer's election, either (i) to take such title
to the Clover Store Properties as Seller can give without adjustment of the
Purchase Price (other than as expressed in Section 4.5(c)) or (ii) to terminate
this Agreement as to the affected Clover Store Property only. In the latter
event, the Purchase Price shall be adjusted in conformity with the allocations
set forth in Schedule 26.2, all references to such Clover Store Property shall
thereupon be and be deemed deleted from this
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Agreement and the Closing shall occur with regard to all other Clover Store
Properties as if the deleted Clover Store Property was never included as a
Purchased Asset.
(c) Seller shall, at or prior to Closing, pay off and discharge of record
all liens and encumbrances, including, without limitation, all Industrial
Development Bond mortgages, leases, subleases and other encumbrances, on
Seller's interest in the Clover Store Properties in an ascertainable dollar
amount that are not Permitted Exceptions. If Seller fails to do so, Buyer shall
have the right (but not the obligation) to take subject to same with regard to
any Clover Store Property with a credit against the Purchase Price in an amount
required to remove and discharge same.
(d) The Clover Store Assets are in operating condition in all material
respects, subject to ordinary wear and tear.
(e) The Seller has received no notices, oral or written, and has no reason
to believe, that any government body having jurisdiction over the Clover Store
Properties intends to exercise the power of eminent domain or similar power with
respect to all or any part of the Clover Store Properties. The Seller has not
received any notice of violation of law or ordinance with respect to the Clover
Store Properties that will remain uncorrected at Closing or any notice of
special assessment against the Clover Store Properties for public improvements
heretofore constructed or for any special condominium assessment that will
remain unpaid at Closing.
(f) Except as disclosed in Schedule 2.1(b), 2.1(c) and 2.4(a), Seller has
not given or received any written notices that would have a Material Adverse
Effect on any of the Clover Leases, the Clover Space Leases or the Other Clover
Agreements including, without limitation, notices of default that remain
uncured, notices of termination, notices of exercise of any option to purchase
or right of first refusal or any declaration of exclusive or restricted use.
4.6 Other Clover Agreements. Schedule 2.4(a) is a true and complete schedule
of all of the contracts, agreements and commitments, including any amendments,
of Seller (other than the Clover Leases and the Clover Space Leases), in respect
of the Clover Store Assets or the Assumed Clover Liabilities that will not be
terminated by Seller at or prior to Closing. To the knowledge of Seller, all of
the Other Clover Agreements set forth on Schedule 2.4(a) are valid and in full
force and effect on the date hereof and Seller has not violated any material
provision of, or committed or failed to perform any act, that with notice, lapse
of time or both would constitute a default under the provisions of any Other
Clover Agreement the termination of which would have a Material Adverse Effect.
4.7 Litigation. Except as disclosed in Schedule 4.7, to the knowledge of
Seller, (a) no claim, action, suit, arbitration, investigation or other
proceeding is pending or threatened or known to be contemplated, against Seller
with respect to the Clover Store Assets or Assumed Clover Liabilities before any
court, governmental agency, authority or commission, arbitrator or "impartial
mediator", (b) there are no judgments, consents, decrees, injunctions, or any
other judicial or administrative mandates outstanding against Seller with
respect to the Clover Store Assets or Assumed Clover Liabilities and (c) no
litigation or claims have been brought or threatened, or are known to be
contemplated, respecting the transactions contemplated by this Agreement, which
in each case would result in a Material Adverse Effect.
4.8 Franchises, Licenses, Permits, etc. To the knowledge of Seller, Seller
owns or possesses all franchises, licenses, permits, consents, approvals,
waivers and other authorizations, governmental or otherwise, comprising the
Clover Store Assets (the "Authorizations"). To the knowledge of Seller, Seller
is not in default and has not received any notice of any claim of default, with
respect to any such Authorization, or any notice of any other claim or
proceeding or threatened proceeding relating to any such Authorization or
claimed lack of any necessary Authorization. Neither the execution or delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will have any Material Adverse Effect upon any such Authorization, except as
disclosed in Schedule 4.8.
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4.9 Employment and Severance Agreements. There are no employment, severance
or termination agreements to which Seller or the Division is a party with
respect to the Division which would in any way be binding upon Buyer. Seller
shall be responsible for compliance with all laws and statutes requiring
notification to Seller's employees before terminating same and with the
provisions of any employment agreements that might have an impact upon the
transactions set forth herein.
4.10 Brokers and Finders. Except for Peter J. Solomon Company Limited,
Lehman Brothers and Houlihan, Lokey, Howard & Zukin, whose fees Seller shall be
solely responsible for, no financial adviser, broker, agent or finder has been
retained by Seller in connection with this Agreement or any transaction
contemplated hereby and, except for Peter J. Solomon Company Limited, no such
financial adviser, broker, agent or finder is entitled to any fee or other
compensation from Seller on account of this Agreement or any transaction
contemplated hereby.
4.11 Environmental. Schedule 4.11 contains an accurate and complete
description of all environmental reports known to Seller that affect any of the
Clover Store Assets, and Seller has delivered a complete copy of each such
report to Buyer. Except as set forth in Schedule 4.11 or in the reports listed
therein, Seller has no knowledge of the presence or release of any toxic
substance or hazardous material or of any other environmental condition or
contamination in or from the Clover Store Assets.
5. Representations and Warranties of Buyer. Buyer represents and warrants to
Seller as follows:
5.1 Corporate Organization. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland,
has corporate power to own all of its properties and assets and to carry on its
business as it is now being conducted. The Buyer has all necessary government
authorizations to own, lease and operate all of its properties and assets and to
carry on its business as now being conducted, except any such authorizations the
failure to obtain which would not have or would not be reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect.
5.2 Due Authorization. The execution, delivery and performance of this
Agreement has been duly authorized by all necessary corporate action on the part
of Buyer and this Agreement has been duly executed by a duly authorized officer
of Buyer and this Agreement constitutes a valid and binding agreement of Buyer,
enforceable against it in accordance with its terms, except (a) as the same may
be limited by applicable bankruptcy, insolvency, moratorium or similar laws of
general application relating to or affecting creditors' rights, including
without limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers, and (b) for the limitations imposed by
general principles of equity (regardless of whether enforcement is sought in
equity or law).
5.3 Consents and Approvals; No Violation. Subject to (a) the expiration or
earlier termination of all waiting periods under the HSR Act, (b) the receipts
of the consents of the landlords under the Clover Leases to the extent required
thereunder and (c) the receipt of the consents of the parties to the Other
Clover Agreements to the extent required thereunder, the execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, (i) violate or conflict with any provision of
Buyer's Articles of Incorporation or Bylaws, (ii) except as set forth in
Schedule 5.3, violate or conflict with or result in a default (or give rise to
any right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of, any note, bond, mortgage, indenture, license,
lease, contract, agreement or other instrument or obligation to which Buyer or
any of its subsidiaries is a party or by which Buyer or any of its subsidiaries
or any of their respective properties or assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents either have been obtained by Buyer or the
obtaining of which has been waived by Seller, or (iii) violate any order, writ,
injunction, decree, arbitration award, statute, rule or regulation applicable to
Buyer, any of its subsidiaries or any of their respective properties or assets,
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excluding from the foregoing clauses (ii) and (iii) such defaults and violations
which, individually or in the aggregate, would not have a Material Adverse
Effect.
5.4 Brokers and Finders. No financial adviser, broker, agent or finder has
been retained by Buyer in connection with this Agreement or any transaction
contemplated hereby and no such financial adviser, broker, agent or finder is
entitled to any fee or other compensation from Buyer on account of this
Agreement or any transaction contemplated hereby.
6. Conduct of Business of the Division Prior to Closing. The Seller
covenants to Buyer that, except as may be approved in writing by Buyer, from and
after the date hereof to the Closing Date:
6.1 Business. Except as otherwise contemplated by this Agreement, the Seller
will conduct and operate the business of the Division only in the ordinary
course consistent with past practice. Seller will comply with all obligations
required by it under the terms of the Clover Leases, the Space Leases, the Other
Clover Agreements and the Permitted Exceptions, and Seller will not modify,
extend, renew or terminate any of the foregoing, nor enter into any other
agreement affecting any property the term of which would extend beyond the
Closing or which would in any manner bind Buyer. Seller will deliver to Buyer
copies of any material correspondence to or from any landlord, space tenant,
adjoining owner or municipal authority promptly after sending or receiving same.
6.2 Adverse Changes. The Seller will not take or omit to take any action
which action or omission would in its reasonable judgment have a Material
Adverse Effect.
6.3 Maintenance of Properties, Permits, Franchises, Licenses, etc. The
Seller will, at its own expense, maintain all of the Clover Store Assets in
customary repair, order and condition, except for reasonable wear and tear and
damage by fire or other insurable casualty, and maintain in full force and
effect all Authorizations currently in effect.
6.4 Encumbrances. The Seller will not mortgage, pledge or otherwise subject
to any lien, security interest, encumbrance or charge of any nature, any of the
Clover Store Assets or become committed to do so, or permit or suffer any of the
Clover Store Assets to become subject to any mortgage, pledge, lien, security
interest, encumbrance or charge of any nature, other than liens of current taxes
not yet due and payable, or become committed so to do.
6.5 Mercerville Property. Following the expiration of the Due Diligence
Period without this Agreement having been terminated by Buyer, Seller shall, at
the request of Buyer, give written notice to the landlord under the Clover Lease
for the Clover Store Property located in Mercerville, New Jersey, of its
intention to exercise its option to purchase fee title for such property as
expressed in Section 4.3(a) of such Clover Lease. Thereafter, Seller shall use
diligent, good faith efforts to obtain such title, provided that Seller shall
not be obligated to incur any cost in connection therewith other than payment of
the $10.00 option purchase price for such Clover Store Property (all of which
other costs, including, without limitation, any realty transfer or similar taxes
and any costs incurred to obtain a subdivision of the "Shopping Center Tract"
into the "S&C Tract" and the "Retained Tract" (each as defined in the Clover
Lease for the Mercerville Clover Store Property) shall be paid by Buyer). If by
the Closing Date Seller has not yet obtained the title for the Mercerville
Clover Store Property, the estoppel letter for the Mercerville Clover Store
Property delivered to Buyer at Closing must include a statement that Seller has
validly given written notice of its intention to exercise its option to purchase
the title for the Mercerville Clover Store Property and that the owner is
required to convey such title to Buyer in conformity with and subject to the
terms and conditions of the option to purchase as expressed in Section 4.4 of
the Clover Lease.
7. HSR Act. As promptly as practicable after the execution of this
Agreement, Seller and Buyer shall each make any required filings with the
Federal Trade Commission and the Department of Justice pursuant to the HSR Act
and shall comply with any and all reasonable requests for additional
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information as soon as possible after receipt of such requests. If an HSR Act
filing for the transactions contemplated by this Agreement (or for the
conveyance by Seller of any Kohl's Properties directly to Kohl's) is required,
Seller shall pay one-third and Buyer shall pay two thirds of the filing fee
required therefor.
8. Consents and Estoppels.
(a) The Seller and Buyer shall each use diligent, good faith efforts (but at
no cost to either party) to obtain the all consents, authorizations and waivers
of third parties that may be necessary or reasonably required to effectuate the
transactions contemplated by this Agreement, including, without limitation,
consents from landlords under the Clover Leases and consents of the parties to
all reciprocal easement and operating or similar agreements included in the
Other Clover Agreements required to permit the assignment of any Clover Lease to
Buyer or Buyer's designee or the purchase of any Clover Fee Property by Buyer or
Buyer's designee.
(b) The Seller and Buyer shall each use diligent, good faith efforts (but at
no cost to either party) to obtain estoppel certificates in form reasonably
satisfactory to Buyer from all landlords under the Clover Leases, all tenants or
subtenants under the Clover Space Leases and the parties to all reciprocal
easement and operating or similar agreements included in the Other Clover
Agreements.
9. Access to Business and Records.
(a) Between the date hereof and the Closing Date and in the absence of any
breach of this Agreement by either party, Seller grants to Buyer and its agents,
employees, designees, representatives and independent contractors the right,
during normal business hours, to inspect and copy the books, records, properties
and inventory of Seller with respect to the Clover Store Assets and Assumed
Clover Liabilities, including, without limitation, copies of all deeds, title
abstracts and title insurance policies, surveys, certificates of occupancy,
notices of violation, including notices relating to environmental laws,
variances, licenses and permits, and to consult with officers, employees,
attorneys and agents of Seller for the purpose of investigating the business of
the Division and determining the accuracy of the representations and warranties
made herein; provided that no visit or inspection of records shall be made
pursuant to and for the purposes of this Section 9 unless Buyer shall first
inform the Chairman, the President or any Vice President of Seller of the
proposed time and place of the proposed visit and the general purposes thereof
and coordinate with him the arrangements therefor. Buyer and its designated
representatives shall also have the right, upon reasonable prior notice and
during normal business hours, to enter onto the Clover Store Properties for the
purpose of making survey, engineering or other inspections, tests and
investigations as set forth in Section 2.3.
(b) For a period of one year after the Closing, Seller shall preserve all
files and records of Seller relating to the Clover Store Assets and Assumed
Clover Liabilities that were not delivered to Buyer at Closing and shall allow
representatives of Buyer access to such files and records and the right to make
copies and extracts therefrom during normal business hours, provided that Seller
at any time may give Buyer written notice of its intention to dispose of any
specified part of such files and records, in which case Buyer may notify Seller
within 60 days of receipt of the notice of Buyer's desire to retain one or more
of the items to be disposed of and Seller shall thereupon deliver such items to
Buyer.
(c) For a period of five years after the Closing, Buyer shall preserve all
files and records relating to the Clover Store Assets and Assumed Clover
Liabilities which were delivered to Buyer at Closing and shall allow
representatives of Seller access to such files and records and the right to make
copies and extracts therefrom during normal business hours, provided that
commencing three years after the Closing Buyer may give Seller written notice of
its intention to dispose of any specified part of such files and records, in
which case Seller may notify Buyer within 60 days of receipt of the notice of
Seller's desire to retain one or more of the items to be disposed of and Buyer
shall thereupon deliver such items to Seller.
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10. Confidential Information. If Closing does not take place hereunder,
Buyer shall keep confidential, and shall cause any of its representatives to
keep confidential, any information (unless ascertainable from public or
published information or trade sources) obtained from Seller concerning the
operations and business of the Division. Buyer's undertaking expressed in this
Section 10 shall be in addition to, and not in limitation of, the terms of any
other confidentiality agreement between Seller and Buyer.
11. Conditions to Obligation of Buyer to Consummate Acquisition. The
obligation of Buyer to consummate the asset purchase provided for in this
Agreement shall be subject to the following conditions:
11.1 Representations, Warranties and Covenants of Seller. The
representations and warranties of Seller herein contained and the information
contained in the Schedules hereto and in any closing and other documents
delivered by Seller in connection with this Agreement shall be true and correct
in all material respects at the Closing Date with the same effect as though made
at such time except to the extent waived hereunder or affected by the
transactions contemplated herein; Seller shall have performed all obligations
and complied with all agreements, undertakings, covenants and conditions
required by this Agreement to be performed or complied with by it at or prior to
the Closing Date; and Seller shall have delivered to Buyer a certificate in form
and substance reasonably satisfactory to Buyer dated the Closing Date and signed
by the Chairman, the President or any Vice President of Seller to all such
effects.
11.2 Pending Litigation. There shall not be any preliminary or permanent
injunction or other order, decree or ruling issued by a court or governmental
entity having jurisdiction nor shall there be any statute, rule, regulation or
other executive order, that would prevent the consummation of the transactions
contemplated by this Agreement.
11.3 HSR Act Compliance. All applicable waiting periods under the HSR Act
(including any relating to Kohl's anticipated involvement as a Permitted
Designee) shall have expired or early termination thereof shall have been
granted.
11.4 Opinion of Counsel for Seller. The Buyer shall have received an opinion
dated the Closing Date of Morgan, Lewis & Bockius LLP, counsel for Seller,
satisfactory to Buyer and its counsel, to the effect that:
(a) The Seller is a corporation validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania.
(b) All action required to have been taken by or on behalf of Seller to
authorize and effect the execution and delivery of this Agreement by Seller
and the carrying out by Seller of the transactions contemplated hereby has
been taken; this Agreement and the Undertaking and Indemnity Agreement to be
executed by Seller at Closing constitute the legal, valid and binding
obligations of Seller and are enforceable against it in accordance with
their respective terms, except (i) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general application
relating to or affecting creditors' rights, including without limitation,
the effect of statutory or other laws regarding fraudulent conveyances and
preferential transfers, and (ii) for the limitations imposed by general
principles of equity (regardless of whether enforcement is sought in equity
or law).
(c) With respect to the following:
(i) the Articles or Bylaws of Seller,
(ii) any applicable law, statute, rule or regulation,
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(iii) any material agreement or instrument to which Seller is a party
or may be bound relating to the sale of the Clover Store Assets and the
assumption of the Assumed Clover Liabilities of which such counsel has
knowledge, or
(iv) any judgment, order, injunction, decree or ruling of any court
or governmental authority to which Seller is a party or subject relating
to the sale of the Clover Store Assets and the assumption of the Assumed
Clover Liabilities of which such counsel has knowledge,
subject to obtaining the Required Consents and Approvals, the execution and
delivery by Seller of this Agreement and the consummation of the sale of the
Clover Store Assets and the assumption of the Assumed Clover Liabilities will
not (A) result in any violation, conflict or default, or give to others any
interest or rights, including rights of termination, cancellation or
acceleration, or (B) require any authorization, consent, approval, exemption, or
other action by any court or administrative or governmental body which has not
been obtained, or any notice to or filing with any court or administrative or
governmental body which has not been given or done.
11.5 Approval of Counsel. All steps to be taken and all papers and documents
to be executed, and all other legal matters in connection with the transactions
contemplated by this Agreement shall be subject to the reasonable approval of
counsel for Buyer.
11.6 Closing Documents. The Buyer shall have received such certificates and
other closing documentation, as counsel for Buyer, may reasonably request.
11.7 Third Party Consents and Estoppels. The Buyer shall have received the
following consents, authorizations, waivers and estoppels (collectively,
"Required Consents and Estoppels"):
(a) all consents and authorizations from landlords under the Clover
Leases required for the assignment of the Clover Leases to Buyer or Buyer's
designee;
(b) all consents and authorizations from parties to all reciprocal
easement and operating or similar agreements affecting the Clover Store
Properties required to permit the assignment of any Clover Lease to Buyer or
Buyer's designee or the purchase of any Clover Fee Property by Buyer or
Buyer's designee;
(c) all consents and waivers required to release Buyer or Buyer's
designee from any obligation to operate the Clover Store Properties using
the name "Clover" or "Strawbridge & Clothier" from and after the time of
Closing;
(d) all consents and waivers required to permit Buyer or Buyer's
designee to cease or suspend business operations at the Clover Store
Properties located at Cheltenham Avenue in Philadelphia, Pennsylvania, in
Mercerville, New Jersey, and at the Shore Mall, in Pleasantville, New
Jersey, provided that (i) Buyer shall agree to maintain such Clover Store
Properties in good condition and appearance during any period of suspended
business operations and (ii) Buyer shall agree to use diligent good faith
efforts to obtain with reasonable promptness a tenant or subtenant for such
Clover Store Properties;
(e) all consents and waivers required to release the Clover Store
Properties from any third party rights of first refusal, rights of
recapture, options to purchase or similar rights; and
(f) estoppel letters (confirming the relevant representations of Seller
expressed in Section 4.5(a) and otherwise in form reasonably satisfactory to
Buyer) from all landlords under the Clover Leases, all tenants or subtenants
under the Clover Space Leases and the parties to all reciprocal easement and
operating or similar agreements affecting the Clover Store Properties,
provided that if Seller is not able to obtain an estoppel letter from a
tenant or subtenant under a Clover Space Lease, Seller may satisfy the
requirement for same by delivering to Buyer at Closing an estoppel letter
for such Clover Space Lease executed by Seller.
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The Required Consents and Estoppels shall exclude: (i) except as expressly
provided above, all consents or waivers required to permit any use of a Clover
Store Property by Buyer or Buyer's designee from and after the time of Closing
that violates or is otherwise not permitted under the Permitted Exceptions
applicable to such Clover Store Property, (ii) any consent, authorization,
waiver or estoppel for the Clover Store Properties located at Cottman Avenue in
Philadelphia, Pennsylvania, and Westmont Plaza in Westmont, New Jersey, and
(iii) any consent, authorization or waiver for the Clover Store Property located
at the Gallery in Philadelphia, Pennsylvania (it being understood that (aa) at
Buyer's option, the Closing for the Clover Store Property located at the Gallery
shall not take place until after Seller shall have given the landlord under the
Clover Lease at the Gallery the "Tenant's Notice of Intent" referenced in
Section 13.2 of such Clover Lease and at least 90 days have elapsed following
the receipt by the landlord of the "Proposed Specific Tenant Notice" referenced
in Section 13.4 of such Clover Lease without the landlord having exercised its
recapture right and (bb) Buyer shall receive an estoppel letter (confirming the
relevant representations of Seller expressed in Section 4.5(a) and otherwise in
form reasonably satisfactory to Buyer) from the landlord under the Clover Lease
at the Gallery).
11.8 Title Insurance. The Buyer shall have received policies of title
insurance as to each parcel of the Clover Store Properties from a reputable
title insurance company selected by Buyer licensed to do business in the state
in which such Clover Store Property is located, free of all exceptions, liens
and encumbrances other than the Permitted Exceptions.
11.9 Clover Space Leases. No Clover Space Leases shall have been terminated
or cancelled or the premises demised thereby surrendered other than pursuant to
the terms thereof.
All conditions expressed in this Section 11 shall be required to be
satisfied or waived by Buyer (at its option) with regard to each of the Clover
Store Properties. Buyer shall use its good faith, diligent efforts (but at no
cost to Buyer) to take, or cause to be taken, such action as may be necessary to
obtain satisfaction of all conditions expressed in this Section 11 for which
Buyer is responsible and, from time to time, shall keep Seller reasonably
informed of such efforts. On or before five business days prior to the Closing
Date, Buyer shall advise Seller of any such conditions that, to the knowledge of
Buyer, have not theretofore been satisfied or waived, which notice shall specify
which and to what extent the conditions precedent have not been satisfied. All
conditions known to Buyer and not specified in Buyer's notice shall be deemed
satisfied or waived by Buyer, except for those conditions relating to the
performance by Seller of its obligations under this Agreement. Buyer shall
promptly notify Seller when any of the conditions identified by Buyer's notice
as unsatisfied subsequently become satisfied or waived by Buyer.
12. Conditions to Obligation of Seller to Consummate the Acquisition. The
obligation of Seller to consummate the asset purchase provided for in this
Agreement shall be subject to the following conditions:
12.1 Representations, Warranties and Covenants of Buyer. The representations
and warranties of Buyer contained herein and the information contained in any
closing and other documents delivered by Buyer in connection with this Agreement
shall be true and correct in all material respects at the Closing Date with the
same effect as though made at such time; Buyer shall have performed all
obligations and complied with all agreements, undertakings, covenants and
conditions required hereunder to be performed or complied with by it at or prior
to the Closing Date; and Buyer shall have delivered to Seller a certificate of
Buyer in form and substance satisfactory to Seller dated the Closing Date and
signed by a Vice President of Buyer to all such effects.
12.2 Pending Litigation. There shall not be any preliminary or permanent
injunction or other order, decree or ruling issued by a court or governmental
entity having jurisdiction nor shall there be any statute, rule, regulation or
other executive order, that would prevent the consummation of the transactions
contemplated by this Agreement.
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12.3 HSR Act Compliance. All applicable waiting periods under the HSR Act
(including any relating to Kohl's anticipated involvement as a Permitted
Designee) shall have expired or early termination thereof shall have been
granted.
12.4 Opinion of Counsel for Buyer. The Seller shall have received an opinion
dated the Closing Date of Robert P. Schulman, counsel for Buyer, satisfactory to
Seller and its counsel, to the effect that:
(a) The Buyer is a corporation validly existing and in good standing
under the laws of the State of Maryland.
(b) All action required to have been taken by or on behalf of Buyer to
authorize and effect the execution and delivery of this Agreement by Buyer
and the carrying out by Buyer of the transactions contemplated hereby has
been taken; this Agreement and the Undertaking and Indemnity Agreement to be
executed by Buyer at Closing constitute the legal, valid and binding
obligations of Buyer and are enforceable against it in accordance with their
respective terms, except (a) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general application
relating to or affecting creditors' rights, including without limitation,
the effect of statutory or other laws regarding fraudulent conveyances and
preferential transfers, and (b) for the limitations imposed by general
principles of equity (regardless of whether enforcement is sought in equity
or law).
(c) With respect to the following:
(i) the Articles of Incorporation or Bylaws of Buyer,
(ii) any applicable law, statute, rule or regulation,
(iii) any material agreement or instrument to which Buyer is a party
or may be bound relating to the sale of the Clover Store Assets and the
assumption of the Assumed Clover Liabilities of which such counsel has
knowledge, or
(iv) any judgment, order, injunction, decree or ruling of any court
or governmental authority to which Buyer is a party or subject relating
to the sale of the Clover Store Assets and the assumption of the Assumed
Clover Liabilities of which such counsel has knowledge,
subject to obtaining the Required Consents and Approvals, the execution and
delivery by Buyer of this Agreement and the consummation of the sale of the
Clover Store Assets and the assumption of the Assumed Clover Liabilities will
not (A) result in any violation, conflict or default, or give to others any
interest or rights, including rights of termination, cancellation or
acceleration, or (B) require any authorization, consent, approval, exemption, or
other action by any court or administrative or governmental body which has not
been obtained, or any notice to or filing with any court or administrative or
governmental body which has not been given or done.
12.5 Approval of Counsel. All steps to be taken and all papers and documents
to be executed, and all other legal matters in connection with the transactions
contemplated by this Agreement shall be subject to the reasonable approval of
Morgan, Lewis & Bockius LLP, counsel for Seller.
12.6 Closing Documents. The Seller shall have received such certificates and
other closing documentation as Morgan, Lewis & Bockius LLP, counsel for Seller,
may reasonably request.
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12.7 Shareholder Approval. The transactions contemplated by this Agreement
and by the May Company Agreement shall have been approved by the shareholders of
Seller by the vote required by the Pennsylvania Business Corporation Law and the
Seller's Articles and Bylaws.
12.8 Closing of Sale of Department Store Division. The Seller shall have
consummated the closing of the sale of Seller's Department Store Division to May
Company as expressed in the May Company Agreement.
All conditions expressed in this Section 12 shall be required to be
satisfied or waived by Seller (at its option) with regard to each of the Clover
Store Properties. Seller shall use its good faith, diligent efforts (but at no
cost to Seller) to take, or cause to be taken, such action as may be necessary
to obtain satisfaction of all conditions expressed in this Section 12 for which
Seller is responsible and, from time to time, shall keep Buyer reasonably
informed of such efforts. On or before five business days prior to the Closing
Date, Seller shall advise Buyer of any such conditions that, to the knowledge of
Seller, have not theretofore been satisfied or waived, which notice shall
specify which and to what extent the conditions precedent have not been
satisfied. All conditions known to Seller and not specified in Seller's notice
shall be deemed satisfied or waived by Seller, except for those conditions
relating to the performance by Buyer of its obligations under this Agreement.
Seller shall promptly notify Buyer when any of the conditions identified by
Seller's notice as unsatisfied subsequently become satisfied or waived by
Seller.
13. Termination of Representations and Warranties. The representations and
warranties given by Seller or Buyer under this Agreement shall survive the
Closing for a period of six months thereafter. Notwithstanding the foregoing,
any representations and warranties regarding the Clover Leases, the Clover Space
Leases, the Other Clover Agreements or the Permitted Exceptions that are
confirmed in estoppels delivered as required hereby shall not survive Closing.
14. Bulk Sales Laws. The parties hereby waive compliance with the bulk sales
law and any other similar laws in any applicable jurisdiction in respect of the
transactions contemplated by this Agreement.
15. Termination of Agreement.
(a) This Agreement may be terminated and the transactions hereby may be
abandoned at any time prior to the Closing:
(i) by mutual consent of Buyer and Seller;
(ii) by Seller, if the May Company Agreement shall have been terminated
or abandoned without the Seller having consummated the closing of the sale
of Seller's Department Store Division to May Company;
(iii) by either Seller or Buyer, if a government or authority having
jurisdiction shall issued an order, decree or ruling or promulgated or
enacted any statute, rule or regulation or executive order, in each case,
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, provided that such order, decree or ruling
shall have become final and non-appealable;
(iv) by either Seller or Buyer, if the shareholders of Seller fail to
approve the transactions contemplated by this Agreement or by the May
Company Agreement at the meeting of Seller's shareholders contemplated by
Section 12.7; or
(v) by either Seller or Buyer at any time following November 30, 1996,
as to any of the Clover Store Properties for which Closing has not
theretofore occurred, if, through no fault of the party seeking to
terminate, Closing has not occurred with respect to all of the Clover Store
Properties on
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or before November 30, 1996, provided that Seller shall not be able to
terminate this Agreement unless at the time of such termination either (aa)
Seller shall have consummated the closing of the sale of Seller's Department
Store Division to May Company as expressed in the May Company Agreement or
(bb) the May Company Agreement shall have been terminated or abandoned
without the Seller having consummated the closing of the sale of Seller's
Department Store Division to May Company.
(b) In the event a party elects to terminate this Agreement pursuant to this
Section 15, written notice thereof shall forthwith be given to the other party.
In such event, this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned, without further action by any of the parties hereto.
If this Agreement is terminated pursuant to this Section 15, neither party shall
have any liability or further obligation to the other party pursuant to this
Agreement, except that (i) if this Agreement is terminated by Seller as
expressed in Sections 15(a)(ii) through 15(a)(v) without the Initial Closing
having taken place, Seller shall reimburse Buyer in the amount of $350,000 plus
Buyer's actual third party costs and expenses incurred following the execution
of this Agreement in Buyer's furtherance of the transactions contemplated by
this Agreement (including, as to the Kohl's Properties, any actual third party
costs and expenses incurred by Kohl's and reimbursed to Kohl's by Buyer), but,
in any event, not more than $1,000,000 in the aggregate (collectively, "Buyer's
Cost Reimbursement"), and (ii) if this Agreement is terminated by Seller as
expressed in Section 15(a)(ii) without the Initial Closing having taken place,
(aa) during the period commencing on the date of Seller's termination of this
Agreement and ending on the 225th day thereafter ("Restricted Period"), Seller
shall not actively solicit from third party purchasers proposals to sell all or
substantially all of the Clover Store Properties (other than as an ongoing
business), (bb) during the Restricted Period, Seller shall not accept an offer
to sell all or substantially all of the Clover Store Properties to one or more
third party purchasers unless the aggregate purchase price therefor equals or
exceeds $50,000,000, (cc) during the Restricted Period, Seller shall not sell or
agree to sell all or substantially all of the Clover Store Properties to one or
more third party purchasers without first offering to sell such Clover Store
Properties to Buyer ("Refusal Offer") for the same purchase price that Seller is
willing to sell such Clover Store Properties to the third party purchasers, less
a $2,000,000 credit (in which event, Buyer shall have 17 business days to accept
or reject the Refusal Offer and, if Buyer rejects or fails to accept the Refusal
Offer within said 17 business day period, Seller may thereafter sell the Clover
Store Properties to one or more third parties for a purchase price not less than
that identified in the Refusal Offer; and, if Buyer accepts the Refusal Offer,
Seller will sell to Buyer, and Buyer will purchase from Seller, the Clover Store
Properties identified in the Refusal Offer for the purchase price stated, less a
$2,000,000 credit, in the Refusal Offer, but otherwise on the terms and
conditions expressed in this Agreement, modified as necessary to (1) delete the
Due Diligence Period referenced in Section 2.3, (2) reallocate the new purchase
price on Schedules 2.5 and 26.2, (3) change the Closing Date to a date not
earlier than 45 days nor more than 90 days after the date of Buyer's acceptance
of the Refusal Offer, (4) delete the Interim Lease referenced in Section 3.3
(unless required by Seller for a period of not more than 75 days following the
new Closing Date) and (5) delete from Sections 11 and 12 such conditions as are
no longer applicable or necessary) and (dd) if during the Restricted Period
Seller sells or agrees to sell all or substantially all of the Clover Store
Properties to one or more third parties, then as and when Seller and such third
party or parties consummate such sale, Seller shall pay to Buyer an amount equal
to (x) one-third of the amount by which the purchase price for the Clover Store
Properties received by Seller from such third party or parties exceeds
$40,000,000 (but, in any event, not less than $5,000,000) minus (y) the amount
of Buyer's Cost Reimbursement. Notwithstanding the foregoing, the restrictions
expressed in clauses (aa) through (dd) above shall not apply if Seller agrees to
sell less than substantially all of the Clover Store Properties, if Seller
agrees to sell the Clover Store Properties as an ongoing business or if Seller
agrees to sell the Clover Store Properties at any time following the expiration
of the Restricted Period.
16. Default. In the event of a material violation or breach by Seller or
Buyer of any covenant, representation or obligation contained in this Agreement,
the non-defaulting party may pursue all rights
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and remedies available to it at law and in equity on account of such breach,
including, without limitation, an action to specifically enforce performance of
the obligations of the defaulting party under this Agreement. The time for
Closing and all other times referred to herein for the performance of an
obligation shall be of the essence of this Agreement.
17. Waiver of Terms. Any of the terms or conditions of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but
only by a written notice signed by the Chairman, the President or any Vice
President of Seller or Buyer.
18. Amendment of Agreement. This Agreement may be amended, supplemented or
interpreted at any time only by written instrument duly executed by Buyer and
Seller.
19. Payment of Expenses. The Buyer and Seller shall each pay their own
expenses, including, without limitation, the expenses of their own counsel and
accountants and any broker's, finder's or similar agent's fee, incurred in
connection with this Agreement and the transactions contemplated hereby. The
Seller and Buyer each shall pay one-half of any realty transfer or similar taxes
that may be due in connection with the sale and conveyance (whether by deed or
by assignment of leasehold interest) of the Clover Store Properties to Buyer,
except that Seller shall pay the entire amount of any realty transfer tax due in
connection with the sale and conveyance (whether by deed or by assignment of
leasehold interest) of any Clover Store Property located in New Jersey. The
provisions of the foregoing sentence shall, with regard to each Clover Store
Property, survive the Closing therefor, it being the understanding of the
parties that should any additional realty transfer taxes be due as a result of a
successful challenge of any allocation by a taxing authority, the parties shall
be responsible to pay their share thereof (including any interest and penalties
thereon) in accordance with the provisions of the foregoing sentence.
20. Cooperation. Subject to the terms and conditions herein provided, each
of the parties hereto shall use its or their good faith, diligent efforts to
take, or cause to be taken, such action, to execute and deliver, or cause to be
executed and delivered, such governmental notifications and additional documents
and instruments and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under applicable law to
consummate and make effective the transactions contemplated by this Agreement.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but both of such
counterparts together shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for the other counterpart.
22. Contents of Agreement, Parties in Interest, Assignment. (a) This
Agreement sets forth the entire understanding of the parties with respect to the
subject matter hereof. Any previous agreements or understandings between the
parties regarding the subject matter hereof are merged into and superseded by
this Agreement. All representations, warranties, covenants, terms and conditions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto.
Nothing herein express or implied is intended or shall be construed to confer
upon or to give any person, other than Buyer and Seller and their respective
successors or assigns, any rights or remedies under or by reason of this
Agreement.
(b) Buyer may not assign this Agreement or any of Buyer's rights or
obligations hereunder, except that Buyer shall have the right (exercisable by
written notice to Seller not less than five business days prior to Closing) to
designate either Kohl's and/or another national or regional retailer operating
at not less than 40 locations and having a net worth of not less than
$300,000,000 and rated not less than Baa1 by Moody's Investors Service, Inc.
(each such entity, a "Permitted Designee") as the assignee of Buyer's right to
acquire ownership of one or more of the Clover Store Properties, provided that
(i) at or
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prior to Closing, the Permitted Designee shall have agreed in writing to assume
all obligations of "Buyer" under this Agreement as they relate to the specific
Clover Store Properties acquired by such Permitted Designee and the Assumed
Clover Liabilities undertaken by such Permitted Designee, (ii) at Closing, the
Permitted Designee shall enter into an Undertaking and Indemnity Agreement with
Seller with respect to the Clover Store Properties acquired by such Permitted
Designee, together with any other instruments of assumption relating to the
Assumed Clover Liabilities for such Clover Store Properties that may be
reasonably requested by Seller (and, as to the Kohl's Properties, Kohl's
Corporation shall have agreed in writing to unconditionally guaranty the
obligations of Kohl's under the Undertaking and Indemnity Agreement and other
instruments of assumption executed by Kohl's if and to the extent Seller may
reasonably require the same to establish in a court overseeing the Dissolution
of Seller that Seller has provided adequate security for the payment of Seller's
unmatured contractual obligations with respect to the Assumed Clover Liabilities
undertaken by Kohl's), (iii) at Closing, the Permitted Designee shall deliver to
Seller the certificates, opinions and other closing documentation referenced in
paragraphs (iii) and (iv) of Section 3.2(b) as they relate to the Permitted
Designee and the Clover Store Properties acquired by such Permitted Designee,
(iv) at Closing, the Permitted Designee shall enter into an Interim Lease with
Seller covering each of the Clover Store Properties acquired by such Permitted
Designee and (v) from and after Closing, Seller and the Permitted Designee shall
have all of the same rights and obligations with regard to each other relating
to the Clover Store Properties acquired by such Permitted Designee as if such
Permitted Designee had been the Buyer under this Agreement regarding such Clover
Store Properties. Buyer also shall have the right (exercisable by written notice
to Seller not less than five business days prior to Closing) to designate a
Person that is not a Permitted Designee as the assignee of Buyer's right to
acquire ownership of one or more of the Clover Store Properties, provided that
(i) at or prior to Closing, such Person satisfies all of the conditions
expressed in clauses (i) through (iv) of the preceding sentence, (ii) if such
Person is an Affiliate of Buyer, at or prior to Closing, Buyer shall have
unconditionally guaranteed the obligations of such Affiliate under the
Undertaking and Indemnity Agreement and other instruments of assumption relating
to the Assumed Clover Liabilities for the Clover Store Properties acquired by
such Affiliate and (iii) if such Person is not an Affiliate of Buyer, at or
prior to Closing, either (aa) Buyer shall deliver to Seller written evidence
that Seller has been fully and unconditionally discharged and released from all
Assumed Clover Liabilities arising out of or relating to the Clover Store
Properties acquired by such Person or (bb) Buyer shall have unconditionally
guaranteed the obligations of such Person under the Undertaking and Indemnity
Agreement and other instruments of assumption relating to the Assumed Clover
Liabilities for the Clover Store Properties acquired by such Person.
(c) In the event that Buyer assigns its right to acquire ownership of one or
more of the Clover Store Properties to a Permitted Designee or to a Person that
is not a Permitted Designee as expressed in Section 23(b), such assignment shall
not release or discharge Buyer from any covenant, obligation or agreement of
Buyer under this Agreement, including, without limitation, the obligation of
Buyer to consummate the purchase of all of the Clover Store Assets, except that,
any other provision of this Agreement to the contrary notwithstanding, Buyer
shall not be obligated to assume the Assumed Clover Liabilities or execute an
undertaking and Indemnity Agreement or any other assumption agreement with
respect to any Clover Store Property acquired by a Permitted Designee and for
which such Permitted Designee shall have entered into an Undertaking and
Indemnity Agreement with Seller with respect to such Assumed Clover Liabilities.
Notwithstanding the foregoing, at Closing, Seller shall enter into an
Undertaking and Indemnity Agreement and an Interim Lease with the Permitted
Designee or other Person with respect to the Clover Store Properties acquired by
such Permitted Designee or other Person and shall deliver to the Permitted
Designee or other Person the deeds, bills of sale, assignments, certificates,
opinions and other closing documentation referenced in paragraphs (i) through
(xvi) of Section 3.2(a) as they relate to the Clover Store Properties acquired
by such Permitted Designee or other Person.
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23. Section Headings, Gender and "Person". The section headings herein have
been inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof. The use of the masculine or any
other pronoun herein when referring to any party has been for convenience only
and shall be deemed to refer to the particular party intended regardless of the
actual gender of such party or whether such party is a corporate or other
entity. Any reference to a "person" herein shall include an individual, firm,
corporation, partnership, trust, government or political subdivision or agency
or instrumentality thereof, association, unincorporated organization or any
other entity.
24. Notices. All notices, consents, waivers or other communications which
are required or permitted hereunder shall be sufficient if given in writing and
delivered personally, by Federal Express, UPS or similar overnight delivery, by
telecopy or facsimile transmission, or by registered or certified mail, return
receipt requested, postage prepaid, as follows (or to such other addressee or
address as shall be set forth in a notice given in the same manner):
If to Seller:
Strawbridge & Clothier
801 Market Street
Philadelphia, PA 19107
Attention: Treasurer
With a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Attention: Donald A. Scott, Esq.
If to Buyer:
Kimco Realty Corporation
3333 New Hyde Park Road
Suite 100
New Hyde Park, New York 11042
Attention: David M. Samber, President
With a required copy to:
Bruce M. Kauderer, VP--Legal
3333 New Hyde Park Road
Suite 100
New Hyde Park, New York 11042
All such notices shall be deemed to have been given on the date delivered,
telecopied or mailed in the manner provided above.
25. Prorations. At Closing Seller and Buyer shall make all normal and
customary real estate prorations, including real estate taxes, water, sewer and
utility charges, rents and other charges payable by Seller under the Clover
Leases, rents and other income as and when received by Seller under the Clover
Space Lease and the charges payable by Seller under the Other Clover Agreements,
all as of October 1, 1996, or if later, the expiration date of the Interim
Leases. Any unpaid installment of brokerage commission on any Clover Space Lease
shall be paid by Seller at Closing.
26. Casualty and Condemnation.
26.1 Casualty. No destruction or casualty to the Clover Store Assets or any
part thereof prior to Closing shall affect the obligations of the parties
hereunder. Notwithstanding the foregoing, Seller shall
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maintain prior to Closing all risk property insurance for the full replacement
cost of the Clover Store Properties, and Seller at Closing shall assign to Buyer
its entire right, title and interest in and to any proceeds of such insurance
with respect to the Clover Store Assets (together with payment at Closing of any
deductible amounts payable under such policies) and shall give Buyer a credit
for any insurance proceeds it receives after the date of this Agreement and
prior to Closing.
26.2 Condemnation. In the event that any eminent domain proceedings
affecting any Clover Store Property shall be threatened, contemplated, commenced
or consummated prior to the Closing, notice thereof shall be given to Buyer by
Seller as soon as practicable after receipt by Seller. Buyer shall have the
right, at Buyer's expense, to join with Seller in a defense of such action. If
the taking has a Material Adverse Effect on the value of the affected Clover
Store Property, Buyer may terminate this Agreement with respect to such Clover
Store Property. In such event, the Purchase Price shall be adjusted in
conformity with the allocations set forth in Schedule 26.2, all references to
such Clover Store Property shall thereupon be and be deemed deleted from this
Agreement and the Closing shall occur with regard to all other Clover Store
Properties as if the deleted Clover Store Property was never included as a
Purchased Asset. Otherwise, the taking shall not affect the obligations of the
parties hereunder. If this Agreement is not terminated as to the affected Clover
Store Property, Seller at Closing shall assign to Buyer its entire right, title
and interest in and to any award and shall give Buyer a credit for any award it
receives after the date of this Agreement and prior to Closing.
27. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, this Asset Purchase Agreement has been executed as of
the day and year first above written.
STRAWBRIDGE & CLOTHIER
By /s/ Francis R. Strawbridge
.....................................
Name: Francis R. Strawbridge, III
Title: Chairman
KIMCO REALTY CORPORATION
By /s/ David M. Samber
.....................................
Name: David M. Samber
Title: President
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ANNEX D
[LEHMAN BROTHERS, INC. LETTERHEAD]
June 6, 1996
Strawbridge & Clothier
801 Market Street
Philadelphia, PA 19107-3199
Attn.: Board of Directors
Members of the Board:
We understand that the Board of Directors (the "Strawbridge Board") of
Strawbridge & Clothier (the "Company" or "Strawbridge") has approved a Plan of
Reorganization and Dissolution providing for the voluntary dissolution and
liquidation of the Company in accordance with and pursuant to the provisions of
the Pennsylvania Business Corporation Law and Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Liquidation"). We further understand that
the Liquidation will be effected pursuant to the asset disposition transactions
contemplated by and in accordance with (a) the Asset Purchase Agreement, dated
as of April 4, 1996, between The May Department Stores Company, a New York
corporation ("May New York") and a wholly owned subsidiary of The May Department
Stores Company, a Delaware corporation ("May"), and Strawbridge (the "May Asset
Purchase Agreement") pursuant to which Strawbridge will sell and May New York
will acquire certain assets associated with the Company's department stores (the
"Department Stores Assets") and the proceeds from the sale of certain other
assets (the "Disposition Proceeds"), and, in consideration therefor, May will
issue to Strawbridge 4,200,000 shares of May Common Stock, par value $.50 per
share (the "May Common Stock"), subject to adjustment, upon the transfer of the
Department Stores Assets, plus an additional number of shares of May Common
Stock to be determined upon the subsequent transfer of the Disposition Proceeds,
and May New York will assume certain liabilities associated with the Department
Stores Assets (the "Department Stores Sale"), and (b) the Asset Purchase
Agreement, dated as of May 3, 1996, between Kimco Realty Corporation, a Maryland
corporation ("Kimco"), and Strawbridge (the "Kimco Asset Purchase Agreement")
pursuant to which Strawbridge will sell and Kimco will acquire certain assets
associated with the Company's discount store operations (the "Clover Assets"),
and, in consideration therefor, Kimco will pay to Strawbridge $40,000,000,
subject to adjustment, and will assume certain liabilities associated with the
Clover Assets (the "Real Estate Sale"). The terms and conditions of the
Department Stores Sale are set forth in more detail in the May Asset Purchase
Agreement, and the terms and conditions of the Real Estate Sale are set forth in
more detail in the Kimco Asset Purchase Agreement. You have advised us that the
final steps of the Liquidation will require that Strawbridge dispose of its
remaining assets, satisfy or make provision for its remaining liabilities and
unmatured claims (the "Retained Liabilities"), dissolve Strawbridge and transfer
remaining shares of May Common Stock to a liquidating trust within one year of
the closing date of the Department Stores Sale. Management of the Company has
advised us that, after satisfying or making provision for all Retained
Liabilities of the Company, its best estimate is that the Company will
distribute to Strawbridge shareholders a total of 0.45 shares of May Common
Stock for each share of Strawbridge common stock and its alternative estimate
is that the Company will distribute to Strawbridge shareholders a total of 0.41
shares of May Common Stock for each share of Strawbridge common stock (such
alternative estimate, the "Posited Exchange Ratio").
We have been requested by the Strawbridge Board to render our opinion with
respect to the fairness, from a financial point of view, to the Company's
shareholders of the Posited Exchange Ratio of shares of May Common Stock that
the management of the Company has estimated will be distributed to such
shareholders in the Liquidation. We have not been requested to opine as to, and
our opinion does
D-1
<PAGE>
not in any manner address, (i) the Company's underlying business decision to
proceed with or effect the Department Stores Sale or the Real Estate Sale or the
Liquidation or (ii) the number or value of the shares of May Common Stock or the
amount or value of any other consideration that actually will be distributed to
the Company's shareholders in the Liquidation.
In arriving at our opinion, we reviewed and analyzed: (1) the May Asset
Purchase Agreement, the Kimco Asset Purchase Agreement, the current proposals
regarding the discount store inventory and the specific terms of the Department
Stores Sale and the Real Estate Sale, (2) publicly available information
concerning the Company that we believe to be relevant to our inquiry, (3)
financial and operating information with respect to the businesses, operations
and prospects of the Company (including financial projections for the years 1996
through 1998) furnished to us by the Company, (4) the trading history of the
Company's common stock from January 1, 1991 to the present and a comparison of
that trading history with those of other companies that we deemed relevant, (5)
a comparison of the historical financial results and present financial condition
of the Company and its divisions with those of other companies that we deemed
relevant, (6) publicly available information concerning May that we believe
to be relevant to our inquiry, (7) financial and operating information with
respect to the business, operations and prospects of May (including financial
projections for the years 1996 through 1998) furnished to us by May, (8) the
trading history of May's Common Stock from January 1, 1991 to the present and
a comparison of May's Common Stock price and valuation multiples with those of
other companies that we deemed relevant, (9) research analysts' reports and
earnings estimates regarding the business, financial condition and future
financial performance of May, (10) a comparison of the financial terms of the
Department Stores Sale and the Real Estate Sale with the financial terms of
certain other recent transactions that we deemed relevant, (11) an analysis
prepared by management of the Company regarding the manner in which the amount
of the Retained Liabilities and the Posited Exchange Ratio has been estimated,
and (12) real estate appraisals previously performed by an independent third
party valuing the real estate assets of the Company's discount store division.
In addition, we have had discussions with the management of the Company
concerning its business, operations, assets, liabilities, financial condition,
credit and liquidity situation and prospects, and with the management's of May
and Kimco concerning their respective businesses, operations, financial
conditions and prospects. We also have had discussions with representatives of
Peter J. Solomon Company, financial advisors to the Company, regarding the
market testing process undertaken by such representatives on behalf of the
Company to solicit indications of interest or proposals from third parties
with respect to an acquisition of the Company, the department store division
of the Company or the discount store division of the Company or its real estate
properties and with respect to the results of such process. We also undertook
such other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management of the Company that they are
not aware of any facts that would make such information inaccurate or
misleading. Without limiting the generality of the foregoing, we have assumed
and relied upon the accuracy of the estimates of the management of the Company
as to the amount of each Retained Liability, the amount of the Posited Exchange
Ratio and the timing of the distribution of the shares of May Common Stock to
the Company's shareholders as described below without assuming any
responsibility for independent verification or calculation thereof, and further
assumed that the foregoing were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company.
With respect to the financial projections of the Company provided to Lehman
Brothers by the management of the Company, upon advice of the Company we have
assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company
and that the Company would perform substantially in accordance with such
projections.
D-2
<PAGE>
With respect to the financial projections of May provided to Lehman Brothers
by the management of May, we have assumed that such projections have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of May as to the future financial performance of
May and that May will perform substantially in accordance with such projections.
In arriving at our opinion, we have not conducted a physical inspection of the
properties and facilities of the Company and have not made or obtained any
evaluations or appraisals of the assets or liabilities of the Company other than
the appraisal of the real estate assets of the Company's discount store division
referred to above. In addition, you have not authorized us to solicit, and we
have not solicited, any indications of interest from any third party with
respect to the purchase of all or a part of the Company's businesses or assets,
and, accordingly, we have relied entirely on the results of the process
conducted by representatives of Peter J. Solomon Company in this regard. Upon
advice of the Company and its legal and accounting advisors, we have assumed
that the Liquidation will qualify as a "C" reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and therefore
as a tax-free transaction to the Company and its shareholders. Our opinion
necessarily is based upon market, economic and other conditions as they exist
on, and can be evaluated as of, the date of this letter.
In arriving at our opinion, we have assumed at your direction that based on
management's alternative estimate of the liquidation distribution, the
shareholders of the Company will receive a total of 0.41 shares of May Common
Stock for each share of common stock of the Company in the Liquidation, that
such shares will be distributed to the Company's shareholders by the dates
estimated by the management of the Company, and that the amount of such
distributions will not be reduced by the claims of creditors of the Company.
However, the exact number of shares of May Common Stock that will be distributed
to the Company's shareholders and the specific timing of the distributions will
be affected by the amount and timing of the resolution of the Retained
Liabilities, and there can be no assurance that the Company's shareholders will
actually receive 0.41 shares of May Common Stock for each share of common stock
of the Company in the Liquidation or that the distributions of such shares will
occur by such estimated dates. We express no opinion as to (i) the number of
shares of May Common Stock that actually will be distributed to the Company's
shareholders in the Liquidation or when such shares actually will be distributed
to the Company's shareholders or (ii) whether the receipt of any lesser number
of shares of May Common Stock for each share of common stock of the Company or
the receipt of such shares at later dates would be fair, from a financial point
of view, to the Company's shareholders. We also express no opinion as to the
prices at which May Common Stock will trade at any other time prior to or
following the distribution of the shares of May Common Stock to the Company's
shareholders in the Liquidation.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Posited Exchange Ratio of
shares of May Common Stock that the management of the Company has estimated will
be distributed to the Company's shareholders in the Liquidation is fair to such
shareholders.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Department Stores Sale, the Real Estate Sale and the
Liquidation. This opinion is not intended to be and does not constitute a
recommendation to any shareholder of the Company as to how such shareholder
should vote with respect to the Liquidation.
Very truly yours,
LEHMAN BROTHERS
D-3
<PAGE>
ANNEX E
[PETER J. SOLOMON COMPANY LIMITED LETTERHEAD]
June 7, 1996
Board of Directors
Strawbridge & Clothier
801 Market Street
Philadelphia, PA 19107
Dear Sirs and Madams:
You have asked us to advise you with respect to the fairness to Strawbridge
& Clothier (the "Company") from a financial point of view of the consideration
proposed to be paid to the Company by The May Department Stores Company (the
"Buyer") pursuant to the terms of the Asset Purchase Agreement, dated as of
April 4, 1996 (the "Agreement"), between the Company and the Buyer.
We understand that the Agreement provides for the acquisition (the
"Acquisition") by the Buyer of designated assets of the Company and its
subsidiaries (collectively, the "Department Store Assets") and the assumption
(the "Assumption") by the Buyer of designated liabilities of the Company and its
subsidiaries (the "Assumed Department Store Liabilities").
We further understand that, pursuant to the Agreement, in addition to the
Assumption, the Buyer will pay to the Company, as consideration in respect of
the Acquisition, shares of the Buyer's common stock, par value $0.50 per share
("Buyer Common Stock"), the number of which shares (such shares, together with
the Assumption, the "Consideration") will be calculated as provided in the
Agreement.
For purposes of the opinion set forth herein, we have:
1) analyzed certain publicly available financial statements and other
information of the Company and the Buyer, respectively;
2) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management of the
Company;
3) reviewed certain financial projections for the Company and the Buyer
prepared by the management of the Company and the Buyer, respectively;
4) reviewed with management of the Company management's estimate of the
following amounts: (a) the Closing Balance Sheet Net Working Capital Amount
and the Assumed Long-Term Liabilities Amount (as such terms are defined in
the Agreement); and (b) the amount of the Assumed Department Store
Liabilities;
5) reviewed with Company management its calculation of the Payless
Spin-Off Equivalent Shares (as defined in the Agreement);
6) discussed the past and current operations and financial condition
and the prospects of the Company and the Buyer with senior executives of the
Company and the Buyer, respectively;
7) reviewed the reported prices and trading activity for the Buyer
Common Stock;
E-1
<PAGE>
8) compared the financial performance of the Company and the Buyer and
the prices and trading activity of the Buyer Common Stock with that of
certain other comparable publicly-traded companies and their securities;
9) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
10) participated in discussions among representatives of the Company and
the Buyer and their legal advisors;
11) reviewed the Agreement; and
12) performed such other analysis as we have deemed appropriate.
We have assumed and relied without independent verification upon the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. We also assumed and relied upon the accuracy of the estimates of
the management of the Company as to the Closing Balance Sheet Net Working
Capital Amount, the Assumed Long-Term Liabilities Amount and the amount of the
Assumed Department Store Liabilities, without assuming any responsibility for
independent verification or calculation thereof. With respect to such estimates
and with respect to financial projections for the Company, we have assumed that
they were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company. With respect
to financial projections for the Buyer, we have assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of the Buyer. We have not made any independent
valuation or appraisal of the Department Store Assets or the Assumed Department
Store Liabilities or the assets or liabilities of the Buyer. Our opinion is
necessarily based on economic, market and other conditions as in effect on,
and the information made available to us as of, the date hereof.
We express no opinion concerning the Option Agreement referred to in the
preamble of the Agreement. We further express no opinion and make no
recommendations as to how the holders of the common stock of the Company should
vote at the meeting of the Company's shareholders to be held as contemplated by
the Agreement.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the transactions contemplated by the Agreement and will
receive a fee for our services, a portion of which is contingent upon closing of
the transactions pursuant to the Agreement. In the past, Peter J. Solomon
Company Limited has provided financial advisory services to the Company and has
received fees for the rendering of these services.
Based on, and subject to, the foregoing, we are of the opinion that on the
date hereof, the Consideration to be received by the Company from the Buyer in
respect of the sale of the Department Store Assets and the Assumption pursuant
to the Agreement is fair from a financial point of view to the Company.
Very truly yours,
PETER J. SOLOMON COMPANY LIMITED
By: /s/ Henry D. Jackson
..................................
Principal
E-2
<PAGE>
ANNEX F
[HOULIHAN, LOKEY, HOWARD & ZUKIN, INC. LETTERHEAD]
June 7, 1996
To The Board of Directors
Strawbridge & Clothier
Ladies & Gentlemen:
We understand that Strawbridge & Clothier (the "Company") is contemplating
entering into certain asset sale agreements (the "Asset Sales") in which the
inventory and store furnishings and certain real estate interests of its Clover
Division ("Clover") will be sold. The Asset Sales and related transactions are
referred to herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of Clover.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and Form 10-Ks
for the fiscal years ended January 30, 1993, January 29, 1994, January
28, 1995 and February 3, 1996, including all financial statements
contained therein, which the Company's management has identified as
being the most current audited financial statements available;
2. reviewed unaudited internal financial statements of Clover for the
fiscal year ended February 3, 1996, which Company management has
identified as being the most current financial statements available;
3. reviewed the Asset Purchase Agreement between the Company and Kimco
Realty Corporation, dated May 3, 1996;
4. met or spoke with certain members of the senior management of the
Company and Clover to discuss the operations, financial condition, future
prospects and projected operations and performance of Clover, and met
with representatives of the Company's financial advisors, accountants
and counsel to discuss certain matters;
5. visited certain facilities and business offices of the Company and
Clover;
6. reviewed forecasted financial statements prepared by the Company's
management with respect to Clover for the fiscal years ending 1997
through 1999;
7. reviewed certain publicly available financial data for certain
companies that we deem comparable to Clover, and publicly available
prices and premiums paid in transactions that we considered similar to
the Transaction; and
8. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
F-1
<PAGE>
We have relied upon and assumed, without independent verification, that the
forecasted income statements provided to us have been reasonably prepared and
reflect the best currently available estimates of the future financial results
and condition of Clover and that there has been no material change in the
assets, financial condition, business or prospects of Clover since the date of
the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to Clover and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of Clover. Our opinion
is necessarily based on business, economic, market and other conditions as they
exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the consideration to be received by the Company in connection with the
Transaction is fair from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
F-2
<PAGE>
` SERIES A COMMON STOCK
1996 Proxy 1996 Proxy
STRAWBRIDGE & CLOTHIER
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING ON JULY 15, 1996
The undersigned holder of shares of Series A Common Stock of STRAWBRIDGE &
CLOTHIER (the "Company") hereby appoints Peter S. Strawbridge, Steven L.
Strawbridge and Warren W. White or a majority of them or any one of them acting
singly in the absence of the others, each with full power of substitution, the
Proxies of the undersigned to vote the shares of the undersigned at the Annual
Meeting of Shareholders of the Company to be held July 15, 1996, and at any
adjournment thereof.
The undersigned directs said Proxies to vote as indicated on the reverse
side.
(Continued and to be signed on reverse side.)
-----------------------------------------------------------------
oFOLD AND DETACH HEREo
<PAGE>
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
"FOR" Items 1, 2 and 3. The Proxies will use their discretion with respect to
any matters referred to in Item 4.
Management recommends a vote "FOR" each of the following
proposals:
1. Approval of the voluntary dissolution of the Company in accordance
with the following resolution unanimously adopted by the Board of
Directors of the Company:
"RESOLVED, that Strawbridge & Clothier be voluntarily dissolved
pursuant to the Plan of Reorganization and Liquidation approved by the
Board of Directors and in accordance with Subchapter H of Chapter 19
of the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL") and Section 368(a) of the Internal Revenue Code of 1986, as
amended; provided, however, the Board of Directors may determine to
proceed under Section 1975 of the PBCL rather than Subchapter H prior
to the time when articles of dissolution are filed in the Pennsylvania
Department of State, notwithstanding the adoption by the shareholders
of this resolution."
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Election of Directors: Isaac H. Clothier, IV, Paul E. Shipley,
Peter S. Strawbridge, and Warren W. White
FOR all nominees listed (except as marked to the contrary). [ ]
WITHHOLD AUTHORITY to vote for all nominees listed. [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
________________________________________________________________________________
3. Approval of the designation of Ernst & Young LLP, independent
auditors, to audit the books and accounts of the Company for the
fiscal year ending February 1, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<PAGE>
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
____________________________________________
Please sign exactly as name appears hereon
____________________________________________
____________________________________________
____________________________________________
Date: ________________________________
Please mark, sign, date and return this
proxy card promptly using the enclosed
envelope.
<PAGE>
- -------------------------------------------------------------------------------
Please mark your votes as indicated in this example
- -------------------------------------------------------------------------------
-----------------------------------------------------------------
oFOLD AND DETACH HEREo
<PAGE>
SERIES B COMMON STOCK
1996 Proxy 1996 Proxy
STRAWBRIDGE & CLOTHIER
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING ON JULY 15, 1996
The undersigned holder of shares of Series B Common Stock of STRAWBRIDGE &
CLOTHIER (the "Company") hereby appoints Peter S. Strawbridge, Steven L.
Strawbridge and Warren W. White or a majority of them or any one of them acting
singly in the absence of the others, each with full power of substitution, the
Proxies of the undersigned to vote the shares of the undersigned at the Annual
Meeting of Shareholders of the Company to be held July 15, 1996, and at any
adjournment thereof.
The undersigned directs said Proxies to vote as indicated on the reverse
side.
(Continued and to be signed on reverse side.)
-----------------------------------------------------------------
oFOLD AND DETACH HEREo
<PAGE>
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
"FOR" Items 1, 2 and 3. The Proxies will use their discretion with respect to
any matters referred to in Item 4.
Management recommends a vote "FOR" each of the following proposals:
1. Approval of the voluntary dissolution of the Company in accordance
with the following resolution unanimously adopted by the Board of
Directors of the Company:
"RESOLVED, that Strawbridge & Clothier be voluntarily dissolved
pursuant to the Plan of Reorganization and Liquidation approved by the
Board of Directors and in accordance with Subchapter H of Chapter 19
of the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL") and Section 368(a) of the Internal Revenue Code of 1986, as
amended; provided, however, the Board of Directors may determine to
proceed under Section 1975 of the PBCL rather than Subchapter H prior
to the time when articles of dissolution are filed in the Pennsylvania
Department of State, notwithstanding the adoption by the shareholders
of this resolution."
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Election of Directors: Isaac H. Clothier, IV, Paul E. Shipley,
Peter S. Strawbridge, and Warren W. White
FOR all nominees listed (except as marked to the contrary). [ ]
WITHHOLD AUTHORITY to vote for all nominees listed. [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
________________________________________________________________________________
3. Approval of the designation of Ernst & Young LLP, independent
auditors, to audit the books and accounts of the Company for the
fiscal year ending February 1, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<PAGE>
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
____________________________________________
Please sign exactly as name appears hereon
____________________________________________
____________________________________________
____________________________________________
Date: ________________________________
Please mark, sign, date and return this
proxy card promptly using the enclosed
envelope.
<PAGE>
- -------------------------------------------------------------------------------
Please mark your votes as indicated in this example
- -------------------------------------------------------------------------------
-----------------------------------------------------------------
oFOLD AND DETACH HEREo
