-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DLIngPFv22oEkvqe6JMwh0dZzHCTcjXJX1bP8yBG/r2D8wgRTGoIGOGuV6SqTJA6 WePDpmVtyyjq1msYTGyKsg== 0000893220-03-001593.txt : 20030923 0000893220-03-001593.hdr.sgml : 20030923 20030923093759 ACCESSION NUMBER: 0000893220-03-001593 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20030923 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ELDER BEERMAN STORES CORP CENTRAL INDEX KEY: 0000032020 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 310271980 STATE OF INCORPORATION: OH FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: SC TO-T SEC ACT: 1934 Act SEC FILE NUMBER: 005-53669 FILM NUMBER: 03905174 BUSINESS ADDRESS: STREET 1: 3155 ELBEE RD CITY: DAYTON STATE: OH ZIP: 45439 BUSINESS PHONE: 9372962700 MAIL ADDRESS: STREET 1: 3155 EL BEE ROAD CITY: DAYTON STATE: OH ZIP: 45439 FORMER COMPANY: FORMER CONFORMED NAME: ELDER & JOHNSTON CO DATE OF NAME CHANGE: 19670823 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BON TON STORES INC CENTRAL INDEX KEY: 0000878079 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 232835229 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: 2801 E MARKET ST CITY: YORK STATE: PA ZIP: 17402-2406 BUSINESS PHONE: 7177577660 MAIL ADDRESS: STREET 1: P O BOX 2821 CITY: YORK STATE: PA ZIP: 17405-2821 SC TO-T 1 w90059sctovt.txt SCHEDULE TO (RULE 14D-100) THE ELDER BEERMAN UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE TO (RULE 14d-100) TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 THE ELDER-BEERMAN STORES CORP. (Name of Subject Company (Issuer)) ELDER ACQUISITION CORP. THE BON-TON STORES, INC. (Names of Filing Persons (Offeror)) COMMON STOCK, NO PAR VALUE (Title of Class of Securities) 284470101 (Cusip Number of Class of Securities) James H. Baireuther The Bon-Ton Stores, Inc. 2801 East Market Street York, Pennsylvania 17402 Telephone: (717) 757-7660 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Persons) Copy to: John M. Coogan, Jr. Wolf, Block, Schorr and Solis-Cohen LLP 1650 Arch Street, 22nd Floor Philadelphia, PA 19103 Telephone: (215) 977-2000 CALCULATION OF FILING FEE - -------------------------------------------------------------------------------- Transaction Valuation* Amount of Filing Fee** - -------------------------------------------------------------------------------- $92,683,656 $7,498.11 - -------------------------------------------------------------------------------- * Estimated for purposes of calculating the amount of filing fee only. Transaction value derived by multiplying 11,585,457 (number of shares of common stock of subject company outstanding as of September 15, 2003 (according to the Agreement and Plan of Merger, dated as of September 15, 2003, by and among subject company and the filing persons)) by $8.00 (the purchase price per share offered by Offeror). ** The amount of the filing fee, calculated in accordance with Rule 0-11 under the Securities Exchange Act of 1934, as amended, and Fee Advisory #11 for Fiscal Year 2003 issued by the Securities and Exchange Commission on February 21, 2003, equals 0.008090% of the transaction valuation. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not applicable. Filing Party: Not applicable Form or Registration No.: Not applicable. Date Filed: Not applicable [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1 [ ] issuer tender offer subject to Rule 13e-4 [ ] going-private transaction subject to Rule 13e-3 [ ] amendment to Schedule 13D under Rule 13d-2 Check the following box if the filing is a final amendment reporting the results of the tender offer. [ ] - 2 - ITEMS 1 THROUGH 11. This Tender Offer Statement on Schedule TO is filed by The Bon-Ton Stores, Inc., a Pennsylvania corporation ("Parent"), and Elder Acquisition Corp. ("Purchaser"), an Ohio corporation and an indirect wholly owned subsidiary of Parent. This Schedule TO relates to the offer by Purchaser to purchase all outstanding shares of common stock, no par value, and the associated preferred stock purchase rights (together, the "Shares"), of The Elder-Beerman Stores Corp., an Ohio corporation (the "Company"), at $8.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated September 23, 2003 (the "Offer to Purchase"), and in the related Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). The information set forth in the Offer to Purchase, including Schedule I thereto, and the related Letter of Transmittal is incorporated herein by reference with respect to Items 1 through 11 of this Schedule TO. ITEM 12. EXHIBITS (a)(1) Offer to Purchase dated September 23, 2003. (a)(2) Form of Letter of Transmittal. (a)(3) Form of Notice of Guaranteed Delivery. (a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Text of press release issued by Parent, dated September 4, 2003. (a)(8) Text of press release issued by Parent, dated September 10, 2003. (a)(9) Text of press release issued by Parent, dated September 15, 2003. (a)(10) Text of press release issued by Parent, dated September 16, 2003. (b)(1) Commitment Letter from General Electric Capital Corporation, dated August 29, 2003. (b)(2) First Amendment to Commitment Letter from General Electric Capital Corporation, dated September 10, 2003. (b)(3) Second Amendment to Commitment Letter from General Electric Capital Corporation, dated September 12, 2003. (b)(4) Commitment letter from Bank One, NA, dated August 29, 2003. (b)(5) First Amendment to Commitment Letter from Bank One, NA, dated September 10, 2003. (b)(6) Second Amendment to Commitment Letter from Bank One, NA, dated September 12, 2003. (d)(1) Agreement and Plan of Merger, dated as of September 15, 2003, by and among The Bon-Ton Stores, Inc., Elder Acquisition Corp. and The Elder-Beerman Stores Corp. (g) Not applicable. (h) Not applicable. -3- SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. THE BON-TON STORES, INC. By: /s/ Tim Grumbacher ----------------------------- Name: Tim Grumbacher Title: Chairman and Chief Executive Officer ELDER ACQUISITION CORPORATION By: /s/ Tim Grumbacher ----------------------------- Name: Tim Grumbacher Title: Chairman and Chief Executive Officer Dated: September 23, 2003 - 4 - EXHIBIT INDEX (a)(1) Offer to Purchase dated September 23, 2003. (a)(2) Form of Letter of Transmittal. (a)(3) Form of Notice of Guaranteed Delivery. (a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Text of press release issued by Parent, dated September 4, 2003.* (a)(8) Text of press release issued by Parent, dated September 10, 2003.* (a)(9) Text of press release issued by Parent, dated September 15, 2003.* (a)(10) Text of press release issued by Parent, dated September 16, 2003.* (b)(1) Commitment Letter from General Electric Capital Corporation, dated August 29, 2003. (b)(2) First Amendment to Commitment Letter from General Electric Capital Corporation, dated September 10, 2003. (b)(3) Second Amendment to Commitment Letter from General Electric Capital Corporation, dated September 12, 2003. (b)(4) Commitment letter from Bank One, NA, dated August 29, 2003. (b)(5) First Amendment to Commitment Letter from Bank One, NA, dated September 10, 2003. (b)(6) Second Amendment to Commitment Letter from Bank One, NA, dated September 12, 2003. (d)(1) Agreement and Plan of Merger, dated as of September 15, 2003, by and among The Bon-Ton Stores, Inc., Elder Acquisition Corp. and The Elder-Beerman Stores Corp. (g) Not applicable. (h) Not applicable. * Previously filed. - 5 - EX-99.(A)(1) 3 w90059exv99wxayx1y.txt OFFER TO PURCHASE DATED SEPTEMBER 23, 2003 EXHIBIT (a)(1) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF THE ELDER-BEERMAN STORES CORP. AT $8.00 NET PER SHARE BY ELDER ACQUISITION CORP. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF THE BON-TON STORES, INC. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 21, 2003, UNLESS THE OFFER IS EXTENDED. THE OFFER IS BEING MADE IN CONNECTION WITH THE AGREEMENT AND PLAN OF MERGER (THE "MERGER AGREEMENT"), DATED AS OF SEPTEMBER 15, 2003, AMONG THE ELDER-BEERMAN STORES CORP. (THE "COMPANY"), THE BON-TON STORES, INC. ("PARENT") AND ELDER ACQUISITION CORP., AN INDIRECT WHOLLY OWNED SUBSIDIARY OF PARENT ("PURCHASER"), WHICH PROVIDES FOR THE MERGER OF PURCHASER WITH AND INTO THE COMPANY (THE "MERGER"). THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN BEFORE THE EXPIRATION OF THE OFFER A NUMBER OF SHARES OF COMMON STOCK, NO PAR VALUE, WITH THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS (TOGETHER, THE "SHARES"), OF THE COMPANY, THAT, TOGETHER WITH THE SHARES THEN OWNED BY PARENT AND ITS SUBSIDIARIES (INCLUDING PURCHASER), REPRESENTS AT LEAST TWO-THIRDS OF THE TOTAL NUMBER OF SHARES OUTSTANDING ON A FULLY DILUTED BASIS, AND (2) PARENT HAVING AVAILABLE TO IT PROCEEDS OF THE FINANCINGS CONTEMPLATED BY ITS EXISTING COMMITMENT LETTERS OR SUCH OTHER FINANCINGS THAT ARE SUFFICIENT, TOGETHER WITH CASH ON HAND, TO CONSUMMATE THE OFFER AND THE MERGER AND TO REFINANCE ALL DEBT OF THE COMPANY AND PARENT THAT IS OR COULD BE REQUIRED TO BE REPURCHASED OR BECOMES, OR COULD BE DECLARED, DUE AND PAYABLE AS A RESULT OF THE OFFER OR THE MERGER OR THE FINANCING THEREOF AND TO PAY ALL RELATED FEES AND EXPENSES. THE INDEPENDENT DIRECTORS OF THE COMPANY (WITH ONE DIRECTOR ABSENT) HAVE UNANIMOUSLY (1) DETERMINED THAT THE MERGER AGREEMENT, THE OFFER AND THE MERGER ARE ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, (2) APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER AND (3) RECOMMENDED THAT THE COMPANY'S SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. ------------------------ IMPORTANT Any shareholder of the Company desiring to tender Shares in the Offer should either (1) complete and sign the Letter of Transmittal or a facsimile thereof in accordance with the instructions in the Letter of Transmittal, and mail or deliver the Letter of Transmittal together with the certificates representing tendered Shares and all other required documents to American Stock Transfer & Trust Company, the Depositary for the Offer, or tender such Shares pursuant to the procedure for book-entry transfer set forth in "The Offer -- Section 3" or (2) request such shareholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such shareholder. Shareholders whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if they desire to tender their Shares. The associated preferred stock purchase rights are currently evidenced by the certificates representing the shares of common stock, and by tendering such shares, a shareholder will also tender the associated preferred stock purchase rights. Any shareholder who desires to tender Shares and whose certificates representing such Shares (or, if applicable, associated preferred stock purchase rights) are not immediately available, or who cannot comply with the procedures for book-entry transfer on a timely basis, may tender such Shares pursuant to the guaranteed delivery procedure set forth in "The Offer -- Section 3." Questions and requests for assistance may be directed to the Information Agent or to the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Information Agent or from brokers, dealers, commercial banks and trust companies. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION, AND YOU SHOULD CAREFULLY READ BOTH IN THEIR ENTIRETY BEFORE MAKING A DECISION WITH RESPECT TO THE OFFER. ------------------------ The Dealer Manager for the Offer is: [LAZARD LOGO] September 23, 2003 TABLE OF CONTENTS
PAGE ---- SUMMARY TERM SHEET............................................... i INTRODUCTION..................................................... 1 THE OFFER........................................................ 4 1. Terms of the Offer.......................................... 4 2. Acceptance for Payment and Payment.......................... 5 3. Procedure for Tendering Shares.............................. 6 4. Withdrawal Rights........................................... 8 5. Certain Tax Considerations.................................. 9 6. Price Range of Shares; Dividends............................ 9 7. Possible Effects of the Offer on the Market for the Shares; Stock Exchange Listing; Registration under the Exchange Act; Margin Regulations.......................................... 10 8. Certain Information Concerning the Company.................. 11 9. Certain Information Concerning Purchaser and Parent......... 17 10. Source and Amount of Funds.................................. 21 11. Background of the Offer..................................... 24 12. Purpose of the Offer; Plans for the Company; Statutory Requirements; Approval of the Merger; Dissenters' Rights.... 26 13. Description of Merger Agreement............................. 28 14. Dividends and Distributions................................. 37 15. Conditions of the Offer..................................... 37 16. Certain Legal Matters; Regulatory Approvals................. 38 17. Fees and Expenses........................................... 40 18. Miscellaneous............................................... 40 SCHEDULE I....................................................... I-1
SUMMARY TERM SHEET Elder Acquisition Corp., an indirect wholly owned subsidiary of The Bon-Ton Stores, Inc., is offering to purchase all outstanding shares of common stock, no par value, of The Elder-Beerman Stores Corp. (together with the associated preferred stock purchase rights) for $8.00 net per share in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and the related Letter of Transmittal. The following are some of the questions you, as a shareholder of The Elder-Beerman Stores Corp., may have and answers to those questions. YOU SHOULD CAREFULLY READ THIS OFFER TO PURCHASE AND THE ACCOMPANYING LETTER OF TRANSMITTAL IN THEIR ENTIRETY BECAUSE THE INFORMATION IN THIS SUMMARY TERM SHEET IS NOT COMPLETE AND ADDITIONAL IMPORTANT INFORMATION IS CONTAINED IN THE REMAINDER OF THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL. WHO IS OFFERING TO BUY MY SECURITIES? Our name is Elder Acquisition Corp. We are an Ohio corporation formed for the purpose of making this tender offer for all of the common stock of The Elder-Beerman Stores Corp. and participating in the second step merger. We are an indirect wholly owned subsidiary of The Bon-Ton Stores, Inc., a Pennsylvania corporation. See "The Offer -- Section 9." WHAT SECURITIES ARE YOU OFFERING TO PURCHASE? We are offering to purchase all of the outstanding common stock, no par value, and the associated preferred stock purchase rights, of The Elder-Beerman Stores Corp. We refer to one share of The Elder-Beerman Stores Corp. common stock, together with the associated stock purchase right, as a "share" or "Share." See "Introduction." HOW MUCH ARE YOU OFFERING TO PAY FOR MY SECURITIES AND WHAT IS THE FORM OF PAYMENT? We are offering to pay you $8.00 per share in cash without brokerage fees, commissions or, except in certain circumstances, transfer taxes. See "Introduction." HOW DOES YOUR OFFER RELATE TO THE MERGER AGREEMENT BY AND AMONG THE ELDER-BEERMAN STORES CORP., WRIGHT HOLDINGS, INC. AND WRIGHT SUB, INC.? On June 26, 2003, The Elder-Beerman Stores Corp. announced that it had entered into a definitive merger agreement providing for the sale of the company to Wright Holdings, Inc., a company formed by Goldner Hawn Johnson & Morrison Incorporated. Following approval of our offer by the Elder-Beerman Board of Directors, the merger agreement with Wright Holdings, Inc. was terminated. There is no relationship between our offer and that terminated merger agreement. See "The Offer -- Section 11." DO YOU HAVE THE FINANCIAL RESOURCES TO PAY FOR THE SHARES? In order to finance the purchase of all of the shares pursuant to our offer, refinance certain debt of The Bon-Ton Stores, Inc., The Elder-Beerman Stores Corp. and their respective subsidiaries, provide for working capital and pay fees and expenses related to the transactions, The Bon-Ton Stores, Inc. and Elder Acquisition Corp. will use a combination of cash on hand and new debt and equity financing. We have obtained commitment letters to provide such new debt financing from General Electric Capital Corporation and Bank One, NA and we have obtained a commitment letter to provide such new equity financing from Tim Grumbacher, the Chairman and Chief Executive Officer of The Bon-Ton Stores, Inc. Subject to certain conditions, including replacement of the securitization facilities of both The Bon-Ton Stores, Inc. and The Elder-Beerman Stores Corp. and the closing of the sale of common stock by The Bon-Ton Stores, Inc., General Electric Capital Corporation has agreed to provide funds to certain subsidiaries of The Bon-Ton Stores, Inc. and, after the closing of the proposed merger, The Elder-Beerman Stores Corp., in the form of up to three credit facilities providing for revolving and term loans in an aggregate amount of up to $325 million, as well as interim financing pending completion of the Merger. Bank One, NA has agreed to replace the securitization facilities of both The Bon-Ton Stores, Inc. and The Elder-Beerman Stores Corp. in an aggregate i amount of up to $250 million. Mr. Grumbacher has agreed to purchase up to $7.5 million of newly issued shares of common stock of The Bon-Ton Stores, Inc. at fair market value. The Bon-Ton Stores, Inc. presently intends to sell newly issued shares of common stock with a value of approximately $6.5 million in connection with such equity financing. The commitments are subject to customary conditions, including, among other things, the preparation, execution and delivery of mutually acceptable documentation containing customary representations and warranties, covenants, mandatory prepayment provisions and events of default and termination. The Bon-Ton Stores, Inc. expects to repay amounts outstanding under the new debt financings out of cash from operations and the proceeds from other short- and long-term debt financings, although The Bon-Ton Stores, Inc. does not have any firm plans with respect to other capital raising transactions. We will need approximately $102.8 million to purchase all of the shares pursuant to the offer and to pay related fees and expenses. We will also need additional funds of approximately $7.4 million in connection with the cancellation, pursuant to the terms of the merger agreement, of options to acquire shares of common stock and deferred shares granted under the equity and performance incentive plan of The Elder-Beerman Stores Corp. As of August 2, 2003, The Bon-Ton Stores, Inc. had cash and cash equivalents and short-term investments in the amount of $14.8 million. See "The Offer -- Section 10." IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN YOUR OFFER? The financial condition of The Bon-Ton Stores, Inc. is relevant to any decision to tender shares because the offer is contingent upon our having received proceeds of the financings contemplated by its existing commitment letters or such other financings that are sufficient, together with cash on hand, to consummate our offer and the proposed merger and to refinance all debt of The Bon-Ton Stores, Inc. and The Elder-Beerman Stores Corp. that is or could be required to be repurchased or becomes, or could be declared, due and payable as a result of our offer or the proposed merger or the financing thereof and to pay all related fees and expenses. Although we have obtained commitment letters from financing sources, we cannot guarantee you that The Bon-Ton Stores, Inc. will be able to obtain the financings contemplated by its existing commitment letters or such other financings. You should consider all of the information concerning the financial condition of The Bon-Ton Stores, Inc. included or incorporated by reference into this Offer to Purchase before deciding to tender shares in our offer. See "The Offer -- Section 9." WHAT DOES THE BOARD OF DIRECTORS OF THE ELDER-BEERMAN STORES CORP. THINK OF YOUR OFFER? The independent directors of The Elder-Beerman Stores Corp. (with one director absent) have unanimously (1) determined that the Merger Agreement, our offer and the proposed merger are advisable, fair to and in the best interests of The Elder-Beerman Stores Corp. and its shareholders, (2) approved the merger agreement, our offer and the proposed merger and (3) recommended that Elder-Beerman shareholders accept our offer and tender their shares pursuant to our offer. See "Introduction." HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN YOUR OFFER? You have until the expiration date of our offer to tender. Our offer currently is scheduled to expire at 12:00 Midnight, New York City time, on Tuesday, October 21, 2003. We currently expect that our offer will be extended, if necessary, until the conditions to our offer are satisfied. If our offer is extended, we will issue a press release announcing the extension at or before 9:00 A.M. New York City time on the next business day after the date our offer was scheduled to expire. See "The Offer -- Section 1." We may elect to provide a "subsequent offering period" for our offer. A subsequent offering period, if one is included, will be an additional period of time beginning after we have accepted for purchase shares tendered during our offer, during which shareholders may tender, but not withdraw, their shares and receive the offer consideration. We do not currently intend to include a subsequent offering period, although we reserve the right to do so. See "The Offer -- Section 1." ii HOW WILL I BE NOTIFIED IF YOUR OFFER IS EXTENDED? If we decide to extend our offer, we will inform American Stock Transfer & Trust Company, the depositary for our offer, of that fact and will make a public announcement of the extension, no later than 9:00 A.M., New York City time, on the next business day after the date our offer was scheduled to expire. See "The Offer -- Section 1." WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO YOUR OFFER? Our offer is conditioned upon, among other things, - there being validly tendered and not withdrawn before the expiration of our offer a number of shares, that, together with the shares then owned by The Bon-Ton Stores, Inc. and its subsidiaries (including us), represents at least two-thirds of the total number of shares outstanding on a fully diluted basis, - The Bon-Ton Stores, Inc. having available to it proceeds of the financings contemplated by its existing commitment letters or such other financings that are sufficient, together with cash on hand, to consummate our offer and the proposed merger and to refinance all debt of The Bon-Ton Stores, Inc. and The Elder-Beerman Stores Corp. that is or could be required to be repurchased or becomes, or could be declared, due and payable as a result of our offer or the proposed merger or the financing thereof and to pay all related fees and expenses, - the expiration of the period during which the Ohio Division of Securities may suspend our offer pursuant to the Ohio Control Bid Law, without the occurrence of any such suspension (or if a suspension shall have occurred, it shall no longer be continuing), or The Bon-Ton Stores, Inc. being satisfied, in its reasonable discretion, that the Ohio Control Bid Law is invalid or inapplicable to the acquisition of the shares as described herein, and - the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. See "Introduction" and "The Offer -- Section 15." HOW DO I TENDER MY SHARES? To tender shares, you must deliver the certificates representing your shares, together with a completed Letter of Transmittal and any other required documents, to American Stock Transfer & Trust Company, the depositary for our offer, not later than the time our offer expires. If your shares are held in street name by your broker, dealer, bank, trust company or other nominee, such nominee can tender your shares through The Depository Trust Company. If you cannot deliver everything required to make a valid tender to the depositary before the expiration of our offer, you may have a limited amount of additional time by having a financial institution (including most banks, savings and loan associations and brokerage houses) that is a member of a recognized Medallion Program approved by The Securities Transfer Association Inc., including the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock Exchange, Inc. Medallion Signature Program (MSP), guarantee, pursuant to a Notice of Guaranteed Delivery, that the missing items will be received by the depositary within three Nasdaq National Market trading days. However, the depositary must receive the missing items within that three trading day period. See "The Offer -- Section 3." UNTIL WHAT TIME CAN I WITHDRAW TENDERED SHARES? You can withdraw tendered shares at any time until our offer has expired, and, if we have not by Saturday, November 22, 2003, agreed to accept your shares for payment, you can withdraw them at any time after such time until we accept shares for payment. You may not, however, withdraw shares tendered during a subsequent offering period, if one is included. See "The Offer -- Section 4." iii HOW DO I WITHDRAW TENDERED SHARES? To withdraw tendered shares, you must deliver a written notice of withdrawal, or a facsimile of one, with the required information to American Stock Transfer & Trust Company while you have the right to withdraw the shares. See "The Offer -- Section 4." WHEN AND HOW WILL I BE PAID FOR MY TENDERED SHARES? Subject to the terms and conditions of our offer, we will pay for all validly tendered and not withdrawn shares promptly after the later of the date of expiration of our offer and the satisfaction or waiver of the conditions to our offer set forth in "The Offer -- Section 15" relating to governmental or regulatory approvals. We do, however, reserve the right, in our sole discretion and subject to applicable law, to delay payment for shares until satisfaction of all conditions to our offer relating to governmental or regulatory approvals. See "The Offer -- Section 2." We will pay for your validly tendered and not withdrawn shares by depositing the purchase price with American Stock Transfer & Trust Company, which will act as your agent for the purpose of receiving payments from us and transmitting such payments to you. In all cases, payment for tendered shares will be made only after timely receipt by American Stock Transfer & Trust Company of certificates for such shares (or of a confirmation of a book-entry transfer of such shares as described in "The Offer -- Section 3"), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents for such shares. See "The Offer -- Section 2." WILL YOUR OFFER BE FOLLOWED BY A MERGER IF ALL SHARES OF THE ELDER-BEERMAN STORES CORP. ARE NOT TENDERED IN YOUR OFFER? If we accept for payment and pay for at least two-thirds of the outstanding shares on a fully diluted basis, we will be merged with and into The Elder-Beerman Stores Corp. If that merger takes place, The Bon-Ton Stores, Inc. will indirectly own all of the shares and all remaining shareholders (other than us, The Bon-Ton Stores, Inc. and shareholders properly exercising their dissenters' rights) will receive the price per share paid in our offer. See "The Offer -- Section 12." IF TWO-THIRDS OF THE SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL THE ELDER-BEERMAN STORES CORP. CONTINUE AS A PUBLIC COMPANY? No. If the merger with us takes place, The Elder-Beerman Stores Corp. will no longer be publicly owned. Even if the merger does not take place, if we purchase all the tendered shares, there may be so few remaining shareholders and publicly held shares that the shares will no longer be eligible to be traded on a securities exchange or quoted on Nasdaq, there may not be a public trading market for the shares, and The Elder-Beerman Stores Corp. may cease making filings with the Securities and Exchange Commission or otherwise cease being required to comply with the SEC rules relating to publicly held companies. See "The Offer -- Section 7." IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES? If our offer is successful, we will conclude a merger transaction in which all shares of The Elder-Beerman Stores Corp. will be exchanged for an amount in cash per share equal to the price per share paid in the offer. If the proposed merger takes place, shareholders who do not tender in our offer (other than those properly exercising their dissenters' rights) will receive the same amount of cash per share that they would have received had they tendered their shares in our offer. Therefore, if such merger takes place, other than for shareholders who exercise their dissenters' rights, the only difference between tendering and not tendering shares in our offer is that tendering shareholders will be paid earlier. If, however, the merger does not take place and our offer is consummated, the number of shareholders and of shares that are still in the hands of the public may be so small that there will no longer be an active or liquid public trading market (or, possibly, any public trading market) for the shares, which may affect prices at which the shares trade. Also, as described above, The Elder-Beerman Stores Corp. may cease making filings with the Securities and Exchange iv Commission or being required to comply with the SEC rules relating to publicly held companies. See "The Offer -- Section 7." WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE? On May 12, 2003, the day on which two competing proposals to acquire The Elder-Beerman Stores Corp. were considered by it prior to entering into an agreement to engage in exclusive discussions with one of the bidders, the last reported price on the Nasdaq National Market was $3.08 per share. On July 28, 2003, the last full trading day before the announcement of our intention to pursue a business combination with The Elder-Beerman Stores Corp., the last reported sales price reported on the Nasdaq National Market was $6.02 per share. On September 19, 2003, the last full trading day before we printed this offer to purchase, the last reported sales price on the Nasdaq National Market was $7.98 per share. Please obtain a recent quotation for your shares prior to deciding whether or not to tender. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATING IN YOUR OFFER? In general, your sale of shares pursuant to our offer will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. You should consult your tax advisor about the tax consequences to you of participating in our offer in light of your particular circumstances. See "The Offer -- Section 5." WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT YOUR OFFER? You can call Innisfree M&A Incorporated, the information agent for our offer, at the toll free number 888-750-5834 (banks and brokers call collect at 212-750-5833) or Lazard Freres & Co. LLC, the dealer manager for our offer, at 212-632-6717 (call collect). See the back cover of this Offer to Purchase. v To the Shareholders of The Elder-Beerman Stores Corp.: INTRODUCTION We, Elder Acquisition Corp. ("we," "us" or "Purchaser"), an Ohio corporation and an indirect wholly owned subsidiary of The Bon-Ton Stores, Inc., a Pennsylvania corporation ("Parent"), are offering to purchase all outstanding shares of common stock (the "Common Stock"), no par value, of The Elder-Beerman Stores Corp., an Ohio corporation (the "Company"), and the associated stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Rights Agreement, dated as of December 30, 1997 and amended as of November 11, 1998, June 25, 2003 and September 15, 2003, between The Elder-Beerman Stores Corp. and Norwest Bank Minnesota, N.A. as Rights Agent (the "Rights Agreement"), for $8.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Shareholders who have Shares registered in their own names and tender directly to American Stock Transfer & Trust Company, the depositary for the Offer (the "Depositary"), will not have to pay brokerage fees or commissions. Shareholders with Shares held in street name by a broker, dealer, bank, trust company or other nominee should consult with their nominee to determine if they charge any transaction fees. Except as set forth in Instruction 6 of the Letter of Transmittal, shareholders will not have to pay transfer taxes on the sale of Shares pursuant to the Offer. We will pay all charges and expenses of Lazard Freres & Co. LLC (the "Dealer Manager"), the Depositary and Innisfree M&A Incorporated (the "Information Agent") incurred in connection with the Offer. See "The Offer -- Section 17." THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE FOLLOWING: - THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN BEFORE THE EXPIRATION DATE (AS DEFINED BELOW) A NUMBER OF SHARES, THAT, TOGETHER WITH THE SHARES THEN OWNED BY PARENT AND ITS SUBSIDIARIES (INCLUDING US), REPRESENTS AT LEAST TWO-THIRDS OF THE TOTAL NUMBER OF SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM TENDER CONDITION"), - PARENT HAVING AVAILABLE TO IT PROCEEDS OF THE FINANCINGS CONTEMPLATED BY ITS EXISTING COMMITMENT LETTERS OR SUCH OTHER FINANCINGS THAT ARE SUFFICIENT, TOGETHER WITH CASH ON HAND, TO CONSUMMATE THE OFFER AND THE MERGER (AS DEFINED BELOW) AND TO REFINANCE ALL DEBT OF THE COMPANY AND PARENT THAT IS OR COULD BE REQUIRED TO BE REPURCHASED OR BECOMES, OR COULD BE DECLARED, DUE AND PAYABLE AS A RESULT OF THE OFFER OR THE MERGER OR THE FINANCING THEREOF AND TO PAY ALL RELATED FEES AND EXPENSES (THE "FINANCING CONDITION"), - THE EXPIRATION OF THE PERIOD OF TIME DURING WHICH THE OHIO DIVISION OF SECURITIES MAY SUSPEND THE OFFER PURSUANT TO SECTIONS 1707.01, 1707.041 AND 1707.042 OF THE OHIO REVISED CODE (THE "OHIO CONTROL BID LAW"), WITHOUT THE OCCURRENCE OF ANY SUCH SUSPENSION (OR IF A SUSPENSION SHALL HAVE OCCURRED, IT SHALL NO LONGER BE CONTINUING), OR PARENT BEING SATISFIED, IN ITS REASONABLE DISCRETION, THAT THE OHIO CONTROL BID LAW IS INVALID OR INAPPLICABLE TO THE ACQUISITION OF THE SHARES AS DESCRIBED HEREIN (THE "CONTROL BID CONDITION"), AND - THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR CONDITION"). SEE "THE OFFER -- SECTION 15." For purposes of the Offer, the term on a "fully diluted basis" means the number of Shares then issued and outstanding plus the number of Shares that the Company may be required to issue as of such date pursuant to options, warrants, rights, convertible or exchangeable securities or similar obligations then outstanding, whether or not then vested or exercisable, including, without limitation, Shares that the Company may be required to issue pursuant to Company options, whether or not vested or exercisable, and the number of deferred shares granted under the Company's equity and performance incentive plan then outstanding, whether or not then subject to any deferral limitations, 1 The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of September 15, 2003 (the "Merger Agreement"), by and among Parent, Purchaser and the Company. The Merger Agreement provides, among other things, that as promptly as practicable after the purchase of the Shares pursuant to the Offer and the satisfaction, or, if permissible, waiver of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the Ohio General Corporation Law (the "Ohio Law"), Purchaser will be merged with and into the Company (the "Merger"). As a result, the Company will continue as the surviving corporation and will become an indirect wholly owned subsidiary of Parent. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held by Parent or any subsidiary of Parent and other than Shares held by shareholders who shall have demanded and perfected dissenters' rights under the Ohio Law, if any) shall be converted automatically into the right to receive $8.00 in cash, or any higher price that may be paid per Share in the Offer, without interest. Shareholders who demand and fully perfect dissenters' rights under the Ohio Law will be entitled to receive, in connection with the Merger, payments for the fair cash value of their Shares as determined pursuant to the procedures prescribed by the Ohio Law. See "The Offer -- Section 12." The Merger Agreement is described in "The Offer -- Section 13." The Merger Agreement provides that promptly upon the date that Shares are first accepted for purchase by Purchaser pursuant to the Offer, and from time to time thereafter, Purchaser will be entitled to designate up to such number of directors, rounded up to the next whole number, on the Company's Board of Directors (the "Company Board") as shall give Purchaser representation on the Company Board equal to the product of the total number of directors on the Company Board (giving effect to the directors elected pursuant to the Merger Agreement) multiplied by the percentage that the aggregate number of Shares then beneficially owned by Purchaser and Parent following such purchase bears to the total number of Shares then outstanding, provided that prior to the Effective Time, four of the current members of the Company Board, including the current Chief Executive Officer of the Company and three members of the Company Board who are not employed by the Company and who are not affiliates, associates or employees of Parent or Purchaser shall continue to serve as directors. Such four members are referred to in this Offer to Purchase as the post-Offer independent directors. In the Merger Agreement, the Company has agreed, at such time, to use its reasonable best efforts to cause Purchaser's designees to be elected as directors of the Company. The consummation of the Merger is subject to the satisfaction or waiver of certain conditions, including the consummation of the Offer, and, if necessary, the approval and adoption of the Merger Agreement by the requisite vote of the shareholders of the Company. For a more detailed description of the conditions to the Merger, please see "The Offer -- Section 13." Under the Ohio Law, the affirmative vote of the holders of at least two-thirds of the outstanding Shares is required to approve and adopt the Merger Agreement. Consequently, if Purchaser acquires (pursuant to the Offer or otherwise) at least two-thirds of the outstanding Shares, then Purchaser will have sufficient voting power to approve and adopt the Merger Agreement without the affirmative vote of any other shareholder. In addition, if we acquire, pursuant to the Offer or otherwise, at least 90% of the outstanding Shares, we believe we would be able to approve the Merger without a vote of the Company's shareholders. If we do not acquire at least 90% of the outstanding Shares, we will have to seek approval of the Merger by the Company's shareholders. See "The Offer -- Section 12." THE INDEPENDENT DIRECTORS OF THE COMPANY (WITH ONE DIRECTOR ABSENT) UNANIMOUSLY (1) DETERMINED THAT THE MERGER AGREEMENT, THE OFFER AND THE MERGER ARE ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, (2) APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER AND (3) RECOMMENDED THAT THE COMPANY'S SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. On September 15, 2003, RBC Dain Rauscher Inc. ("RBC"), a member company of RBC Capital Markets, as financial advisor to the Company in connection with the Offer and the Merger, delivered its written opinion to the Company Board that, as of that date and subject to the assumptions, qualifications and limitations set forth in its opinion, the $8.00 per share cash consideration to be received by the holders of Shares in the Offer and the Merger was fair, from a financial point of view, to them. The full text of the written opinion of RBC is contained in the Company's Solicitation/Recommendation Statement on Schedule l4D-9 (the "Schedule 14D-9") filed with the Securities and Exchange Commission (the "SEC"), and which is 2 being mailed to you concurrently herewith. The summary of that opinion which is located in the section of the Schedule 14D-9 entitled "Opinion of Financial Advisor" is qualified by reference to the full text of that opinion, which you are urged to read carefully in its entirety. The opinion does not constitute a recommendation as to whether you should tender any of your Shares into the Offer. The Company has advised Purchaser that as of September 15, 2003, there were outstanding 11,585,457 Shares, an aggregate of 1,722,097 Shares were issuable upon or otherwise deliverable in connection with the exercise of outstanding employee stock options and an aggregate of 57,643 deferred shares granted under the Company's equity and performance incentive plan were outstanding. Parent and Purchaser beneficially own 100 Shares representing a negligible percentage of the outstanding Shares. Accordingly, upon the purchase of at least 8,910,032 Shares pursuant to the Offer, Parent will have beneficial ownership of Shares representing approximately two-thirds of the total voting power of all shares of capital stock of the Company on a fully diluted basis. The Company has historically not paid cash dividends on the Shares. If we acquire control of the Company, we currently intend that no dividends will be declared on the Shares prior to the acquisition of the entire equity interest in the Company. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION, AND YOU SHOULD CAREFULLY READ BOTH IN THEIR ENTIRETY BEFORE YOU MAKE A DECISION WITH RESPECT TO THE OFFER. 3 THE OFFER 1. Terms of the Offer. Upon the terms and subject to the conditions set forth in the Offer, we will accept for payment and pay for all Shares that are validly tendered before the Expiration Date and not withdrawn. "Expiration Date" means 12:00 Midnight, New York City time, on Tuesday, October 21, 2003, unless extended, in which event "Expiration Date" means the latest time and date at which the Offer, as so extended, shall expire. The Offer is subject to the conditions set forth under "The Offer -- Section 15." Subject to the applicable rules and regulations of the SEC and subject to the terms and conditions of the Merger Agreement (which provides that the Minimum Tender Condition may not be waived without the prior consent of the Company), Purchaser expressly reserves the right to waive any such conditions in whole or in part, in its sole discretion, and also expressly reserves the right to increase the price per Share payable in the Offer and to make any other changes in the terms and conditions of the Offer; provided, however, that Purchaser may not decrease the price per Share payable in the Offer, reduce the maximum number of Shares to be purchased in the Offer, change the form of consideration payable in the Offer, add to or change the conditions to the Offer as set forth in "The Offer -- Section 15," waive the Minimum Tender Condition, or modify or amend any other condition to the Offer in any manner that is materially adverse to the holders of Shares. The Merger Agreement provides that Purchaser may, without the consent of the Company, (i) extend the Offer beyond the scheduled Expiration Date in increments of not more than 10 business days each, if at the then scheduled Expiration Date any of the conditions to Purchaser's obligation to purchase Shares are not satisfied, (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC, or the staff thereof, applicable to the Offer, or (iii) make available a subsequent offering period as set forth in this Offer to Purchase. In addition, the Merger Agreement provides that if the conditions to the Offer are not satisfied or, to the extent permitted by the Merger Agreement, waived by Parent or Purchaser as of the date that the Offer would otherwise have expired, then, except to the extent that such conditions are incapable of being satisfied, at the request of the Company, Purchaser will extend the Offer from time to time until the earlier of October 31, 2003 or the consummation of the Offer. During any extension of the Offer, all Shares previously tendered and not withdrawn will remain subject to the Offer and, except if a Subsequent Offering Period (as defined below) is commenced, subject to the right of a tendering shareholder to withdraw such shareholder's Shares. See "The Offer -- Section 4." Under no circumstances will interest be paid on the purchase price for tendered Shares, whether or not the Offer is extended. Any extension of the Offer may be effected by Purchaser giving oral or written notice of such extension to the Depositary. If we increase the consideration to be paid for Shares pursuant to the Offer and the Offer is scheduled to expire at any time before the expiration of a period of 10 business days from, and including, the date that notice of such increase is first published, sent or given in the manner specified below, the Offer shall be extended until the expiration of such period of 10 business days. If we make any other material change in the terms of or information concerning the Offer or waive a material condition of the Offer, we will extend the Offer, if required by applicable law, for a period sufficient to allow you to consider the amended terms of the Offer. In a published release, the SEC has stated that in its view an offer must remain open for a minimum period of time following a material change in the terms of such offer and that the waiver of a condition such as the Minimum Tender Condition is a material change in the terms of an offer. The release states that an offer should remain open for a minimum of five business days from the date the material change is first published, sent or given to shareholders, and that if material changes are made with respect to information that approaches the significance of price and share levels, a minimum of 10 business days may be required to allow adequate dissemination and investor response. "Business day" means any day other than Saturday, Sunday or a U.S. federal holiday and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York City time. If we extend the Offer, are delayed in accepting for payment or paying for Shares or are unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to our rights under the Offer, the Depositary may, on our behalf, retain all Shares tendered, and such Shares may not be withdrawn except as provided in "The Offer -- Section 4." Our reservation of the right to delay acceptance for 4 payment of or payment for Shares is subject to applicable law, which requires that we pay the consideration offered or return the Shares deposited by or on behalf of shareholders promptly after the termination or withdrawal of the Offer. Any extension, delay, termination, waiver or amendment of the Offer will be followed as promptly as practicable by a public announcement thereof. Without limiting the manner in which we may choose to make any public announcement, we will have no obligation (except as otherwise required by applicable law) to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. In the case of an extension of the Offer, we will make a public announcement of such extension no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. After the expiration of the Offer, we may, but are not obligated to, include a subsequent offering period of between three and 20 business days to permit additional tenders of Shares (a "Subsequent Offering Period"). Pursuant to Rule 14d-11 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we may include a Subsequent Offering Period so long as, among other things, (i) the Offer remains open for a minimum of 20 business days and has expired, (ii) all conditions to the Offer are satisfied or waived by us on or before the Expiration Date, (iii) we accept and promptly pay for all securities validly tendered during the Offer, (iv) we announce the results of the Offer, including the approximate number and percentage of Shares deposited in the Offer, no later than 9:00 A.M., New York City time, on the next business day after the Expiration Date and immediately begin the Subsequent Offering Period, (v) we immediately accept and promptly pay for Shares as they are tendered during the Subsequent Offering Period and (vi) we offer the same form and amount of consideration to shareholders in both the initial and the Subsequent Offering Period. In addition, we may extend any initial Subsequent Offering Period by any period or periods, provided that the aggregate of the Subsequent Offering Period (including extensions thereof) is no more than 20 business days. No withdrawal rights apply to Shares tendered in a Subsequent Offering Period, and no withdrawal rights apply during a Subsequent Offering Period with respect to Shares previously tendered in the Offer and accepted for payment. The same price paid in the Offer will be paid to shareholders tendering Shares in the Offer or in a Subsequent Offering Period, if one is included. We do not currently intend to include a Subsequent Offering Period, although we reserve the right to do so. If we elect to include or extend a Subsequent Offering Period, we will make a public announcement of such inclusion or extension no later than 9:00 A.M., New York City time, on the next business day after the Expiration Date or date of termination of any prior Subsequent Offering Period. The Company has provided Purchaser with the Company's shareholder list and security position listings, including the most recent list of names, addresses and security positions of non-objecting beneficial owners in the possession of the Company, for purposes of disseminating the Offer to holders of Shares. We will send this Offer to Purchase, the related Letter of Transmittal and other related documents to record holders of Shares and to brokers, dealers, banks, trust companies and other nominees whose names appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 2. Acceptance for Payment and Payment. Upon the terms and subject to the conditions of the Offer, we will accept for payment and pay for all Shares validly tendered before the Expiration Date and not withdrawn promptly after the later of the Expiration Date and the satisfaction or waiver of all conditions set forth in "The Offer -- Section 15" relating to governmental or regulatory approvals. Subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act, we reserve the right, in our sole discretion and subject to applicable law, to delay the acceptance for payment or payment for Shares until satisfaction of all conditions to the Offer relating to governmental or regulatory approvals. For a description of our right to terminate the Offer and not accept for payment or pay for Shares or to delay acceptance for payment or payment for Shares, see "The Offer -- Section 15." If we increase the consideration to be paid for Shares pursuant to the Offer, we will pay such increased consideration for all Shares purchased pursuant to the Offer. 5 We will pay for Shares accepted for payment pursuant to the Offer by depositing the purchase price with the Depositary, which will act as your agent for the purpose of receiving payments from us and transmitting such payments to you. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (as defined in "The Offer -- Section 3")) and, if the Distribution Date (as defined below) occurs, certificates for Rights (or a confirmation of book-entry transfer, if available, of such Rights into the Depositary's account at the Book-Entry Transfer Facility), (ii) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and (iii) any other required documents. For a description of the procedure for tendering Shares pursuant to the Offer, see "The Offer -- Section 3." Accordingly, payment may be made to tendering shareholders at different times if delivery of the Shares and other required documents occurs at different times. UNDER NO CIRCUMSTANCES WILL WE PAY INTEREST ON THE CONSIDERATION PAID FOR SHARES PURSUANT TO THE OFFER, REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the Offer, we shall be deemed to have accepted for payment tendered Shares when, as and if we give oral or written notice of our acceptance to the Depositary. We reserve the right to transfer or assign, in whole or from time to time in part, to one or more of our affiliates the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve us of our obligations under the Offer or prejudice your rights to receive payment for Shares validly tendered and accepted for payment. If any tendered Shares are not purchased pursuant to the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased or untendered Shares will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), without expense to you, as promptly as practicable following the expiration or termination of the Offer. 3. Procedure for Tendering Shares. Valid Tender of Shares. To tender Shares pursuant to the Offer, either (i) the Depositary must receive at one of its addresses set forth on the back cover of this Offer to Purchase (a) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by the Letter of Transmittal and (b) certificates for the Shares (including, if the Distribution Date occurs, certificates for the Rights) to be tendered or delivery of such Shares pursuant to the procedures for book-entry transfer described below (and a confirmation of such delivery including an Agent's Message (as defined below) if the tendering shareholder has not delivered a Letter of Transmittal), in each case by the Expiration Date, or (ii) the guaranteed delivery procedure described below must be complied with. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT YOUR OPTION AND RISK, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, WE RECOMMEND REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IN TIME TO BE RECEIVED ON OR PRIOR TO THE EXPIRATION DATE. The tender of Shares pursuant to any one of the procedures described above will constitute your acceptance of the Offer, as well as your representation and warranty that (i) you own the Shares being tendered within the meaning of Rule 14e-4 under the Exchange Act, (ii) the tender of such Shares complies with Rule 14e-4 under the Exchange Act and (iii) you have the full power and authority to tender, sell, assign and transfer the Shares tendered, as specified in the Letter of Transmittal. Our acceptance for payment of Shares tendered by you pursuant to the Offer will constitute a binding agreement between us with respect to such Shares, upon the terms and subject to the conditions of the Offer. Book-Entry Delivery. The Depositary will establish an account with respect to the Shares for purposes of the Offer at The Depository Trust Company (the "Book-Entry Transfer Facility") within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may deliver Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of the Book-Entry Transfer Facility. 6 However, although delivery of Shares may be effected through book-entry transfer, the Letter of Transmittal (or facsimile thereof) properly completed and duly executed together with any required signature guarantees or an Agent's Message and any other required documents must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the guaranteed delivery procedure described below must be complied with. Delivery of the Letter of Transmittal and any other required documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary. "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a book-entry confirmation stating that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that are the subject of such book-entry confirmation that such participant has received, and agrees to be bound by, the terms of the Letter of Transmittal and that the Company may enforce such agreement against such participant. Signature Guarantees. All signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) that is a member of a recognized Medallion Program approved by The Securities Transfer Association Inc., including the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock Exchange, Inc. Medallion Signature Program (MSP) or any other "eligible guarantor institution" (as such term is defined in Rule 17Ad-15 under the Exchange Act) (each, an "Eligible Institution"), unless (i) the Letter of Transmittal is signed by the registered holder of the Shares tendered therewith and such holder has not completed the box entitled "Special Payment Instructions" on the Letter of Transmittal or (ii) such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery. If you wish to tender Shares pursuant to the Offer and cannot deliver such Shares and all other required documents to the Depositary by the Expiration Date or cannot complete the procedure for delivery by book-entry transfer on a timely basis, you may nevertheless tender such Shares if all of the following conditions are met: - such tender is made by or through an Eligible Institution; - a properly completed and duly executed Notice of Guaranteed Delivery in the form provided by Purchaser is received by the Depositary (as provided below) by the Expiration Date; and - the certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) together with any required signature guarantee or an Agent's Message and any other required documents, are received by the Depositary within three Nasdaq National Market ("Nasdaq") trading days after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice. Backup Withholding. Under the U.S. federal income tax laws, backup withholding will apply to any payments made pursuant to the Offer unless you provide the Depositary with your correct taxpayer identification number and certify that you are not subject to such backup withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. If you are a non-resident alien or foreign entity not subject to backup withholding, you must give the Depositary a completed Form W-8BEN Certificate of Foreign Status before receipt of any payment. Appointment of Proxy. By executing a Letter of Transmittal, you irrevocably appoint our designees as your proxies in the manner set forth in the Letter of Transmittal to the full extent of your rights with respect to the Shares tendered and accepted for payment by us. All such proxies are irrevocable and coupled with an interest in the tendered Shares. Such appointment is effective only upon our acceptance for payment of such Shares. Upon such acceptance for payment, all prior proxies and consents granted by you with respect to such 7 Shares and other securities will, without further action, be revoked, and no subsequent proxies may be given (and, if previously given, will cease to be effective). Our designees will be empowered to exercise all your voting and other rights as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the Company's shareholders. We reserve the right to require that, in order for Shares to be deemed validly tendered, immediately upon our acceptance for payment of such Shares, we or our designee must be able to exercise full voting rights with respect to such Shares and other securities (including voting at any meeting of shareholders). THE FOREGOING PROXIES ARE EFFECTIVE ONLY UPON ACCEPTANCE FOR PAYMENT OF SHARES PURSUANT TO THE OFFER. THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES, ABSENT A PURCHASE OF SHARES, FOR ANY MEETING OF THE COMPANY'S SHAREHOLDERS. Determination of Validity. We will determine, in our sole discretion, all questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares, and our determination shall be final and binding. We reserve the absolute right to reject any or all tenders of Shares that we determine not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any defect or irregularity in any tender of Shares. None of Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in tenders or waiver of any such defect or irregularity or incur any liability for failure to give any such notification. 4. Withdrawal Rights. You may withdraw tenders of Shares made pursuant to the Offer at any time before the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after Saturday, November 22, 2003, unless such Shares have been accepted for payment as provided in this Offer to Purchase. If we extend the period of time during which the Offer is open, are delayed in accepting for payment or paying for Shares or are unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to our rights under the Offer, the Depositary may, on our behalf, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in this Section 4. For your withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal with respect to the Shares must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase, and the notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of Shares, if different from that of the person who tendered such Shares. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with (except in the case of Shares tendered by an Eligible Institution) signatures guaranteed by an Eligible Institution must be submitted before the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered. However, withdrawn Shares may be retendered by again following one of the procedures described in "The Offer -- Section 3" at any time before the Expiration Date. If we include a Subsequent Offering Period (as described in more detail in "The Offer -- Section 1") following the Offer, no withdrawal rights will apply to Shares tendered in such Subsequent Offering Period and no withdrawal rights apply during such Subsequent Offering Period with respect to Shares previously tendered in the Offer and accepted for payment. We will determine, in our sole discretion, all questions as to the form and validity (including time of receipt) of any notice of withdrawal, and our determination shall be final and binding. None of Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or waiver of any such defect or irregularity or incur any liability for failure to give any such notification. 8 5. Certain Tax Considerations. The U.S. federal income tax discussion set forth below is included for general information only and is based upon present law. Due to the individual nature of tax consequences, you are urged to consult your tax advisors as to the specific tax consequences to you of the Offer, including the effects of applicable state, local and other tax laws. THE FOLLOWING DISCUSSION MAY NOT APPLY TO CERTAIN SHAREHOLDERS. FOR EXAMPLE, THE FOLLOWING DISCUSSION MAY NOT APPLY TO YOU IF YOU ACQUIRED YOUR SHARES PURSUANT TO THE EXERCISE OF STOCK OPTIONS OR OTHER COMPENSATION ARRANGEMENTS WITH THE COMPANY, YOU ARE NOT A CITIZEN OR RESIDENT OF THE UNITED STATES OR YOU ARE OTHERWISE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. Your sale of Shares pursuant to the Offer will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local and other tax laws. In general, if you tender Shares pursuant to the Offer, you will recognize gain or loss equal to the difference between the tax basis of your Shares and the amount of cash received in exchange therefor. Such gain or loss will be capital gain or loss if you hold the Shares as capital assets and will be long-term gain or loss if your holding period for the Shares is more than one year as of the date of the sale of such Shares. A shareholder whose Shares are purchased in the Offer may be subject to backup withholding unless certain information is provided to the Depositary or an exemption applies. See "The Offer -- Section 3 -- Backup Withholding." 6. Price Range of Shares; Dividends. The Shares are listed and principally traded on Nasdaq under the symbol EBSC. The following table sets forth for the Company's fiscal periods indicated the high and low sales prices per Share on Nasdaq as reported in published financial sources:
HIGH LOW ----- ----- 2001 Second Quarter............................................ $4.00 $2.86 Third Quarter............................................. 4.38 2.75 Fourth Quarter............................................ 3.30 2.56 2002 First Quarter............................................. 3.73 1.54 Second Quarter............................................ 3.57 2.08 Third Quarter............................................. 3.00 1.75 Fourth Quarter............................................ 3.00 1.02 2003 First Quarter............................................. 3.24 1.95 Second Quarter............................................ 6.84 2.70 Third Quarter (through Sept. 19, 2003).................... 8.11 6.45
On May 12, 2003, the day on which two competing proposals to acquire the Company were considered by it prior to entering into an agreement to engage in exclusive discussions with one of the bidders, the last reported price on Nasdaq was $3.08 per share. On July 28, 2003, the last full trading day before the announcement of our intention to commence the Offer, the last reported sales price of the Common Stock reported on Nasdaq was $6.02 per share. On September 15, 2003, the last full trading day before the Merger Agreement was executed, the last reported sales price on Nasdaq was $8.11 per share. On September 19, 2003, the last full trading day before we printed this Offer to Purchase, the last reported sales price on Nasdaq was $7.98 per share. PLEASE OBTAIN A RECENT QUOTATION FOR YOUR SHARES PRIOR TO DECIDING WHETHER OR NOT TO TENDER. The Company has never paid a cash dividend on the Shares. Pursuant to the Merger Agreement, the Company is not permitted to declare, set aside or pay any dividend or distribution on any Shares, or redeem or otherwise acquire any shares of capital stock of the Company, without the consent of Parent. If we acquire 9 control of the Company, we currently intend that no dividends will be declared on the Shares prior to our acquisition of the entire equity interest in the Company. 7. Possible Effects of the Offer on the Market for the Shares; Stock Exchange Listing; Registration under the Exchange Act; Margin Regulations. Possible Effects of the Offer on the Market for the Shares. If the Merger is consummated, shareholders not tendering their Shares in the Offer (other than those properly exercising their dissenters' rights) will receive cash in an amount equal to the price per Share paid in the Offer. Therefore, if the Merger takes place, other than for shareholders who properly exercise their dissenters' rights, the only difference between tendering and not tendering Shares in the Offer is that tendering shareholders will be paid earlier. If, however, the Merger does not take place and the Offer is consummated, the number of shareholders and of Shares that are still in the hands of the public may be so small that there will no longer be an active or liquid public trading market (or possibly any public trading market) for Shares held by shareholders other than Purchaser. We cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Shares or whether such reduction would cause future market prices to be greater or less than the price paid in the Offer. Nasdaq Quotations. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the standards for continued inclusion in Nasdaq. If, as a result of the purchase of Shares pursuant to the Offer, the Shares no longer meet the criteria for continuing inclusion in Nasdaq, the market for the Shares could be adversely affected. According to Nasdaq's published guidelines, the Shares would not meet the criteria for continued inclusion in Nasdaq if, among other things, the number of publicly held Shares were less than 750,000, the aggregate market value of the publicly held Shares were less than $5,000,000 or there were fewer than two market makers for the Shares. If, as a result of the purchase of the Shares pursuant to the Offer, the Shares no longer meet these standards, the quotations on Nasdaq will be discontinued. In the event the Shares were no longer quoted on Nasdaq, quotations might still be available from other sources. The extent of the public market for the Shares and availability of such quotations would, however, depend upon such factors as the number of holders and/or the aggregate market value of the publicly held Shares at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. Registration under the Exchange Act. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application of the Company to the SEC if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares and to the SEC and would make certain of the provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement to furnish a proxy statement pursuant to Section 14(a) in connection with a shareholders' meeting and the related requirement to furnish an annual report to shareholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act of 1933 (the "Securities Act"). If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or eligible for listing or Nasdaq reporting. The Merger Agreement provides that the Company, Parent and Purchaser shall cooperate with each other in taking all actions necessary to delist the Shares from Nasdaq and terminate registration under the Exchange Act so that such delisting and termination shall be effective after the expiration of the Offer or the effective time of the Merger, as appropriate. Margin Regulations. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. Depending upon factors similar to those described above regarding listing and market quotations, the Shares might no longer constitute "margin 10 securities" for the purposes of the Federal Reserve Board's margin regulations and, therefore, could no longer be used as collateral for loans made by brokers. 8. Certain Information Concerning the Company. Except as otherwise set forth in this Offer to Purchase, all of the information concerning the Company contained in this Offer to Purchase has been furnished by the Company or has been taken from or based upon publicly available documents and records on file with the SEC and other public sources. None of Parent, Purchaser, the Dealer Manager, the Information Agent or the Depositary can take responsibility for the accuracy or completeness of the information furnished by the Company or contained in such documents and records or for any failure by the Company to disclose events that may have occurred or may affect the significance or accuracy of any such information but that are unknown to Parent, Purchaser, the Dealer Manager, the Information Agent or the Depositary. According to the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2003 (the "Company 10-K"), the Company is incorporated in the State of Ohio and has been operating department stores since 1847. The principal executive offices of the Company are located at 3155 El-Bee Road, Dayton, Ohio 45439 and its telephone number at that address is (937) 296-2700. According to the Company 10-K, the Company operates department stores that sell a wide range of moderate to better branded merchandise, including women's, men's and children's apparel and accessories, cosmetics, home furnishings, and other consumer goods. In addition, the Company operates a credit card program through its wholly owned subsidiary, The El-Bee Chargit Corp. As of the end of its 2002 fiscal year, the Company operated 66 department stores and two furniture stores, principally in smaller to midsize Midwestern markets in Ohio, West Virginia, Indiana, Illinois, Michigan, Wisconsin, Kentucky and Pennsylvania. Preferred Stock Purchase Rights. The description of the Rights and the Rights Agreement as set forth in the Company's Form 8-A filed with the SEC on November 17, 1998 (the "Form 8-A") is incorporated herein by reference. The description of the Rights and the Rights Agreement is qualified in its entirety by reference to the Rights Agreement filed as an exhibit to the Form 8-A, as amended by Amendment No. 1 to the Rights Agreement dated November 11, 1998 and filed as an exhibit to the Form 8-A, Amendment No. 2 to the Rights Agreement dated June 25, 2003 and Amendment No. 3 to the Rights Agreement dated September 15, 2003, each of Amendment Nos. 2 and 3 filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 2, 2003. In the Merger Agreement, the Company has represented to Parent and Purchaser that the Company has taken all necessary actions so that neither the Rights nor the Rights Agreement will be applicable to the Offer, the Merger or the Merger Agreement. Unless the Company Board redeems the Rights, Company shareholders will be required to tender one Right for each share of Common Stock tendered in order to effect a valid tender of Shares in accordance with the procedures set forth in Section 3. Unless the "Distribution Date" under the Rights Agreement occurs, a tender of Common Stock will also constitute a tender of the Rights. Certain Financial Forecasts. Prior to entering into the Merger Agreement, Parent reviewed certain financial forecasts of the Company's future operating performance from publicly available documents on file with the SEC. Such financial forecasts are set forth below. The financial forecasts were prepared by the Company independently and were (except for certain information relating the fiscal year ending February 1, 2004) originally included in the Company's revised preliminary proxy materials filed with the SEC on August 29, 2003 and in Exhibit (c)(4) to the Schedule 13E-3 filed by the Company with the SEC on August 29, 2003. The financial forecasts for the fiscal year ending February 1, 2004, were revised by the Company after August 29, 2003 and provided to RBC prior to the delivery by RBC of its opinion as to the fairness, from a financial point of view, of the consideration to be paid to the Company's shareholders. Neither Parent or Purchaser nor Parent's certified public accountants or other representatives participated in any way with the preparation of the financial forecasts. The financial forecasts are included herein solely for the purpose of giving the Company's shareholders access to information that was provided to RBC, the Company's financial adviser, in connection with the rendering of its opinion, 11 and/or made available to us and other bidders for the Company, but was not previously sent to shareholders (although the information is publicly available). Neither we nor the Company as a matter of policy make public forecasts or projections of future performance or earnings. However, the Company's management prepared the historical financial information and financial forecasts for the Company's fiscal years ended February 1, 2000 through February 1, 2008 ("Financial Forecasts") set forth below in good faith and in the ordinary course of the Company's business for use by the Company's management in the Company's business. The Financial Forecasts were not prepared with a view towards public disclosure or compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for Prospective Financial Information or generally accepted accounting principles. The Company's certified public accountants have not examined or compiled the Financial Forecasts or expressed any conclusion or provided any form of assurance with respect to the Financial Forecasts and, accordingly, assume no responsibility for them. The Financial Forecasts, with respect to fiscal years 2003 through 2008, are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those statements and should be read with caution. They are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and recent developments. While presented with numerical specificity, the Financial Forecasts, as described below, are based upon a variety of estimates and hypothetical assumptions made by the Company's management including those described below. Some or all of the assumptions may not be realized, and they are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of the Company or us. Accordingly, there can be no assurance that the assumptions made in preparing the Financial Forecasts will prove accurate, and actual results may materially differ. In addition, the Financial Forecasts do not take into account any of the transactions contemplated by the Merger Agreement, including the Offer, the Merger and related financing, which may also cause actual results to differ materially. For these reasons, as well as the bases and assumptions on which the Financial Forecasts were compiled, the inclusion of the Financial Forecasts in this Offer to Purchase should not be regarded as an indication that the Financial Forecasts will be an accurate prediction of future events, and they should not be relied on as such. No one has made, or makes, any representation to any shareholder regarding the information contained in the Financial Forecasts and, except as required by applicable securities laws, neither we nor the Company intends to update or otherwise revise the Financial Forecasts to reflect circumstances existing after the date when made or to reflect the occurrences of future events even in the event that any or all of the assumptions are shown to be in error. The Financial Forecasts set forth below include EBIT and EBITDA. "EBIT" is defined as net income (loss) before income tax expense (benefit) and interest expense. "EBITDA" is defined as net income (loss) before income tax expense (benefit), interest expense, depreciation and amortization. Each of EBIT and EBITDA is a non-GAAP measure and should not be considered an alternative to any other measure of performance presented in accordance with GAAP. You should not consider EBIT or EBITDA in isolation from, or as a substitute for, net income (loss), cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. Each of EBIT and EBITDA is presented in the Financial Forecasts because management of the Company believes that it could be useful for investors in assessing projected operating performance and projected performance relative to financial obligations. Additionally, each of EBIT and EBITDA is a measure commonly used by financial analysts because of its usefulness in evaluating operating performance. Neither EBIT nor EBITDA, as used by the Company, is necessarily comparable with similarly titled measures of other companies, including Parent, because all companies do not calculate EBIT and EBITDA in the same fashion. 12
ADJUSTED HISTORICAL RESULTS(1) COMPANY MANAGEMENT FORECAST(1)(2)(3) FISCAL YEAR ENDED, FISCAL YEAR ENDED, ------------------------------ ---------------------------------------------------- 2/3/01 2/2/02 2/1/03 2/1/04 2/1/05 2/1/06 2/1/07 2/1/08 -------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, UNLESS OTHERWISE NOTED) SUMMARY DATA Number of Stores (ending)........... 64 68 68 69 72 74 77 80 Comparable store sales growth....... (0.8%) (3.5%) (2.4%) (1.3)% -- 1.0% 1.0% 1.0% Sales per square foot(4)............ $ 123 $ 119 $ 117 $ 117 $ 120 $ 122 $ 124 $ 126 INCOME STATEMENT Revenue.............. $675,209 $661,170 $657,667 $646,929 $678,166 $705,491 $733,648 $766,663 % Growth........... (2.1%) (0.5%) (1.6)% 4.8% 4.0% 4.0% 4.5% EBITDA............... $ 41,361 $ 39,019 $ 40,235 $ 40,690 $ 42,097 $ 46,206 $ 47,755 $ 50,276 % Margin........... 6.1% 5.9% 6.1% 6.3% 6.2% 6.5% 6.5% 6.6% EBIT................. $ 26,121 $ 20,279 $ 21,080 $ 22,125 $ 24,319 $ 28,201 $ 31,088 $ 32,942 % Margin........... 3.9% 3.1% 3.2% 3.4% 3.6% 4.0% 4.2% 4.3% Net income........... $ 7,227 $ 3,819 $ 5,242 $ 6,452 $ 9,950 $ 12,197 $ 13,422 $ 14,062 % Margin........... 1.1% 0.6% 0.8% 1.0% 1.5% 1.7% 1.8% 1.8% BALANCE SHEET Cash and cash equivalents........ $ 7,678 $ 7,142 $ 9,735 $ 7,500 $ 7,575 $ 7,550 $ 7,650 $ 7,625 Net debt............. $159,263 $146,878 $110,848 $ 94,500 $ 78,325 $ 65,150 $ 49,350 $ 38,675 Shareholders' equity............. $222,000 $217,210 $206,700 $215,600 $225,600 $237,800 $251,200 $265,300 RATIOS(5) Inventory turnover... 2.7x 2.8x 3.0x 3.1x 3.3x 3.4x 3.4x 3.4x Accounts receivable days............... 74.4 72.6 70.7 71.5 69.3 69.0 69.1 68.9 Accounts payable days............... 29.9 30.7 33.9 33.7 30.8 30.1 30.1 30.0 Net debt/net capitalization..... 41.8% 40.3% 34.9% 30.5% 25.8% 21.5% 16.4% 12.7% EBITDA/interest expense............ 3.0x 2.7x 3.3x 3.5x 5.5x 5.5x 5.3x 5.1x Total debt/EBITDA.... 4.0x 3.9x 3.0x 2.5x 2.0x 1.6x 1.2x 0.9x
- --------------- (1) Adjusted for special items. (2) The following are the principal assumptions used in the Company management forecasts: New Stores - New stores are added as follows: 2 in 2003, 3 in 2004, 2 in 2005 and 3 each in 2006 and 2007. - All new stores are assumed to be 55,000 gross square feet. New store capital expenditures is assumed at $2 million per store. Store Remodels - None Sales - Existing comparable store sales are projected to be flat in 2003 and then grow 1% annually thereafter; reflecting better execution of merchandising and marketing initiatives. 13 Gross Margin/Costs of Goods Sold - Gross Margin rate rises from 35.0% in 2002 to 35.4% in 2005 due to the impact of private label program and assortment planning package/tools. Selling, General and Administrative - Payroll inflation assumed at 2.5% annually, except selling payroll which is held at a constant percent to sales. - Inflation on non-payroll costs subject to inflation is assumed at 2.0%. Interest - Short term interest rates are assumed to rise 100 basis points each in 2004 and 2005, and 50 basis points per year thereafter, largely impacting securitization borrowing rates. - The $92 million swap contract is completely unwound in the first quarter of 2004. Interest rate protection is replaced with caps in the second quarter of 2004. - Similarly, structured asset-backed credit facilities are assumed to replace the existing facilities in the middle of 2004. Other - $8 million of other capital expenditure is provided annually for maintenance and enhancement projects. (3) Certain of the information presented above reflects non-GAAP financial information. Set forth below is a reconciliation of the non-GAAP information to the appropriate GAAP financial measures. (In thousands)
FISCAL YEAR ENDED, ------------------------------------------------------------------------------------- 2/3/01 2/2/02 2/1/03 2/1/04 2/1/05 2/1/06 2/1/07 2/1/08 -------- -------- -------- -------- -------- -------- -------- -------- Revenue as presented..... $675,209 $661,170 $657,667 $646,929 $678,166 $705,491 $733,648 $766,663 Reconciliation to GAAP: Add financing revenue.............. 28,162 27,273 27,570 27,575 28,459 29,605 30,787 32,172 Add other revenue...... 3,304 3,191 3,200 3,055 3,055 3,055 3,055 3,055 Less leased department sales................ (19,045) (18,118) (17,819) (16,846) (16,846) (16,846) (16,846) (16,846) -------- -------- -------- -------- -------- -------- -------- -------- Total revenue in accordance with GAAP... $687,630 $673,516 $670,618 $660,713 $692,834 $721,305 $750,644 $785,044 ======== ======== ======== ======== ======== ======== ======== ======== EBITDA as presented...... $ 41,361 $ 39,019 $ 40,235 $ 40,690 $ 42,097 $ 46,206 $ 47,755 $ 50,276 Elimination of special items, before tax: Strategic plan implementation costs... (15,903) Store closing costs...... (6,059) (1,039) Recapture of lost buying group investment....... 695 617 Store pre-opening costs and other.............. (855) 100 (662) (750) (1,100) (700) (1,100) (1,100) CEO retirement and search................. (3,259) Write-off note receivable from Shoebilee......... (4,327) Severance and related costs.................. (1,587) Asset impairment......... (1,037) Charge for terminating defined benefit plan... (3,591) Life insurance proceeds............... 272 Sale of non-core assets................. 557
14
FISCAL YEAR ENDED, ------------------------------------------------------------------------------------- 2/3/01 2/2/02 2/1/03 2/1/04 2/1/05 2/1/06 2/1/07 2/1/08 -------- -------- -------- -------- -------- -------- -------- -------- Earnings before income tax, depreciation, amortization, discontinued operations and changes in accounting principles in accordance with GAAP................... $ 19,239 $ 32,150 $ 33,148 $ 39,940 $ 40,997 $ 45,506 $ 46,655 $ 49,176 ======== ======== ======== ======== ======== ======== ======== ======== EBIT as presented........ $ 26,121 $ 20,279 $ 21,080 $ 22,125 $ 24,319 $ 28,201 $ 31,088 $ 32,942 Elimination of special items, before tax: Strategic plan implementation costs................ (15,903) Store closing costs.... (6,059) (1,039) Recapture of lost buying group investment........... 695 617 Store pre-opening costs and other............ (855) 100 (662) (750) (1,100) (700) (1,100) (1,100) Amortization of loan fees................. (960) (838) (928) (1,000) (1,000) (1,000) (1,000) (1,000) CEO retirement and search............... (3,259) Write-off note receivable from Shoebilee............ (4,327) Severance and related costs................ (1,587) Asset impairment....... (1,037) Charge for terminating defined benefit plan................. (3,591) Life insurance proceeds............. 272 Sale of non-core assets............... 557 -------- -------- -------- -------- -------- -------- -------- -------- Total special items...... (23,082) (7,707) (8,015) (1,750) (2,100) (1,700) (2,100) (2,100) Interest expense before tax.................... (13,014) (13,574) (11,299) (10,804) (6,674) (7,443) (8,016) (8,871) Earnings (Loss) before income tax provision (benefit), discontinued operations, and cumulative changes in accounting principles in accordance with GAAP................... $ (9,975) $ (1,002) $ 1,766 $ 9,571 $ 15,545 $ 19,058 $ 20,972 $ 21,971 ======== ======== ======== ======== ======== ======== ======== ======== Net income as presented.............. $ 7,227 $ 3,819 $ 5,242 $ 6,452 $ 9,950 $ 12,197 $ 13,422 $ 14,062 Elimination of special items, net of tax: Equalize effective tax rate................. $ (440) $ (279) $ (185) Strategic plan implementation costs................ (10,178) Store closing costs.... (3,878) (665) Recapture of lost buying group investment........... 445 395 Gain on discontinued operation disposal... 89 CEO retirement and search............... (2,086) Write-off note receivable from Shoebilee............ (2,769) Severance and related costs................ (1,016) Asset impairment....... (663)
15
FISCAL YEAR ENDED, ------------------------------------------------------------------------------------- 2/3/01 2/2/02 2/1/03 2/1/04 2/1/05 2/1/06 2/1/07 2/1/08 -------- -------- -------- -------- -------- -------- -------- -------- Charge for terminating defined benefit plan................. (2,298) Life insurance proceeds............. 174 Sale of non-core assets............... 356 Cumulative effect of accounting principle changes.............. (15,118) Net income (loss) in accordance with GAAP... $ (6,735) $ (920) $(14,173) $ 6,452 $ 9,950 $ 12,197 $ 13,422 $ 14,062 ======== ======== ======== ======== ======== ======== ======== ========
The following special items are included in the Historical Financial Statements:
FISCAL YEAR ENDED, ------------------------- 2/3/01 2/2/02 2/1/03 ------- ------ ------ Severance and related costs............................... $1,587 Strategic plan implementation costs....................... $15,903 Store closing costs....................................... 6,059 1,039 Asset impairment.......................................... 1,037 CEO retirement and search................................. $3,259 Write-off note receivable from Shoebilee.................. 4,327 Charge for terminating defined benefit plan............... 3,591 Recapture of lost buying group investment................. (695) (617) Life insurance proceeds................................... (272) Sale of non-core assets................................... (557) ------- ------ ------ Special Items Total....................................... $21,267 $6,969 $6,425 ======= ====== ======
(4) Represents sales per gross square feet, which is equal to fiscal year-end revenues divided by gross store square footage at fiscal year-end. (5) "Inventory turnover" is equal to the "cost of goods sold" (which is equal to revenue minus gross profit) divided by the "average cost of inventory" (which is calculated by dividing (i) the sum of the inventory balance at the beginning of the year and the inventory balance at the end of the year by (ii) two). "Accounts payable days" is equal to the "average accounts payable balance" (which is calculated by dividing (i) the sum of the accounts payables balance at the beginning of the year and the accounts payables balance at the end of the year by (ii) two) divided by the result of the "cost of goods sold" (which is equal to revenue minus gross profit) divided by 365. 16 "Accounts receivable days" is equal to the "average accounts receivable balance" (which is calculated by dividing (i) the sum of the accounts receivable balance at the beginning of the year and the accounts receivable balance at the end of year by (ii) two) divided by the result of sales divided by 365. "Net debt" is equal to long-term debt minus cash and cash equivalents. "Net debt to capitalization" is equal to net debt divided by the sum of net debt and shareholders' equity. The inclusion of these Financial Forecasts in this Offer to Purchase should not be regarded as an indication that any of Parent, Purchaser or their affiliates or representatives, including, without limitation, Parent's certified public accountants, considered or consider the Financial Forecasts to be a reliable prediction of future events and the Financial Forecasts should not be relied on as such. None of Parent, Purchaser, or any of their affiliates or representatives assumes any responsibility for the accuracy or validity of the foregoing Financial Forecasts. None of Parent or Purchaser or any of their affiliates or representatives, including, without limitation, Parent's certified public accountants, has made or makes any representation to any person regarding the ultimate performance of the Company compared to the information contained in the Financial Forecasts, and none of them intends to update or otherwise revise the Financial Forecasts to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Financial Forecasts are shown to be in error. Additional Information. The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. The Company is required to disclose in such proxy statements certain information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company. Such reports, proxy statements and other information may be inspected at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be obtained at prescribed rates from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or free of charge at the website maintained by the SEC at http://www.sec.gov. 9. Certain Information Concerning Purchaser and Parent. We are an Ohio corporation incorporated on July 31, 2003, with principal executive offices at 2801 East Market Street, York, Pennsylvania 17402. The telephone number of our principal executive offices is (717) 757-7660. To date, we have engaged in no activities other than those incident to our formation and the commencement of the Offer. Purchaser is an indirect wholly owned subsidiary of Parent. Because Purchaser is newly formed and has minimal assets and capitalization, no meaningful financial information regarding Purchaser is available. Parent is a Pennsylvania corporation with principal executive offices at 2801 East Market Street, York, Pennsylvania 17402. The telephone number of Parent's principal executive offices is (717) 757-7660, and its internet website address is http://www.bonton.com. Parent, together with its subsidiaries, is the successor to S. Grumbacher & Son, a family business founded in 1898, and operates stores offering apparel, home furnishings, cosmetics, accessories and shoes. Parent presently operates 72 stores in secondary markets -- 36 stores in Pennsylvania, 26 stores in New York, three stores in Maryland, two stores in New Jersey, and one store in each of Connecticut, New Hampshire, Massachusetts, Vermont and West Virginia. Parent's strategy focuses on being the fashion value retailer in secondary markets. The name, business address, principal occupation or employment, five year employment history and citizenship of each director and executive officer of Parent and Purchaser and certain other information are set forth on Schedule I hereto. Except as set forth elsewhere in this Offer to Purchase or Schedule I to this Offer to Purchase: (i) none of Parent, Purchaser and, to Parent's and Purchaser's knowledge, the persons listed in Schedule I hereto or any associate or majority owned subsidiary of Parent, Purchaser or of any of the persons so listed, beneficially owns or has a right to acquire any Shares or any other equity securities of the Company; (ii) none of Parent, Purchaser and, to Parent's and Purchaser's knowledge, the persons or entities referred to in clause (i) above has effected any transaction in the Shares or any other equity securities of the Company during the past 17 60 days; (iii) none of Parent, Purchaser and, to Parent's and Purchaser's knowledge, the persons listed in Schedule I to this Offer to Purchase, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company (including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents or authorizations); (iv) during the two years before the date of this Offer to Purchase, there have been no transactions between Parent, Purchaser, their subsidiaries or, to Parent's and Purchaser's knowledge, any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or any of its executive officers, directors or affiliates, on the other hand, that would require reporting under SEC rules and regulations; and (v) during the two years before the date of this Offer to Purchase, there have been no contacts, negotiations or transactions between Parent, Purchaser, their subsidiaries or, to Parent's and Purchaser's knowledge, any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or any of its subsidiaries or affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. On July 30, 2003, Parent purchased 100 Shares for $6.74 per Share in an ordinary brokerage transaction. 18 THE BON-TON STORES, INC. SUMMARY CONSOLIDATED FINANCIAL DATA The summary consolidated financial data set forth below for each of the fiscal years ended February 1, 2003 and February 2, 2002 have been derived from Parent's audited consolidated financial statements, which are incorporated herein by reference to Parent's Annual Report on Form 10-K for the fiscal year ended February 1, 2003, filed with the SEC on May 2, 2003. The summary consolidated financial data for the thirteen weeks and the twenty-six weeks ended August 2, 2003 and August 3, 2002 have been derived from Parent's unaudited consolidated interim financial statements, which are incorporated herein by reference to Parent's Quarterly Report on Form 10-Q for the fiscal quarter ended August 2, 2003, filed with the SEC on September 15, 2003. You should read this table in conjunction with Parent's audited consolidated financial statements and related notes and Parent's unaudited consolidated interim financial statements and related notes. Parent's fiscal quarters end on the day that is thirteen weeks after the beginning of the fiscal quarter, and its fiscal year ends on the Saturday nearest January 31. As a result of the seasonal nature of Parent's business, the summary consolidated financial data for the twenty-six weeks ended August 2, 2003 is not indicative of the results that can be expected for the full fiscal year ending January 31, 2004.
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED ------------------------- ------------------------- ------------------------- 2/01/03 2/02/02 8/02/03 8/03/02 8/02/03 8/03/02 ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS EXCEPT SHARE, PER SHARE AND STORE DATA) INCOME DATA Net Sales............ $ 713,230 $ 721,777 $ 153,128 $ 153,890 $ 294,239 $ 304,407 Other income, net.... 2,705 2,548 564 553 1,090 1,087 Gross profit......... 262,412 262,057 56,817 57,931 109,001 108,051 Selling, general and administrative expenses........... 219,716 224,306 49,594 53,733 100,974 104,369 Depreciation and amortization....... 21,301 19,783 5,123 4,847 9,887 9,904 Unusual expense...... -- 916 -- -- -- -- Income (loss) from operations......... 24,100 19,600 2,664 (96) (770) (5,135) Interest expense, net................ 8,731 9,558 1,302 2,399 2,546 4,376 Income (loss) before taxes.............. 15,369 10,042 1,362 (2,495) (3,316) (9,511) Income tax provision (benefit).......... 5,764 3,816 504 (936) (1,226) (3,567) Net income (loss).... $ 9,605 $ 6,226 $ 858 $ (1,559) $ (2,090) $ (5,944) Per share amounts: Basic: Net income (loss)........ $ 0.63 $ 0.41 $ 0.06 $ (0.10) $ (0.14) $ (0.39) Weighted average shares outstanding... 15,192,471 15,200,154 14,997,502 15,237,911 15,015,424 15,260,464 Diluted: Net income (loss)........ $ 0.62 $ 0.41 $ 0.06 $ (0.10) $ (0.14) $ (0.39)
19
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED ------------------------- ------------------------- ------------------------- 2/01/03 2/02/02 8/02/03 8/03/02 8/02/03 8/03/02 ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS EXCEPT SHARE, PER SHARE AND STORE DATA) Weighted average shares outstanding... 15,394,231 15,214,145 15,222,031 15,237,911 15,015,424 15,260,464 BALANCE SHEET DATA (at end of period) Working capital...... $ 129,148 $ 117,158 $ 140,041 $ 116,744 $ 140,041 $ 116,744 Total assets......... 382,023 385,583 370,627 367,831 370,627 367,831 Long-term debt, including capital leases, less current maturities......... 64,662 67,929 63,941 68,757 63,941 68,757 Shareholders' equity............. 212,346 203,261 210,237 196,592 210,237 196,592 SELECTED OPERATING DATA Total sales change from prior year.... (1.2)% (3.7)% (0.5)% 2.0% (3.3)% 1.3% Comparable store sales change from prior year......... (1.2)% (3.3)% 0.2% 2.0% (2.7)% 1.3% Comparable stores data: Sales per selling square foot..... $ 133 $ 134 -- -- -- -- Selling square footage......... 5,382,000 5,339,000 -- -- -- -- Capital expenditures....... $ 14,806 $ 15,550 $ 3,103 $ 2,687 $ 4,134 $ 3,878 Number of stores: Beginning of period.......... 73 73 72 73 72 73 Additions.......... -- -- -- -- -- -- Closings........... (1) -- -- -- -- -- End of period...... 72 73 72 73 72 73
Note Regarding Arthur Andersen LLP. The audited financial statements for the fiscal year ended February 2, 2002 that are incorporated by reference in this Offer to Purchase have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report dated March 6, 2002 with respect thereto. Because Arthur Andersen LLP has ceased to exist, you may have no effective remedy against Arthur Andersen LLP in connection with a material misstatement or omission in such financial statements. Additional Information. Parent is subject to the informational requirements of the Exchange Act and in accordance therewith files periodic reports, proxy statements and other information with the SEC relating to its business, financial condition, including the financial statements incorporated herein by reference, and other matters. Parent is required to disclose in such proxy statements certain information, as of particular dates, concerning its directors and officers, their remuneration, stock options granted to them, the principal holders of its securities and any material interests of such persons in transactions with Parent. Such reports, proxy statements and other information are available for inspection and copying at the offices of the SEC in the same manner as set forth with respect to the Company in "The Offer -- Section 8." 20 10. Source and Amount of Funds. In order to finance the purchase of all outstanding Shares pursuant to the Offer, refinance certain debt of the Company and subsidiaries of Parent, provide for working capital and pay fees and expenses related to the transactions (collectively, the "Transaction Financing Amount"), Parent and Purchaser will use a combination of cash on hand, the financings contemplated by its existing commitment letters or other financings and a sale of common stock of Parent (the "Equity Financing"). We will need approximately $102.8 million to purchase all Shares pursuant to the Offer and to pay related fees and expenses. We will also need additional funds of approximately $7.4 million in connection with the cancellation, pursuant to the terms of the Merger Agreement, of options to acquire Shares and deferred shares granted under the Company's equity and performance incentive plan. We have received a commitment letter to provide the Equity Financing from Mr. Tim Grumbacher, Chairman and Chief Executive Officer of Parent. Mr. Grumbacher has agreed to purchase up to $7.5 million of shares of Parent common stock at the common stock's fair market value as defined by the proposed rules of the Nasdaq. Parent presently contemplates that approximately $6.5 million of shares of Parent common stock will be sold to Mr. Grumbacher in connection with the Equity Financing. Such amount represents the differential of the funds required to purchase all Shares and cancel all options and deferred shares between a purchase price of $7.50 per Share and $8.00 per Share. Parent expects to contribute funds received by it pursuant to the Equity Financing to Purchaser to enable Purchaser to consummate the Offer. We have also obtained commitment letters to provide the debt financings from General Electric Capital Corporation ("GECC") and Bank One, NA ("Bank One"). GECC has agreed to provide funds to certain subsidiaries of Parent ("Borrowers") in the form of three senior secured credit facilities providing for revolving and term loans in an aggregate amount of up to $325 million (the "Acquisition Facilities"). Bank One has agreed to replace the securitization facilities of both the Company and certain affiliates of Parent in an aggregate amount of up to $250 million (the "Securitization Facility"). Borrowers expect to contribute funds received by them under the Acquisition Facilities to Purchaser to enable Purchaser to consummate the Offer. Parent expects, based upon the combination of internally available cash, the proceeds from the Equity Financing and borrowings under the Acquisition Facilities, that Purchaser will have sufficient cash on hand at the expiration of the Offer to pay the offer price for all Shares in the Offer; however, the Offer is conditioned upon Parent having available to it proceeds under the Acquisition Facilities and the Equity Financing in an amount sufficient to consummate the Offer and the Merger and to refinance all debt of the Company and Parent that is or could be required to be repurchased or becomes, or could be declared, due and payable as a result of the Offer and the Merger or the financing thereof and to pay all related fees and expenses. As of August 2, 2003, Parent and its subsidiaries had cash and cash equivalents and short-term investments in the amount of $14.8 million. The Acquisition Facilities. Depending on how many Shares are acquired by Purchaser by the Expiration Date, GECC may structure its loans under the Acquisition Facilities differently. If more than two-thirds (on a fully diluted basis) but less than 90% of the Shares has been acquired by Purchaser pursuant to the Offer, GECC will provide Borrowers with a senior secured credit facility comprised of (i) a $150 million revolving credit facility, (ii) a $15 million term loan B facility, and (iii) a $38 million term loan C facility (collectively, the "Tender Facility"), and GECC will provide the Company with a $75 million senior secured revolving credit facility (the "Target Facility") in order to refinance certain indebtedness of the Company. If at least 90% of the Shares are acquired by Purchaser pursuant to the Offer and the Merger is consummated, GECC will provide Borrowers and the Company with a senior secured credit facility comprised of (i) a $300 million revolving credit facility and (ii) a $25 million term loan B (together, the "Permanent Facility"). In the event that GECC provides the Tender Facility and/or the Target Facility, such facilities will be replaced by the Permanent Facility upon the effective time of the Merger. The Tender Facility will mature on the earliest of (a) the date of the Merger, (b) 90 days after the closing of the Tender Facility and (c) January 30, 2004 (such earliest date, the "Tender Facility Maturity Date"). The Target Facility will also mature on the Tender Facility Maturity Date. The Permanent Facility 21 will mature on the date that is 48 months after the closing date of the Permanent Facility. The various GECC loans will bear interest at the per annum rates set forth below: Tender Facility Revolving Credit Loan: At Borrowers' option, either (a) a floating rate equal to the "Index Rate" (which has yet to be defined) plus the applicable margins as referred to below, or (b) absent a default, a fixed rate for periods of one, two or three months equal to the reserve adjusted London Interbank Offered Rate, or "LIBOR" (the "Base Revolver Rate"), plus the following applicable margins: the Applicable Revolver Index Margin shall be 1.00%, and the Applicable Revolver LIBOR Margin shall be 2.50%. Tender Facility Term Loan B: The Index Rate plus 6.00%. Tender Facility Term Loan C: The Index Rate plus 10.00%. Target Facility: The Base Revolver Rate plus the following applicable margins: the Applicable Revolver Index Margin shall be 0.25%, and the Applicable Revolver LIBOR Margin shall be 1.75%. Permanent Facility Revolving Credit Loan: The Base Revolver Rate plus the following applicable margins, subject to adjustment after delivery to GECC of Borrowers' consolidated quarterly financial statements for the period ended February 1, 2004: the Applicable Revolver Index Margin shall be 0.25%, and the Applicable Revolver LIBOR Margin shall be 1.75%. Permanent Facility Term Loan B: The Index Rate plus 5.00%. The Tender Facility will be secured by a first priority lien on substantially all of the assets of Borrowers, the Parent and their subsidiaries, the Target Facility will be secured by a first priority lien on substantially all of the assets of the Company and its subsidiaries, and the Permanent Facility will be secured by a first priority lien on substantially all of the assets of Parent, the Company and their respective subsidiaries other than, in each case, accounts receivable and related assets securing the Securitization Facility. GECC has committed to make the loans under the Acquisition Facilities and has indicated its intention to form a syndicate of banks that would also become lenders thereunder. The Acquisition Facilities provide for (i) unused facility fees on the average unused daily balance of the revolver loans; (ii) fees in respect of letters of credit that may be issued under the revolving credit loans; and (iii) mandatory prepayments of the net proceeds of certain dispositions of assets, certain receipts of insurance proceeds and the sale or issuance of debt or equity securities. In addition, Parent has agreed to pay to GECC commitment fees in connection with the Acquisition Facilities. The documentation of the Acquisition Facilities will contain representations and warranties customary for credit facilities of such size and type and other representations and warranties deemed by GECC to be appropriate, including, without limitation, representations and warranties relating to the following: corporate status and powers; authorization and no conflict; financial statements and Financial Forecasts; effectiveness of required governmental approvals and consents; obligations binding; use of proceeds and margin stock; no material adverse change; absence of material litigation; accuracy of financial statements and all other information provided in connection with the contemplated transactions; no violations of material agreements or instruments; title to properties and liens; licenses and permits; compliance with laws; taxes; insurance; brokers; environmental matters; government contracts; customer and trade relations; and solvency. The documentation of the Acquisition Facilities will also contain certain covenants, including, without limitation, covenants relating to the following: use of proceeds; minimum excess availability; limitations on liens; limitations on mergers, consolidations and sales of all or substantially all assets; limitations on transactions with related parties; limitations on dividends; and maximum capital expenditures limitations. In 22 addition, the Acquisition Facilities will contain minimum fixed charge coverage requirements, tested quarterly, of not less than 1.0 to 1.0. The documentation of the Acquisition Facilities will also contain events of default, including, without limitation, events of default relating to the following: non-payment of principal, interest, or fees when due; non-payment of other amounts within 10 days of the date when due; material breach of representation or warranty; breach of covenants (with certain covenants to be subject to a period of grace to be negotiated); certain enforcement proceedings; change of control; insolvency events; and cross defaults to other material indebtedness and the Securitization Facility and certain judgments. The commitment of GECC to make the loans under the Acquisition Facilities will be conditioned upon, among other things, satisfactory negotiation, execution and delivery of the documentation of the Acquisition Facilities; consummation the Securitization Facility; consummation of the Equity Financing in an amount that represents the differential of the amount required to purchase all Shares and cancel all options and deferred shares between a purchase price of $7.50 per Share and $8.00 per Share; the satisfaction of the Minimum Tender Condition and the acceptance for purchase of Shares in the Offer; no violation of applicable laws or conflict with material agreements or instruments; absence of litigation and other proceedings; absence of certain market conditions; no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of Parent or the Company; approvals and consents; and delivery of certain opinions and financial statements. In addition, the Permanent Facility will be conditioned upon the occurrence of the Merger. The Securitization Facility. The Securitization Facility will replace the current securitization facilities of subsidiaries of both Parent and the Company. Bank One has agreed to make up to $250 million in initial aggregate commitments to purchase undivided ownership percentage interests, through multi-seller asset backed commercial paper conduits (including a conduit administered by Bank One), and such other financial institutions as may be party to the Securitization Facility, in credit card receivables. Bank One and each other financial institution that administers each of such conduits will provide a liquidity back-up facility for the commercial paper issued by the conduit. The proceeds will be used to effect the refinancing of the current securitization facilities. Bank One's commitment will be reduced to $125 million on January 15, 2004 and shall terminate on the date that is 364 days after the closing of the Securitization Facility, subject to earlier termination of such commitment pursuant to the terms of the commitment and the Securitization Facility documentation. Prior to such time as Bank One's commitment is reduced to $125 million, Parent intends to maintain aggregate purchase commitments at the $250 million level by obtaining purchase commitments of another financial institution in an aggregate amount of up to $125 million. Up to $100 million of the Securitization Facility will be available upon the consummation of the Offer to refinance the existing securitization facility benefiting the Company's subsidiaries. Up to $150 million of the Securitization Facility will be available upon the consummation of the Offer to refinance the existing securitization facility benefiting Parent's subsidiaries. Each receivable interest purchased will have an associated discount relating to the purchase price thereof, net of collections and other payments which, under the Securitization Facility, are applied to reduce such purchase price. The discount rate for receivables purchased by a conduit would generally equal the conduit's commercial paper rate. For each receivable interest purchased by a financial institution, the discount rate is, as selected by the seller of the receivable interest, either of the following: (i) the greater of (a) the LIBOR rate plus an applicable margin to be agreed upon or (b) the interest rate for the revolving credit loan under the Permanent Facility, or (ii) Bank One's prime rate. Pursuant to Bank One's commitment, Bank One has the right to syndicate, sell, transfer or assign any portion of its commitment. Parent has agreed to pay certain fees to Bank One under the Securitization Facility. The Securitization Facility documentation will contain representations and warranties customary for securitization facilities of this nature, including, without limitation, representations and warranties relating to the following: corporate existence and power; no conflict with existing corporate agreements; enforceability of 23 the Securitization Facility documentation; use of proceeds; title to receivables; places of business; no material adverse change; absence of material litigation; and compliance with credit and collection policies. The Securitization Facility documentation will also contain certain covenants applicable to certain subsidiaries of Parent, including, without limitation, covenants relating to the following: compliance with laws; limitations on indebtedness other than that allowed pursuant to the Securitization Facility documents; periodic reporting requirements; limitations on mergers and other specified transactions and agreements; and restrictions on changing corporate names, identities or structures and making any material changes to credit and collection policies. The Securitization Facility documentation will also contain events of termination, including, without limitation, events of termination relating to the following: breach of representation or warranty; breach of covenants (subject to certain grace periods); breach of various financial covenants; bankruptcy or insolvency; and change of control. The commitment of Bank One to purchase receivables interests under the Securitization Facility will be conditioned upon, among other things, satisfactory negotiation, execution and delivery of the Securitization Facility documentation; a field audit with respect to the receivables; satisfactory completion by Bank One of on-site due diligence; no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of Parent, the Company and their respective subsidiaries; receipt by Bank One of certain financial reports and opinions; satisfaction of applicable conditions to the Offer; and consummation of the Offer. General. It is anticipated that the borrowings described above will be refinanced or repaid from funds generated internally by Parent and its subsidiaries (including, after consummation of the Merger, funds generated by the Company) or other sources, possibly including the proceeds of the sale of securities. No decision has been made concerning this matter, and decisions will be made based on Parent's review from time to time of the advisability of selling particular securities as well as on interest rates and other economic conditions. Copies of the GECC and Bank One commitment letters discussed above are filed as exhibits to the Tender Offer Statement on Schedule TO filed by Parent and us pursuant to Rule 14d-3 under the Exchange Act with the SEC in connection with the Offer (the "Schedule TO"). Reference is made to such exhibits for more complete descriptions of the proposed terms and conditions of the Acquisition Facilities and the Securitization Facility. No alternative financing arrangements have been made. 11. Background of the Offer. As part of the continuous evaluation of its businesses and plans, Parent regularly considers a variety of strategic options and transactions. In recent years, as part of this process, Parent has evaluated various alternatives for expanding its business through acquisitions. On June 26, 2003, the Company issued a press release announcing execution of a merger agreement with Wright Holdings, Inc., a company formed by Goldner Hawn Johnson & Morrison Incorporated. The press release stated that the merger agreement with Wright Holdings, Inc. provided for the shareholders of the Company to receive $6.00 in cash for their shares of Company common stock. On July 24, 2003, Parent's board of directors authorized Parent's management to contact the Company regarding a proposed business combination of the Company and Parent. On July 25, 2003, Tim Grumbacher, Chairman and Chief Executive Officer of Parent, had a brief telephone conversation with Steven Mason, Chairman of the Company, advising him that Parent was sending him a letter proposing a business combination between Parent and the Company. In the letter, dated July 25, 2003, Parent stated that, based upon publicly available information, Parent was prepared to provide all of the Company's shareholders with $7.00 in cash for each share of the Company's common stock and that the Company's shareholders would receive the $7.00 cash purchase price at approximately the same time at which they would receive the $6.00 offered pursuant to the Company's then existing merger agreement with Wright Holdings, Inc. Mr. Grumbacher's letter further stated that Parent was prepared immediately to enter into a confidentiality agreement with the Company and commence its due diligence. 24 The Company Board met on July 28, 2003 to discuss the proposed transaction with Parent. On July 29, 2003, the Company announced that it had received an offer from Parent that the two companies merge and noting that Parent was prepared to pay $7.00 in cash for each Share, subject to due diligence and financing. In addition, the announcement stated that after a review, with the assistance of its financial and legal advisors, of Parent's proposal letter and related matters, the Company Board authorized the Company, subject to the execution of a confidentiality agreement, to provide Parent with the requested due diligence information and, as appropriate, to engage in discussions and negotiations with Parent. On July 30, 2003, the Company and Parent entered into a confidentiality agreement, pursuant to which the parties agreed to provide, among other things, for the confidential treatment by Parent of their discussions and the exchanged information. Also on July 30, 2003, Mr. Grumbacher and Michael L. Gleim, a director of Parent, met with Mr. Mason and Byron L. Bergen, the Company's Chief Executive Officer, to discuss the possible combination of Parent and the Company. On July 31, 2003, Parent and Purchaser commenced their due diligence at the offices of the Company's counsel in Dayton, Ohio. While this due diligence continued, Parent and the Company negotiated the terms of a merger agreement. Parent obtained financing commitments with respect to the Acquisition Facilities from GECC and the Securitization Facility from Bank One on August 29, 2003. On September 3, 2003, Mr. Grumbacher telephoned Mr. Mason to discuss a definitive proposal for a business combination between Parent and the Company in which the offer price per Share would be $7.00. Also on September 3, 2003, Mr. Grumbacher sent a letter to the Company Board setting forth the terms of the proposed transaction. The letter proposed that Parent and Company enter into a merger agreement that would provide for Parent to commence promptly a tender offer to purchase all of the Company's outstanding Shares for $7.00 per Share in cash. The principal conditions to consummation of the tender offer were to be (i) at least two-thirds of the Company's outstanding Shares, on a fully diluted basis, be tendered and not withdrawn prior to the expiration date of the offer, (ii) the proceeds of the financings contemplated by the commitment letters from Bank One and General Electric Capital Corporation be available to Parent and (iii) the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The letter further proposed that as soon as practicable after consummation of the tender offer, the Company would be merged with Purchaser and all of the Company's outstanding Shares (other than Shares held by Parent and its affiliates, Shares in the Company's treasury and Shares held by shareholders who properly exercise dissenters' rights under Ohio law) would be converted into the right to receive $7.00 per Share in cash. On September 4, 2003, the Company Board met, together with its legal and financial advisors, to consider Parent's offer of September 3, 2003. The Company Board concluded that Parent's offer was a superior proposal to the merger provided for in the merger agreement with Wright Holdings, Inc. and that the Company should enter into a merger agreement with Parent. Following the conclusion of the board meeting, the Company announced that it had notified Parent and Wright Holdings, Inc. of its intention to enter into the merger agreement with Parent and Purchaser, subject to complying with the Company's obligations under its then existing merger agreement with Wright Holdings, Inc., including a three business-day period during which the Company was required to engage in good faith exclusive negotiations with Wright Holdings, Inc. to see if the terms of the existing merger agreement could be improved. On September 9, 2003, the Company announced that it had entered into an amendment to its merger agreement with Wright Holdings, Inc. for the sole purpose of increasing the consideration payable to the Company's shareholders to $7.05 per Share. On September 10, 2003, Mr. Grumbacher called Mr. Mason to advise him that Parent was prepared to increase its offering price to $7.25 per Share in cash. Immediately after the call, Parent sent a letter to the Company Board setting forth its firm offer and advising the Company Board that Parent was prepared immediately to enter into a merger agreement with the Company in the form provided with the letter. The letter further stated that each of Bank One and General Electric Capital Corporation had confirmed to Parent in writing that its commitment remained effective to finance the $7.25 offer. Parent also issued a press release announcing that it had increased its offering price to $7.25 per Share in cash. 25 Late in the afternoon of September 12, 2003, Mr. Mason telephoned Mr. Grumbacher and advised him that the Company had amended its existing merger agreement with Wright Holdings, Inc. to provide that the merger consideration payable in the transaction would be increased from $7.05 per Share to $7.80 per Share. Mr. Mason told Mr. Grumbacher that the amendment also provided for an increase by $500,000 of both the cap on the Company's payment obligations to Wright Holdings, Inc. for reimbursement of expenses and the termination fee payable under certain circumstances, including a termination of the agreement if the Company were to enter into a merger agreement with Parent. Mr. Mason also advised Mr. Grumbacher that the amendment to the merger agreement had relaxed the restrictions on the Company's ability to communicate with Parent and had reduced to one business day the period of time that the Company was obligated to engage in exclusive negotiations with Wright Holdings, Inc. prior to its acceptance of a superior proposal. Later that same day, Mr. Grumbacher called Mr. Mason to advise him that Parent was willing to increase its offering price to $8.00 per Share. On September 13, 2003, Mr. Grumbacher sent a letter to the Company Board confirming Parent's firm offer to pay $8.00 per Share in a two step transaction, consisting of a first step cash tender offer, followed by a second step merger of the Company with Purchaser. On September 15, 2003, the Company announced that the Company had received a revised proposal from Parent and that, after reviewing the revised proposal, the Company had notified Parent and Wright Holdings, Inc. of the Company's intention to enter into a merger agreement with Parent and Purchaser, subject to complying with the Company's obligations under its then existing merger agreement with Wright Holdings, Inc., including a one business-day period during which the Company was required to engage in good faith negotiations with Wright Holdings, Inc. prior to the Company's final approval of a merger agreement with Parent and Purchaser. Parent also issued a press release announcing that it had increased its offering price. In the evening of September 15, 2003, the Company gave notice to Wright Holdings, Inc. of the termination of the then existing merger agreement and immediately thereafter Parent, Purchaser and the Company executed and delivered the Merger Agreement. A press release announcing the execution of the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, was issued by each of Parent and the Company on September 16, 2003. On September 23, 2003, Purchaser commenced the Offer. 12. Purpose of the Offer; Plans for the Company; Statutory Requirements; Approval of the Merger; Dissenters' Rights. Purpose of the Offer; Plans for the Company. The Offer is being made pursuant to the Merger Agreement. The purpose of the Offer and the Merger is for Parent to acquire control of, and the entire equity interest in, the Company. The purpose of the Merger is for Parent to acquire all Shares not purchased pursuant to the Offer. Upon consummation of the Merger, the Company will become an indirect wholly owned subsidiary of Parent. The Merger Agreement provides that promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to time thereafter, Purchaser will be entitled to designate up to such number of directors, rounded up to the next whole number, on the Company Board as shall give Purchaser representation on the Company Board equal to the product of the total number of directors on the Company Board (giving effect to the directors elected pursuant to the Merger Agreement) multiplied by the percentage that the aggregate number of Shares then beneficially owned by Purchaser and Parent following such purchase bears to the total number of Shares then outstanding, provided that prior to the Effective Time, four of the current members of the Company Board, including the current Chief Executive Officer of the Company and three members of the Company Board who are not employed by the Company and who are not affiliates, associates or employees of Parent or Purchaser, shall continue to serve as directors. In the Merger Agreement, the Company has agreed, at such time, to use its reasonable best efforts to cause Purchaser's designees to be elected as directors of the Company. In connection with our consideration of the Offer, we have developed a plan, on the basis of available information, for the combination of the business of the Company with that of Parent. Important elements of 26 that plan include employing "best practices" of the Company and Parent for the consolidated entity, recognizing and consolidating successful vendors and products between the Company and Parent, utilizing common information systems and procedures for all operations, realizing the economies of scale for a larger combined company, drawing upon the talents of the employees of the Company and Parent and substantially reducing operating expenses. If we acquire control of the Company, we intend to conduct a detailed review of the Company and its business, properties and personnel and evaluate our plan in light of the circumstances that then exist. Statutory Requirements; Approval of the Merger. Under the Ohio Law and the Company's Articles of Incorporation, the Merger will require the approval of the Company Board and the holders of two-thirds of the outstanding Shares. If we acquire, pursuant to the Offer or otherwise, at least two-thirds of the outstanding Shares we would have sufficient voting power to approve a merger of the Company without the affirmative vote of any other shareholder of the Company. In addition, under the Ohio Law, if we acquire, pursuant to the Offer or otherwise, at least 90% of the outstanding Shares, we will be able to approve the merger of the Company without a vote of the Company's shareholders. If we acquire control of the Company, we currently intend that, prior to the acquisition of the entire equity interest in the Company, no dividends will be declared on the Shares. In the Merger Agreement, the Company has agreed to duly call, give notice of, convene and hold a special meeting of its shareholders as soon as practicable following expiration or termination of the Offer at which the Merger Agreement shall be submitted to the Company's shareholders for the purpose of acting on the Merger Agreement, if such action is required by the Ohio Law. Ohio Control Bid Law. Consummation of the Offer is conditioned upon the expiration of the period during which the Ohio Division of Securities may suspend the Offer pursuant to the Ohio Control Bid Law, without the occurrence of any such suspension, or Parent being satisfied in its reasonable discretion, that the Ohio Control Bid Law is invalid or inapplicable to the acquisition of the Company's common stock pursuant to the Offer. The Ohio Control Bid Law regulates tender offers for any equity security of a subject company from a resident of Ohio if, after the purchase, the offeror would directly or indirectly be the beneficial owner of more than 10% of any class of issued and outstanding equity securities of such company (a "control bid"). A subject company is an issuer (such as the Company) that: - has its principal place of business or principal executive offices located in Ohio or owns or controls assets located in Ohio that have a fair market value of at least $1.0 million, and - has more than 10% of its beneficial or record equity security holders resident in Ohio, has more than 10% of its equity securities owned, beneficially or of record, by residents of Ohio or has 1,000 beneficial or record equity security holders who are resident in Ohio. The Ohio Control Bid Law prohibits an offeror from making a control bid for securities of a subject company pursuant to a tender offer until the offeror has filed specified information with the Ohio Division of Securities. In addition, the offeror is required to deliver a copy of such information to the subject company not later than the offeror's filing with the Ohio Division of Securities and to send or deliver such information and the material terms of the proposed offer to purchase to all offerees in Ohio as soon as practicable after the offeror's filing with the Ohio Division of Securities. Within five calendar days of such filing, the Ohio Division of Securities may, by order, summarily suspend the continuation of the control bid if it determines that the offeror has not provided all of the specified information or that the control bid materials provided to offerees do not provide full disclosure of all material information concerning the control bid. If the Ohio Division of Securities summarily suspends a control bid, it must schedule and hold a hearing within 10 calendar days of the date on which the suspension is imposed and must make its determination within three calendar days after the hearing has been completed but no later than 14 calendar days after the date on which the suspension is imposed. The Ohio Division of Securities may maintain its suspension of the continuation of the control bid if, based upon the hearing, it determines that all of the information required to be provided by the Ohio Control Bid Law has not been provided by the offeror, 27 that the control bid materials provided to offerees do not provide full disclosure of all material information concerning the control bid or that the control bid is in material violation of any provision of the Ohio securities laws. If, after the hearing, the Ohio Division of Securities maintains the suspension, the offeror has the right to correct the disclosure and other deficiencies identified by the Ohio Division of Securities and to reinstitute the control bid by filing new or amended information pursuant to the Ohio Control Bid Law. Purchaser filed the information required under the Ohio Control Bid Law on September 23, 2003. Dissenters' Rights. You do not have dissenters' rights as a result of the Offer. However, if the Merger is consummated, shareholders of the Company who have neither voted in favor of the Merger nor consented thereto in writing, and who otherwise under the Ohio Law comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair cash value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair cash value, together with a fair rate of interest, if any (all such Shares collectively, the "Dissenting Shares"). Any such judicial determination of the fair cash value of the Dissenting Shares could be based upon considerations other than or in addition to the price paid in the Offer and the market value of the Shares; however, you should be aware that an Ohio court has determined that when a corporation's stock is actively traded on a stock exchange or in the over-the-counter market, actual market price is the benchmark for determining the fair market value of a dissenting shareholder's stock. Shareholders should recognize that the value so determined could be higher or lower than the price per Share paid pursuant to the Offer or the consideration paid in the Merger. Moreover, we may argue in a proceeding regarding the fair cash value that, for purposes of such a proceeding, the fair cash value of the Dissenting Shares is less than the price paid in the Offer. If any holder of Shares who demands appraisal under Section 1701.85 of the Ohio Law fails to perfect, or effectively withdraws or loses his rights to appraisal as provided in the Ohio Law, the Shares of such shareholder will be converted into the right to receive the price per Share paid in the Offer. A shareholder may withdraw his demand for dissenters' rights by delivering to the surviving corporation in the Merger a written withdrawal of such shareholder's demand for dissenters' rights and acceptance of the Merger. Failure to follow the steps required by Section 1701.85 of the Ohio Law for perfecting dissenters' rights may result in the loss of such rights. The foregoing discussion is not a complete statement of the Ohio Law and is qualified in its entirety by reference to the Ohio Law. 13. Description of Merger Agreement. The following summary of the material terms of the Merger Agreement is qualified in its entirety by reference to the complete text of the Merger Agreement, which has been filed as an exhibit to the Schedule TO and is incorporated herein by reference. The Merger Agreement may be examined and copies may be obtained at the places set forth in "The Offer -- Section 8." Defined terms used herein and not defined herein shall have the respective meanings assigned to those terms in the Merger Agreement. The Offer. The Merger Agreement provides for the commencement of the Offer as promptly as practicable (but in no event later than the fifth business day) after the initial public announcement of the execution of the Merger Agreement. The obligation of Purchaser to accept for payment Shares tendered pursuant to the Offer is subject to the satisfaction of the Minimum Tender Condition, the Financing Condition, the Control Bid Condition, the HSR Condition and certain other conditions that are described in "The Offer -- Section 15." Purchaser and Parent have agreed that, without the prior written consent of the Company, no change in the Offer may be made that decreases the price per Share payable in the Offer, decreases the maximum number of Shares to be purchased in the Offer, changes the form of the consideration payable in the Offer, adds to or changes the conditions to the Offer, waives the Minimum Tender Condition or modifies or amends any other condition to the Offer in any manner that is materially adverse to the holders of Shares. 28 The Merger Agreement provides that Purchaser may, without the consent of the Company, (i) extend the Offer beyond the scheduled Expiration Date in increments of not more than 10 business days each, if at the then scheduled Expiration Date any of the conditions to Purchaser's obligation to purchase Shares are not satisfied, (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC, or the staff thereof, applicable to the Offer, or (iii) make available a Subsequent Offering Period as set forth in this Offer to Purchase. In addition, the Merger Agreement provides that if the conditions to the Offer are not satisfied or, to the extent permitted by the Merger Agreement, waived by Parent or Purchaser as of the date that the Offer would otherwise have expired, then, except to the extent that such conditions are incapable of being satisfied, at the request of the Company, Purchaser will extend the Offer from time to time until the earlier of October 31, 2003 or the consummation of the Offer. During any extension of the Offer, all Shares previously tendered and not withdrawn will remain subject to the Offer and, except if a Subsequent Offering Period is commenced, subject to the right of a tendering shareholder to withdraw such shareholder's Shares. See "The Offer -- Section 4." Under no circumstances will interest be paid on the purchase price for tendered Shares, whether or not the Offer is extended. Any extension of the Offer may be effected by Purchaser giving oral or written notice of such extension to the Depositary. The Merger Agreement provides that promptly upon the date that Shares are first accepted for payment by Purchaser pursuant to the Offer, and from time to time thereafter, Purchaser will be entitled to designate up to such number of directors, rounded up to the next whole number, on the Company Board as shall give Purchaser representation on the Company Board equal to the product of the total number of directors on the Company Board (giving effect to the directors elected pursuant to the Merger Agreement) multiplied by the percentage that the aggregate number of Shares then beneficially owned by Purchaser and Parent following such purchase bears to the total number of Shares then outstanding. The Company has agreed, at such time, to use its reasonable best efforts to cause Purchaser's designees to be elected as directors of the Company. Notwithstanding the foregoing, at all times following the purchase of Shares pursuant to the Offer and prior to the Merger, the Merger Agreement provides that the Company shall be entitled to have four directors on the Company Board who are current directors on the Company Board, including the current Chief Executive Officer of the Company and three members of the Company Board who are not employed by the Company and who are not affiliates, associates or employees of Parent or Purchaser. All Purchaser nominees will promptly resign from the Company Board if the Offer price for any of the Shares accepted for payment pursuant to the Offer is not promptly paid in accordance with the terms of the Offer The Merger Agreement provides that, as soon as practicable after the date the Schedule TO, including this Offer to Purchase, is filed with the SEC, the Company shall file with the SEC the Schedule 14D-9 and shall mail the Schedule 14D-9 to the holders of the Shares. The Merger. The Merger Agreement provides for Purchaser to merge with and into the Company. The Company will be the surviving corporation in the Merger and will become an indirect wholly owned subsidiary of Parent. All of the Shares, other than Shares held by Parent or Purchaser or in the Company's treasury, or held by shareholders who properly exercise dissenters' rights under the Ohio Law, will be converted into the right to receive $8.00 net per share in cash, without interest and less any applicable withholding taxes. All of the Shares converted in the Merger will be automatically cancelled. The holders of the Shares will cease to have any rights in the Shares other than the right to receive the merger consideration upon surrender of the applicable share certificates. Shareholders' Meeting. Pursuant to the Merger Agreement, the Company, acting through the Company Board, shall, if required by the Ohio Law in order to consummate the Merger, duly call, give notice of, convene and hold a special meeting of its shareholders (the "Shareholders' Meeting") as soon as reasonably practicable following the date that Purchaser accepts the Shares for purchase at which meeting the Merger Agreement shall be submitted to the Company's shareholders for the purpose of voting on the adoption of the Merger Agreement and obtaining approval of the adoption of the Merger Agreement by holders of at least two-thirds of the Shares. If the Minimum Tender Condition is satisfied and Purchaser acquires in the Offer at least two-thirds of the outstanding Shares, Purchaser shall have sufficient voting power to approve the Merger, even if no other shareholder votes in favor of the Merger. 29 Proxy Statement. The Merger Agreement provides that the Company shall, if approval of the Company's shareholders is required by the Ohio Law to consummate the Merger, as soon as reasonably practicable after Purchaser accepts Shares for purchase pursuant to the Offer, prepare and file with the SEC under the Exchange Act a proxy statement and related proxy materials (the "Proxy Statement") with respect to the Shareholders' Meeting and shall use its reasonable best efforts to have the Proxy Statement cleared by the SEC. In addition, the Company has agreed to cause the Proxy Statement and all required amendments and supplements thereto to be mailed to the holders of Shares at the earliest practicable time. The Company has agreed to include in the Proxy Statement the recommendation of the Board that the shareholders of the Company approve and adopt the Merger Agreement. The Merger Agreement provides that, in the event that Purchaser shall acquire at least 90% of the then outstanding Shares, Parent, Purchaser and the Company will take all necessary and appropriate action to cause the Merger to become effective, in accordance with the Ohio Law, as promptly as practicable after the expiration of the Offer, without a meeting of the Company's shareholders. Articles of Incorporation; Code of Regulations; Directors and Officers. After the Merger, the articles of incorporation and code of regulations of Purchaser will become the articles of incorporation and code of regulations of the Company, as the surviving corporation in the Merger. The articles of incorporation of Purchaser will be amended at the Effective Time of the Merger to reflect that the name of the surviving corporation in the Merger is "The Elder-Beerman Stores Corp." The directors and officers of Purchaser at the Effective Time of the Merger will become the directors and officers of the Company, as the surviving corporation in the Merger. Consideration to be Received by the Company's Shareholders. At the Effective Time of the Merger, each of the outstanding Shares, other than Shares held by Parent or Purchaser or in the Company's treasury, or held by shareholders who properly exercise dissenters' rights under the Ohio Law, will be converted into the right to receive $8.00 per share in cash, without interest and less any applicable withholding taxes. Each share of the common stock of Purchaser outstanding at the Effective Time of the Merger will become one fully paid and non-assessable common share of the Company, as the surviving corporation in the Merger. Stock Options and Deferred Shares. The Merger Agreement provides that all of the outstanding options to acquire Shares and all deferred shares granted under the Company's equity and performance incentive plan will be cancelled at the Effective Time of the Merger, whether or not the options are then exercisable and whether or not the deferred shares are subject to the deferral limitations under such plan. In exchange for such cancellation, (i) option holders will receive with respect to each option a payment equal to the amount by which the merger consideration per Share exceeds the exercise price applicable to the option, multiplied by the number of Shares subject to the option and (ii) holders of deferred shares will receive the merger consideration per deferred share. After the Effective Time of the Merger, option holders and holders of deferred shares will have no further rights in the options or deferred shares that were cancelled and the surviving corporation will have no options to purchase common shares or deferred shares outstanding. Representations and Warranties of the Company. The Company has made customary representations and warranties to Parent and Purchaser in the Merger Agreement. These representations and warranties relate to: - the organization, qualification and capital structure of the Company and its subsidiaries; - the Company's power and authority to enter into the Merger Agreement and complete the Merger, and the validity, binding effect and enforceability of the Merger Agreement against the Company; - the absence of any conflict between the Company's entering into the Merger Agreement or completing the Merger and the Company's governing documents, agreements or other obligations; - the consents and approvals of governmental authorities and other parties that are required in connection with the Merger Agreement and the Merger; 30 - the Company's compliance with its obligation to make periodic filings with the SEC and the compliance of such filings with applicable law; - the absence of any material changes or developments with respect to the Company; - the absence of any material liabilities that should have been disclosed in the Company's financial statements; - the absence of any litigation or outstanding judgments against the Company that could have a material adverse effect on the Company or on its ability to complete the Merger; - the accuracy of the information the Company supplied for use in this Offer to Purchase and the information in the Schedule 14D-9; - the Company's compliance with all governmental permits and licenses that it is required to have; - the absence of any breaches or violations under any of the Company's governing documents or its contracts with third parties, the validity and enforceability of such contracts, and the termination of the merger agreement with Wright Holdings, Inc. and Wright Sub, Inc.; - the Company's compliance with applicable tax laws and the Company's filing of all required tax returns; - the Company's compliance with the terms of its employee benefit plans and applicable law in the operation of the employee benefit plans; - the Company's compliance with all applicable labor laws, and the absence of any material litigation against the Company by its current or former employees; - the Company's compliance with all applicable environmental laws; - the Company's valid ownership of the real property that it owns, and the existence of valid leases with respect to the real property that it leases; - the Company's valid ownership of the intellectual property rights that it uses in its business; - the validity of the Company's insurance policies; - the absence of any transactions with affiliates; - the vote of the Company's shareholders that is required to adopt the Merger Agreement; - the receipt by the Company of an opinion from RBC regarding the fairness to the Company's shareholders from a financial point of view of the consideration to be paid to the Company's shareholders in connection with the Offer and the Merger; - the Company's taking all necessary actions to prevent the Company's shareholder rights agreement from applying to the Merger Agreement, the Offer or the Merger (the Company amended its shareholder rights agreement on September 15, 2003 so that it does not apply to the Merger Agreement, the Offer or the Merger); and - the inapplicability of various Ohio anti-takeover statutes to the Merger Agreement, the Offer or the Merger. Representations and Warranties of Parent and Purchaser. Parent and Purchaser have made customary representations and warranties to the Company in the Merger Agreement. These representations and warranties relate to: - the organization and qualification of Parent and Purchaser; - the power and authority of Parent and Purchaser to enter into the Merger Agreement and complete the Offer and the Merger, and the validity, binding effect and enforceability of the Merger Agreement against them; 31 - the absence of any conflict between Parent and Purchaser entering into the Merger Agreement or completing the Offer and the Merger and their governing documents, agreements or other obligations; - the consents and approvals of governmental authorities and other parties that are required in connection with the Merger Agreement, the Offer and the Merger; - the accuracy of the information contained in this Offer to Purchase and supplied by Parent and Purchaser for inclusion in the Schedule 14D-9; - the absence of any litigation or outstanding judgments against Parent or Purchaser that could have a material adverse effect on them or on their ability to complete the Offer and the Merger; - the capitalization of Purchaser; and - the receipt by Parent of binding written commitments from financial institutions to obtain the funds necessary to complete the Offer and the Merger and to pay certain other expenses. Covenants of the Company. During the period from the date of the Merger Agreement until the time that Shares are first accepted for payment pursuant to the Offer or the earlier termination of the Merger Agreement, except as expressly permitted by the Merger Agreement or to the extent that Parent otherwise consents in writing, the Company has agreed to: - conduct its business in the ordinary course consistent with past practice; - use commercially reasonably efforts to preserve intact its present business organization, reputation and relationships, keep available the services of its key officers and employees, and maintain its assets and properties; and - confer on a regular basis with Parent regarding its business and operations and matters relevant to the Merger. The Company has also agreed that during this period, except as expressly permitted by the Merger Agreement or to the extent that Parent otherwise consents in writing, the Company will not, nor will it permit its subsidiaries to, do any of the following: - amend the articles of incorporation or the code of regulations; - declare, set aside or pay any dividends on any of its capital shares; - split, combine or reclassify any of its capital shares or issue any securities in substitution for any of its capital shares; - adopt a plan of liquidation, merger, consolidation, restructuring or reorganization; - redeem, repurchase or otherwise acquire any capital shares; - issue, deliver or sell any capital shares or any securities convertible into capital shares; - acquire any business or any assets other than inventory or other assets to be used or sold in the ordinary course of the Company's business; - sell or lease any assets or properties other than sales of inventory in the ordinary course of business or sale of assets in the aggregate of less than $250,000; - make any tax election or settle or compromise any material income tax liability other than as required by law; - incur any indebtedness for borrowed money except pursuant to the existing credit facility; - enter into, amend or terminate any of the Company's employee benefit plans or agreements, pay any benefits not required by existing compensation arrangements, increase the compensation of any of the Company's directors or officers, or increase the compensation or benefit of any non-officer employee except for normal increases in the ordinary course of business; 32 - enter into any contract or amend or modify any existing contracts, or enter into any new transaction with any affiliates outside of the ordinary course of business or not on an arms length basis; - make any capital expenditures for the opening of any new stores or the expansion or remodeling of any existing stores or any other material capital projects; - settle or compromise any litigation in excess of $100,000 in the aggregate, net of insurance coverage; - make any change in lines of business; or - enter into any contract, commitment or arrangement to do or engage in any of the forgoing. No Solicitation. The Merger Agreement provides that neither the Company nor its directors, officers, employees, or advisors, representatives or subsidiaries may, directly or indirectly: - initiate, solicit or encourage any inquiries or the making by any third party of any proposal (including any proposal or offer to the Company's shareholders) relating to an alternative acquisition proposal (which includes any merger, consolidation or other business combination involving the Company or any of its subsidiaries and any acquisition of a significant portion of the assets or securities of the Company or any of its subsidiaries); - engage in any negotiations or discussions with, or provide any confidential information to, any third party relating to an alternative acquisition proposal; or - grant any waiver or release under any confidentiality, standstill or similar agreement with respect to the Company's equity securities. However, the Company Board is not prohibited from furnishing information to (but only pursuant to a confidentiality agreement having terms and conditions that are no less favorable than the terms and conditions of the confidentiality agreement between Parent and the Company) or entering into discussions or negotiations with any third party who makes an unsolicited alternative acquisition proposal if a majority of the independent directors determines in good faith (after receiving advice from reputable outside counsel that there is a reasonable basis to conclude that the failure to take such action would result in a breach of the Company Board's fiduciary duties under applicable law), that the alternative acquisition proposal is or presents a reasonable likelihood of resulting in a proposal that provides greater value to the Company's shareholders, is reasonably likely to be completed and is supported by comparable financing. The Company Board is also not prohibited from taking and disclosing to its shareholders a position required under the federal securities laws with regard to an alternative acquisition proposal, or making any disclosure to its shareholders, if in the good faith judgment of a majority of the Company's disinterested directors (after receiving advice from reputable outside counsel to that effect) there is a reasonable basis to believe that such disclosure is required by law. The Company is required to promptly notify Parent if the Company receives any alternative acquisition proposal or any request for information relating to the Company by any third party that has made or is considering making an alternative acquisition proposal, and is required to keep Parent fully informed on a current basis of the status and details of any alternative acquisition proposal. The Company may not enter into any agreement or arrangement or make any recommendation to its shareholders (other than as required by law) with respect to any alternative acquisition proposal for one business day after delivery of notice to Parent of its intention to enter into such an agreement or arrangement with another party or to make such a recommendation to its shareholders. During such one day period, the Company must negotiate exclusively in good faith with Parent to make such adjustments in the terms and conditions of the Merger Agreement as would enable the Company to proceed with the transactions contemplated by the Merger Agreement. Any such adjustments to the terms and conditions of the Merger Agreement are at the discretion of the parties. Employee Matters. Parent has agreed that following the completion of the Offer until December 31, 2003, it will maintain the Company's existing employee benefit plans (other than equity-based compensation plans) or maintain benefit plans that are substantially comparable, in the aggregate, to the Company's existing 33 employee benefit plans. The benefit plans in which the Company's employees participate following the completion of the Offer will: - credit, for vesting and eligibility purposes only, all service performed for the Company prior to the completion of the Offer but not for benefit accrual (including minimum pension amount); - waive any pre-existing condition exclusions (other than pre-existing conditions that, as of the completion of the Offer, have not been satisfied); and - provide that any covered expenses incurred on or before the completion of the Offer during the plan year of the applicable benefit plan will be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the completion of the Offer. In addition, the Merger Agreement provides for (a) an enhanced severance policy for Company employees by offering Parent's severance plan to any Company employee who is terminated following the transaction and whose benefits would be greater under the Parent's plan than the Company's plan, while retaining the Company's severance benefits for those higher paid employees who would receive greater benefits under the Company's plan and (b) a guaranteed bonus equal to the bonus received last year for Company employees provided that the Company's net operating profit for this fiscal year exceeds $18.7 million. Indemnification of Directors and Officers. Parent has agreed that it will, for a period of at least six years from the completion of the Offer, indemnify and hold harmless the Company's current and former directors and officers to the fullest extent permitted by law, in respect of acts or omissions occurring prior to or after the completion of the Offer. Parent has also agreed that the governing documents of the surviving corporation will, for a period of at least six years from the completion of the Offer, retain the indemnification and insurance provisions contained in the Company's existing articles of incorporation and code of regulations. Parent is also required to maintain, until the sixth anniversary of the completion of the Offer, the directors' and officers' liability insurance policies currently maintained by the Company, up to an annual cost of 200% of the Company's current annual premium. Expenses. Except as provided for in the below section entitled Expense Reimbursement and Termination Fees, the Merger Agreement provides that, whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid by the party incurring such costs and expenses. Parent agreed to pay the filing fee in connection with the filings required under the HSR Act. Parent agreed to pay, and has paid, to the Company $3 million to reimburse the Company for a portion of the amount paid by the Company to Wright Holdings, Inc. pursuant to the terminated merger agreement between the Company and Wright Holdings, Inc. Conditions to the Merger. The obligation of Parent and the Company to complete the Merger is subject to the satisfaction of the following conditions: - the adoption of the Merger Agreement by the holders of at least two-thirds of the Company's outstanding Shares if such vote is required by applicable law; - the termination or expiration of any waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"); - the absence of any law or order of any governmental authority that prohibits the completion of the Merger; and - the purchase of Shares, validly tendered and not withdrawn, by Purchaser pursuant to the Offer. See "The Offer -- Section 15" for a description of the conditions to the Offer. Neither Parent nor Purchaser is permitted under the terms of the Merger Agreement to waive any of these conditions. 34 Termination of the Merger Agreement. The Merger Agreement may be terminated at any time prior to the completion of the Merger, whether before or after adoption of the Merger Agreement by the Company's shareholders: - by mutual written agreement of the Company, Parent and Purchaser duly authorized by action taken by or on behalf of their respective boards of directors (with, in the case of the Company following the date Shares are first accepted for payment by Purchaser pursuant to the Offer, the concurrence of the post-Offer independent directors); - by Parent upon written notice to the Company if an occurrence or circumstance (unless caused by Parent or Purchaser) has rendered the conditions to the Offer (see "The Offer -- Section 15") incapable of being satisfied, and (i) Purchaser shall have failed to commence the Offer in accordance with the terms of the Merger Agreement or (ii) the Offer shall have been terminated or shall have expired without Purchaser having purchased any Shares pursuant to the Offer; - by either Parent or the Company upon written notification to other if any court or other governmental or regulatory authority shall have issued a law or order making illegal or otherwise restricting, preventing or prohibiting the Offer or the Merger and any such order shall have become final and non-appealable; - by Parent upon written notification to the Company, prior to the purchase of the Shares pursuant to the Offer, if (i) Parent or Purchaser discover that there has been a material breach of any representation, warranty, covenant or agreement on the part of the Company set forth in the Merger Agreement, which breach is not curable or which has not been cured within the earlier of 30 days following receipt by the Company of notice of such breach from Parent or October 31, 2003, (ii) the Company Board withdraws or modifies or qualifies in a manner adverse to Parent its approval or recommendation of the Merger Agreement, the Offer or the Merger or has approved, recommended or entered into any agreement with respect to any alternative proposal or failed to reconfirm its recommendation of the Merger Agreement, the Offer and the Merger within 10 business days following a reasonable written request for such reconfirmation by Parent or (iii) there has not been validly tendered and not withdrawn prior to the Expiration Date at least two-thirds of the Shares, on a fully diluted basis, and prior to October 31, 2003 a person shall have made or modified a written alternative proposal to the Company and not withdrawn such proposal; - by the Company upon written notification to Parent if (i) the Company discovers that there has been a material breach of any representation, warranty, covenant or agreement on the part of Parent or Purchaser set forth in the Merger Agreement, which breach is not curable or which has not been cured within the earlier of 30 days following receipt by Parent of notice of such breach from the Company or the October 31, 2003 or (ii) the Company Board receives an unsolicited bona fide alternative proposal and the Company Board determines in good faith (after receiving advice from reputable outside legal counsel on their fiduciary duties) that the alternative proposal is reasonably likely to result in a superior proposal and was not solicited by it; provided that the Company must pay to Parent the expense reimbursement fee and termination fee described below; or - by the Company if there is no material breach of any representation, warranty, covenant or agreement on the part of the Company that has not been cured and (i) Purchaser shall have failed to commence the Offer as required, (ii) the Offer has been terminated or has expired without Purchaser having purchased any Shares pursuant to the Offer or (iii) Purchaser shall have failed to pay for Shares pursuant to the Offer prior to October 31, 2003. If the Merger Agreement is terminated, then the Merger Agreement will become null and void and none of the Company, Parent or Purchaser will be obligated to complete the Merger. Expense Reimbursement and Termination Fees. If the Merger Agreement is terminated under any of the following circumstances, then the Company is required to pay to Parent an expense reimbursement fee, 35 not to exceed $1.0 million, for all reasonable documented out-of-pocket fees and expenses incurred by Parent in connection with the Merger Agreement: - if an alternative proposal is publicly disclosed or proposed and Parent terminates the Merger Agreement because Purchaser has failed to commence the Offer or because at least two-thirds of the Shares were not validly tendered and not withdrawn prior to October 31, 2003; - if an alternative proposal is publicly disclosed or proposed and the Company terminates the Merger Agreement because Purchaser has failed to commence the Offer as required; - if Parent terminates the Merger Agreement because the Offer has been terminated or has expired without Purchaser having purchased any Shares pursuant to the Offer (assuming Parent and Purchaser were not in material breach of any of their representation, warranty, covenant or agreement that has not been cured); - if the Company terminates the Merger Agreement because either the Offer has been terminated or has expired without Purchaser having purchased any Shares pursuant to the Offer or Purchaser has failed to pay for the Shares pursuant to the Offer prior to October 31, 2003 (assuming Parent and Purchaser were not in material breach of any of their representations, warranties, covenants or agreements that has not been cured); or - if Parent terminates the Merger Agreement because it discovers that there has been a material breach of the Merger Agreement by the Company (other than a breach of the Company's "no solicitation" covenants or the Company's obligations with respect to approval of the Offer and filing of the Schedule 14D-9). Reimbursable fees and expenses include all fees and expenses payable to all banks, investment banking firms and other financial institutions and their respective agents and counsel for acting as financial advisor with respect to, or arranging or providing any financing for, the Merger. If the Merger Agreement is terminated for any reason other than because of a breach by Parent or Purchaser or as a consequence of the failure to satisfy the Financing Condition, then in addition to any other termination fee or expense reimbursement, the Company is required to repay to Parent the $3.0 million that was paid by Parent to the Company for use by the Company in paying to Wright Holdings, Inc. a portion of the termination fee and expense reimbursement fees payable in connection with the termination of the merger agreement with Wright Holdings, Inc. The Company is also required to pay Parent a termination fee of $2.0 million if all of the following shall occur: - an alternative proposal is publicly disclosed or proposed; - the Merger Agreement is terminated and the Company is obligated to pay to Parent the expense reimbursement fee under the circumstances described above; and - concurrently or within 12 months of termination, the Company enters into a definitive agreement with respect to an alternative proposal or does not recommend against an alternative proposal in the case of a tender offer. If Parent terminates the Merger Agreement due to the breach by the Company of the "no solicitation" covenants or the Company's obligations with respect to approval of the Offer and filing of the Schedule 14D-9 as set forth in the Merger Agreement, the Company is required to pay Parent the expense reimbursement and if, within 12 months of such termination, the Company announces or enters into an alternative acquisition proposal, the Company must pay Parent the termination fee. If the Merger Agreement is terminated (a) by the Company to pursue an alternative acquisition proposal or (b) by Parent if the Board of Directors of the Company withdraws or modifies or qualifies in a manner adverse to Parent its approval or recommendation of the Merger Agreement, the Offer or the Merger, or approves, recommends or enters into any agreement with respect to any other alternative proposal or fails to 36 reconfirm its recommendation of the Merger Agreement, the Offer and the Merger within ten (10) business days following a reasonable written request for such reconfirmation by Parent, then the Company is required to pay Parent the expense reimbursement fee plus the termination fee. Amendments. The Merger Agreement may be amended, supplemented or modified by action taken by or on behalf of the respective Boards of Directors of the Company (with, in the case of the Company following the date Shares are first accepted for payment by Purchaser pursuant to the Offer, the concurrence of the post-Offer independent directors), Parent and Purchaser at any time prior to the Effective Time, whether prior to or after the approval of the Company shareholders of the Merger shall have been obtained, but after such adoption and approval only to the extent permitted by applicable law. 14. Dividends and Distributions. As discussed in "The Offer -- Section 13," the Merger Agreement provides that from the date of the Merger Agreement until the date Shares are first accepted for payment by Purchaser pursuant to the Offer or the earlier termination of the Merger Agreement, without the prior written consent of Parent, the Company may not (i) declare, set aside or pay any dividends on or make other distributions in respect of any of its capital shares, or (ii) split, combine, reclassify or take similar action with respect to any of the Company's capital shares or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for its capital shares. 15. Conditions of the Offer. Notwithstanding any other provision of the Offer, we are not required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after termination or expiration of the Offer), pay for any Shares tendered pursuant to the Offer, and, except as set forth in the Merger Agreement, may extend, terminate or amend the Offer, if before the Expiration Date the Minimum Tender Condition, the Financing Condition, the Control Bid Condition or the HSR Condition shall not have been satisfied, or if, at any time on or after the date of commencement of the Offer, and before the time of payment for such Shares pursuant to the Offer (whether or not any Shares have theretofore been accepted for payment pursuant to the Offer), any of the following conditions exist: (i) there shall be a judgment, order, decree, statute, law, ordinance, rule or regulation entered, enacted, promulgated, enforced or issued by any court or governmental authority or regulatory authority of competent jurisdiction, which remains in effect, (a) restraining or prohibiting or seeking to restrain or prohibit the making or consummation of the Offer or the Merger or (b) restraining or prohibiting or seeking to restrain or prohibit the performance of the Merger Agreement; (c) imposing or seeking to impose any material limitations on the ability of Parent or its affiliates, including Purchaser, to combine and operate the business and assets of the Company and its subsidiaries, or requiring or seeking to require divestiture by Parent of any significant portion of the business, assets or property of the Company or of Parent; (d) imposing or seeking to impose any material limitations on the ability of Parent or any affiliate of Parent, including Purchaser, to acquire or hold or to exercise full rights of ownership of any securities of the Company, including, without limitation, the right to vote any Shares acquired by Purchaser pursuant to the Offer or otherwise on all matters properly presented to the Company's shareholders, or (e) imposing or seeking to impose other material sanctions, damages, or liabilities directly arising out of the Offer or the Merger on Parent or any of its officers or directors; or (ii) all consents, approvals and actions of, filings with and notices to any governmental or regulatory authority or any other public or private third parties required of Parent, the Company or any of their subsidiaries to consummate the Offer and the Merger, the failure of which to be obtained or taken would reasonably be expected to have a material adverse effect on Parent and its subsidiaries or the surviving corporation in the Merger and its subsidiaries, in each case taken as a whole, or on the ability of Parent or the Company to consummate the Offer and the Merger shall not have been obtained or taken, all in form and substance reasonably satisfactory to Parent; or (iii) the representations and warranties made by the Company in the Merger Agreement are not true and correct in all material respects as of the date of consummation of the Offer or, in the case of representations and warranties made as of a specified date earlier than such date, on and as of such earlier date, except as affected by the transactions contemplated by the Merger Agreement; or 37 (iv) the Company shall have failed to perform and comply, in all material respects, with each agreement, covenant and obligation required by the Merger Agreement to be so performed or complied with by the Company on or prior to the consummation of the Offer; or (v) the Merger Agreement shall have been terminated in accordance with its terms; or (vi) any actions required to be taken by the Company pursuant to the Merger Agreement prior to the consummation of the Offer in connection with the Offer or the Merger or any documents incident thereto shall fail to be reasonably satisfactory in form and substance to Parent, or Parent shall not have received copies of all such documents and other evidences as Parent may reasonably request in order to establish the taking of all such actions; or (vii) the Rights shall have become exercisable or transferable apart from the associated shares of Company common stock or the Company shall not have taken all necessary actions so that (1) the Rights Agreement will not be applicable to the Offer, the Merger and the Merger Agreement and (2) a Distribution Date, a Triggering Event or a Share Acquisition Date (as such terms are defined in the Rights Agreement) does not occur, in the case of clause (1) and (2), by reason of the execution of the Merger Agreement and the consummation of the Offer, the Merger and the other transactions contemplated by the Merger Agreement; or (viii) the Company Board or any committee thereof shall have withdrawn or modified (including by amendment of the Schedule 14D-9) in a manner adverse to Parent or Purchaser its approval or recommendation of the Offer, the Merger Agreement or the Merger, or shall have recommended to the Company's shareholders any alternative proposal or shall have adopted any resolution to effect any of the foregoing that, in the sole judgment of Purchaser in any such case, and regardless of the circumstances (including any action or omission by Purchaser) giving rise to any such condition, makes it inadvisable to proceed with such acceptance or payment. The foregoing conditions are for the sole benefit of Parent, Purchaser and their affiliates and may be asserted by us or Parent in our reasonable discretion in whole or in part at any time or from time to time before the Expiration Date or, with respect to the HSR Condition, before payment for any Shares pursuant to the Offer. Subject to the provisions of the Merger Agreement, we expressly reserve the right to waive any of the conditions to the Offer and to make any change in the terms of or conditions to the Offer. Our failure at any time to exercise our rights under any of the foregoing conditions shall not be deemed a waiver of any such right. The waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances. Each such right shall be deemed an ongoing right that may be asserted at any time or from time to time. 16. Certain Legal Matters; Regulatory Approvals. General. Based on our examination of publicly available information filed by the Company with the SEC, other publicly available information concerning the Company and the representations and warranties of the Company set forth in the Merger Agreement, we are not aware of any governmental license or regulatory permit that appears to be material to the Company's business that might be adversely affected by our acquisition of Shares pursuant to the Offer or, except as set forth below, of any approval or other action by any government or governmental administrative or regulatory authority or agency, domestic or foreign, that would be required for our acquisition or ownership of Shares pursuant to the Offer. Should any such approval or other action be required or desirable, we currently contemplate that, except as described below under "State Takeover Statutes," such approval or other action will be sought. Except as described under "Antitrust," there is, however, no current intent to delay the purchase of Shares tendered pursuant to the Offer pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, would be obtained (with or without substantial conditions) or that if such approvals were not obtained or such other actions were not taken adverse consequences might not result to the Company's business or certain parts of the Company's business might not have to be disposed of, any of which could cause us to elect to terminate the Offer without the purchase of Shares thereunder. Our obligation under the Offer to accept for payment and pay for Shares is subject to the conditions set forth in "The Offer -- Section 15." 38 State Takeover Statutes. A number of states have adopted laws that purport, to varying degrees, to apply to attempts to acquire corporations that are incorporated in, or that have substantial assets, shareholders, principal executive offices or principal places of business or whose business operations otherwise have substantial economic effects in, such states. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted such laws. Except as described herein, including the discussion of the requirements of the Ohio Control Bid Law, we do not know whether any of these laws will, by their terms, apply to the Offer or any merger or other business combination between us or any of our affiliates and the Company, and, except for the Ohio Control Bid Law, we have not complied with any such laws. Purchaser has filed the information required under the Ohio Control Bid Law with the Ohio Division of Securities and delivered a copy of such filing to the Company. If the Ohio Control Bid Law applies to the Company and the Ohio Division of Securities suspends the Offer in Ohio, Purchaser may be unable to accept for payment or pay for Shares tendered by Ohio residents or may be prevented from or delayed in consummating the Offer. See "The Offer -- Section 12." In 1982, in Edgar v. MITE Corp., the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover Statute which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of Indiana could, as a matter of corporate law, constitutionally disqualify a potential acquiror from voting shares of a target corporation without the prior approval of the remaining shareholders where, among other things, the corporation is incorporated, and has a substantial number of shareholders, in the state. Subsequently, in TLX Acquisition Corp. v. Telex Corp., a U.S. federal district court in Oklahoma ruled that the Oklahoma statutes were unconstitutional as applied to corporations incorporated outside Oklahoma in that they would subject such corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a U.S. federal district court in Tennessee ruled that four Tennessee takeover statutes were unconstitutional as applied to corporations incorporated outside Tennessee. This decision was affirmed by the United States Court of Appeals for the Sixth Circuit. In December 1988, a U.S. federal district court in Florida held in Grand Metropolitan PLC v. Butterworth that the provisions of the Florida Affiliated Transactions Act and the Florida Control Share Acquisition Act were unconstitutional as applied to corporations incorporated outside of Florida. If any government official or third party seeks to apply any state takeover law to the Offer or the Merger between us or any of our affiliates and the Company, or if the Ohio Division of Securities takes any action under the Ohio Control Bid Law to suspend the Offer, we will take such action as then appears desirable, which action may include challenging the applicability or validity of such statute in appropriate court proceedings. To the extent that certain provisions of these laws purport to apply to the Offer or the Merger, we believe that there are reasonable bases for contesting such laws. However, if it is asserted that one or more state takeover statutes is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, we might be required to file certain information with, or to receive approvals from, the relevant state authorities or holders of Shares, and we may be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer or the Merger. In such case, we may not be obligated to accept for payment or pay for any tendered Shares. See "The Offer -- Section 15." Antitrust. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the FTC and certain waiting period requirements have been satisfied. The purchase of Shares pursuant to the Offer is subject to such requirements. Pursuant to the requirements of the HSR Act, we filed a Notification and Report Form with respect to the Offer with the Antitrust Division and the FTC on September 22, 2003. As a result, the waiting period applicable to the purchase of Shares pursuant to the Offer will expire at 11:59 P.M., New York City time, on Tuesday, October 7, 2003. However, before such time, the Antitrust Division or the FTC may extend the waiting period by requesting additional information or documentary material relevant to the Offer from us. If such a request is made, the waiting period will be extended until 11:59 P.M., New York City time, 10 days 39 after our substantial compliance with such request. Thereafter, such waiting period can be extended only by court order. Shares will not be accepted for payment or paid for pursuant to the Offer until the expiration or earlier termination of the applicable waiting period under the HSR Act. See "The Offer -- Section 15." Subject to certain circumstances described in "The Offer -- Section 4," any extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. If our acquisition of Shares is delayed pursuant to a request by the Antitrust Division or the FTC for additional information or documentary material pursuant to the HSR Act, the Offer may, but need not, be extended. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as our acquisition of Shares pursuant to the Offer. Private parties and individual states may also bring legal actions under the antitrust laws. We do not believe that the consummation of the Offer will result in a violation of any applicable antitrust laws. However, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made, or if such a challenge is made, what the result will be. See "The Offer -- Section 15" for certain conditions to the Offer, including conditions with respect to litigation and certain governmental actions. Other. The Merger must comply with applicable U.S. federal law. In particular, unless the Shares are deregistered under the Exchange Act prior to the Merger, if the Merger is consummated more than one year after termination of the Offer or did not provide for shareholders to receive cash for their Shares in an amount at least equal to the price paid in the Offer, we may be required to comply with Rule 13e-3 under the Exchange Act. If applicable, Rule 13e-3 would require, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the proposed transaction and the consideration offered to minority shareholders in such a transaction be filed with the SEC and distributed to such shareholders prior to consummation of the transaction. 17. Fees and Expenses. Lazard Freres & Co. LLC is acting as our financial advisor and is acting as Dealer Manager in connection with the Offer and will receive customary fees in connection with this engagement. We have agreed to reimburse Lazard Freres & Co. LLC for out-of-pocket expenses incurred in connection with the Offer and to indemnify Lazard Freres & Co. LLC against certain liabilities, including certain liabilities under the U.S. federal securities laws. We have retained Innisfree M&A Incorporated to act as the Information Agent and American Stock Transfer & Trust Company to act as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, facsimile, telex, telegraph and personal interviews and may request brokers, dealers, banks, trust companies and other nominees to forward materials relating to the Offer to beneficial owners. The Information Agent and the Depositary each will receive reasonable and customary compensation for their respective services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities in connection therewith, including certain liabilities under the U.S. federal securities laws. We will not pay any fees or commissions to any broker or dealer or any other person (other than the Dealer Manager, the Information Agent and the Depositary) for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, banks, trust companies and other nominees will, upon request, be reimbursed by us for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. 18. Miscellaneous. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. However, we may, in our sole discretion, take such action as we may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Shares in such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. 40 We have filed with the SEC the Schedule TO, together with exhibits, pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to the Offer. The Schedule TO and any amendments thereto, including exhibits, may be examined and copies may be obtained from the offices of the SEC in the manner described in "The Offer -- Section 8." ELDER ACQUISITION CORP. September 23, 2003 41 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER DIRECTORS AND EXECUTIVE OFFICERS OF PARENT The name, current principal occupation or employment and material occupations, positions, offices or employment for the past five years of each director and executive officer of Parent are set forth below. The business address of each director and officer is care of The Bon-Ton Stores, Inc., 2801 East Market Street, York, Pennsylvania 17402. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Parent. None of the directors and officers of Parent listed below has, during the past five years, (i) been convicted in a criminal proceeding or (ii) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws. Unless otherwise noted, all directors and officers listed below are citizens of the United States. Directors are identified by an asterisk. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME AGE EMPLOYMENT HISTORY - ---- --- -------------------------------------------------------- Robert B. Bank*............. 56 President of Robert B. Bank Advisory Services, a private capital investment and consulting firm in Owings Mills, Maryland, since 1990. Mr. Bank is also a director of Nautica Enterprises, Inc., an apparel marketer. Philip M. Browne*........... 43 Senior Vice President and Chief Financial Officer of Advanta Corp., Spring House, Pennsylvania, one of the nation's largest providers of business credit cards to small businesses, since June 1998. Prior to that, Mr. Browne was a partner at Arthur Andersen LLP, where he was employed for more than 15 years. Mr. Browne is a director and a member of the audit committee of AF&L Insurance Company, a privately held long-term care and home health care insurance company. Shirley A. Dawe*............ 57 President of Shirley Dawe Associates, Inc., a Toronto, Ontario based consumer goods marketing and merchandising consulting group, since 1986. Prior to such time, she held progressively senior merchandising positions with the Hudson's Bay Company, a Canadian national department store chain, for over 15 years. Ms. Dawe is a director of OshKosh B'Gosh, Inc., a children's apparel manufacturer; the National Bank of Canada; and Henry Birks & Sons, Inc., a Canadian fine jewelry retailer. Ms. Dawe is a citizen of Canada. Marsha M. Everton*.......... 51 President and Chief Executive Officer of The Pfaltzgraff Co., a casual dinnerware manufacturer in York, Pennsylvania, since January 2002. Ms. Everton was Vice President of The Pfaltzgraff Co. for more than ten years prior, responsible during this period for various departments including stores and direct marketing, corporate development and market planning and administration. Michael L. Gleim*........... 60 Vice Chairman and Chief Operating Officer of Parent from December 1995 to February 2002. From 1991 to December 1995 he was Senior Executive Vice President and from 1989 to 1991 he was Executive Vice President of Parent. Tim Grumbacher*............. 63 Chairman of the Board of Parent since August 1991, and Chief Executive Officer since June 2000. From 1977 to 1989 he was President and from 1985 to 1995 he was Chief Executive Officer of Parent.
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CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME AGE EMPLOYMENT HISTORY - ---- --- -------------------------------------------------------- Robert E. Salerno*.......... 56 Chief Operating Officer of Kieselstein-Cord International, New York, a luxury accessories wholesaler and retailer, since December 2002. Vice President and Chief Operating Officer of Circline.Com, an internet based broker of fine arts and antiques based in New York, from November 2001 to December 2002. From October 1999 to August 2001, Mr. Salerno was Chief Executive Officer of Bluefish Clothing, an apparel marketer in Frenchtown, New Jersey. From June 1996 to February 1999, he was Senior Vice President of Bergdorf Goodman, responsible for all operational, financial and administrative functions. Robert C. Siegel*........... 66 Chairman of Lacoste U.S.A., an apparel company based in New York, New York, since January 1, 2002. From December 1998 to December 2001, he was a consultant to the apparel and footwear industry. From December 1993 to December 1998, he was Chairman and Chief Executive Officer of The Stride Rite Corporation, a shoe manufacturer and retailer based in Lexington, Massachusetts. Mr. Siegel is also director of OshKosh B'Gosh, Inc., a children's apparel manufacturer. Leon D. Starr*.............. 85 Management consultant to department and specialty stores since 1984. Prior to such time, he held various positions with Allied Stores Corporation, a national operator of department stores, for over 35 years. Thomas W. Wolf*............. 54 President of the Wolf Organization, Inc., a building materials manufacturer and distributor based in York, Pennsylvania, since 1985. He is also a director of Irex Corporation, a national building contractor. James H. Baireuther......... 57 Vice Chairman, Chief Administrative Officer and Chief Financial Officer since September 2001. From February 2000 to September 2001, he was Executive Vice President -- Chief Financial Officer, and for more than two years prior to that time he was Senior Vice President -- Chief Financial Officer. Joseph C. Culver............ 55 Senior Vice President -- Human Resources since September 2003. For more than five years prior to that time, Mr. Culver was Vice President -- Human Resources. Lynn C. Derry............... 48 Senior Vice President -- General Merchandise Manager since February 2001. For more than three years prior to that time, Ms. Derry was a Divisional Merchandise Manager for Parent. John S. Farrell............. 57 Senior Vice President -- Stores since June 2000. For more than three years prior to that time, Mr. Farrell was Vice President -- Stores. Robert A. Geisenberger...... 43 Senior Vice President -- General Merchandise Manager since July 2000. For more than three years prior to that time, Mr. Geisenberger was a Divisional Merchandise Manager for Parent. William T. Harmon........... 48 Senior Vice President -- Marketing, Planning and Allocation since April 2002 For more than three years prior to that time, he was Senior Vice President -- Sales Promotion, Marketing and Strategic Planning in June 1997. Patrick J. McIntyre......... 59 Senior Vice President -- Chief Information Officer since June 1997.
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CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME AGE EMPLOYMENT HISTORY - ---- --- -------------------------------------------------------- Keith E. Plowman............ 45 Senior Vice President -- Finance and Principal Accounting Officer since June 2003. From September 2001 until June 2003 he was Senior Vice President -- Finance. From May 1999 to September 2001, he was Vice President -- Controller, and from August 1997 to May 1999 he was Divisional Vice President -- Controller of Parent. Ryan J. Sattler............. 59 Senior Vice President -- Operations, Corporate Communications and Community Services since September 2003. From September 2001 to September 2003, Mr. Sattler was Senior Vice President -- Human Resources, and from June 2000 to September 2001, he was Senior Vice President -- Human Resources and Operations. For more than three years prior to that time, Mr. Sattler was Senior Vice President -- Operations. Frank Tworecke.............. 56 President and Chief Operating Officer since March 2003. He joined Parent in November 1999 as Vice Chairman and Chief Merchandising Officer. From January 1996 until November 1999, he was with Jos. A. Bank Clothiers, serving as President from February 1997 until November 1999.
I-3 DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER The name, current principal occupation or employment and material occupations, positions, offices or employment for the past five years of each director and executive officer of Purchaser are set forth below. The business address of each director and officer is care of The Bon-Ton Stores, Inc., 2801 East Market Street, York, Pennsylvania 17402. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Parent. None of the directors and officers of Purchaser listed below has, during the past five years, (i) been convicted in a criminal proceeding or (ii) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws. All directors and officers listed below are citizens of the United States. Directors are identified by an asterisk. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AGE AND EMPLOYMENT HISTORY - ---- --- ------------------------------------------ Tim Grumbacher*........................... 63 Chairman of the Board of Parent since August 1991, and Chief Executive Officer since June 2000. From 1977 to 1989 he was President and from 1985 to 1995 he was Chief Executive Officer of Parent. Frank Tworecke*........................... 56 President and Chief Operating Officer since March 2003. He joined Parent in November 1999 as Vice Chairman and Chief Merchandising Officer. From January 1996 until November 1999, he was with Jos. A. Bank Clothiers, serving as President from February 1997 until November 1999. James H. Baireuther*...................... 57 Vice Chairman, Chief Administrative Officer and Chief Financial Officer since September 2001. From February 2000 to September 2001, he was Executive Vice President -- Chief Financial Officer, and for more than two years prior to that time he was Senior Vice President -- Chief Financial Officer. Robert E. Stern........................... 59 Vice President -- General Counsel since June 1997.
I-4 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates for Shares and any other required documents should be sent to the Depositary at one of the addresses set forth below: The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Overnight Courier: By Hand: 59 Maiden Lane 59 Maiden Lane 59 Maiden Lane -- Ground New York, New York 10038 New York, New York 10038 Level Attention: Reorganization Attention: Reorganization New York, New York 10038 Department Department
By Facsimile: (718) 234-5001 Confirm Facsimile Transmission: (By Telephone Only) Toll Free: (877) 248-6417 If you have questions or need additional copies of this Offer to Purchase and the Letter of Transmittal, you can call the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: [INISFREE LOGO] 501 Madison Avenue, 20th Floor New York, New York 10022 Shareholders Call Toll-Free: (888) 750-5834 Banks and Brokerage Firms Call Collect: (212) 750-5833 The Dealer Manager for the Offer is: [LAZARD LOGO] 30 Rockefeller Plaza New York, New York 10020 Call Collect: (212) 632-6717 EX-99.(A)(2) 4 w90059exv99wxayx2y.txt FORM OF LETTER OF TRANSMITTAL EXHIBIT (a)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF THE ELDER-BEERMAN STORES CORP. PURSUANT TO THE OFFER TO PURCHASE DATED SEPTEMBER 23, 2003 OF ELDER ACQUISITION CORP. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF THE BON-TON STORES, INC. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 21, 2003, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Overnight Courier: By Hand: 59 Maiden Lane 59 Maiden Lane 59 Maiden Lane -- Ground Level New York, New York 10038 New York, New York 10038 New York, New York 10038
By Facsimile (For Eligible Institutions Only): (718) 234-5001 Confirm Facsimile Transmission (By Telephone Only): Toll Free: (877) 248-6417 ALL QUESTIONS REGARDING THE OFFER SHOULD BE DIRECTED TO THE INFORMATION AGENT, INNISFREE M&A INCORPORATED, OR TO THE DEALER MANAGER, LAZARD FRERES & CO. LLC AT THEIR RESPECTIVE ADDRESSES AND TELEPHONE NUMBERS AS SET FORTH ON THE BACK COVER PAGE OF THE OFFER TO PURCHASE. DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE FOR THE DEPOSITARY, OR TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THIS LETTER OF TRANSMITTAL AND THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS SHARES TENDERED NAME(S) APPEAR(S) ON SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SHARES NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S) CERTIFICATE(S)* TENDERED** ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- TOTAL SHARES - ------------------------------------------------------------------------------------------------------------------------
* Need not be completed by shareholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares evidenced by any certificates delivered to the Depositary are being tendered. See Instruction 4. This Letter of Transmittal is to be used if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company, the Book-Entry Transfer Facility, pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Holders of outstanding shares of common stock, no par value, and the associated preferred stock purchase rights (together, the "Shares"), of The Elder-Beerman Stores Corp., whose certificates for such Shares are not immediately available or who cannot deliver such certificates and all other required documents to the Depositary on or prior to the expiration of the offer, or who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY [ ] CHECK HERE IF SHARE CERTIFICATES HAVE BEEN MUTILATED, LOST, STOLEN OR DESTROYED. SEE INSTRUCTION 9. [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: - -------------------------------------------------------------------------------- Account Number: - -------------------------------------------------------------------------------- Transaction Code Number: - -------------------------------------------------------------------------------- 2 [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Tendering Shareholder(s): - -------------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: , 2003 ----------------- Name of Institution which Guaranteed Delivery: - -------------------------------------------------------------------------------- IF DELIVERY IS BY BOOK-ENTRY TRANSFER: Name of Tendering Institution: - -------------------------------------------------------------------------------- Account Number: - -------------------------------------------------------------------------------- Transaction Code Number: - -------------------------------------------------------------------------------- 3 Ladies and Gentlemen: The undersigned hereby tenders to Elder Acquisition Corp., an Ohio corporation (the "Purchaser") and an indirect wholly owned subsidiary of The Bon-Ton Stores, Inc., a Pennsylvania corporation, the above-described shares of common stock, no par value, and the associated preferred stock purchase rights (together, the "Shares"), of The Elder-Beerman Stores Corp., an Ohio corporation (the "Company"), pursuant to the Purchaser's offer to purchase all outstanding Shares at $8.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated September 23, 2003, receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). The Offer expires at 12:00 Midnight, New York City time, on Tuesday, October 21, 2003, unless extended as described in the Offer to Purchase (as extended, the "Expiration Date"). The Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer or prejudice your rights to receive payment for Shares validly tendered and accepted for payment. Upon the terms and subject to the conditions of the Offer and effective upon acceptance for payment of and payment for the Shares tendered herewith, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all the Shares that are being tendered hereby and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares, with full power of substitution, to (i) deliver certificates for such Shares, or transfer ownership of such Shares on the account books maintained by The Depository Trust Company (the "Book-Entry Transfer Facility"), together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Purchaser, (ii) present such Shares for transfer on the books of the Company and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints Tim Grumbacher and Michael L. Gleim, or either of them, the attorneys and proxies of the undersigned, each with full power of substitution, to exercise all voting and other rights of the undersigned in such manner as each such attorney and proxy or his substitute shall in his sole discretion deem proper, with respect to all of the Shares tendered hereby that have been accepted for payment by the Purchaser prior to the time of any vote or other action, at any meeting of shareholders of the Company (whether annual or special and whether or not an adjourned meeting), or otherwise. This proxy is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by the Purchaser in accordance with the terms of the Offer. Such acceptance for payment shall revoke any other proxy granted by the undersigned at any time with respect to such Shares, and no subsequent proxies will be given by the undersigned (and if given, will not be deemed to be effective). The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered herein and that when the same are accepted for payment by the Purchaser, the Purchaser will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute an agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. 4 Unless otherwise indicated under "Special Payment Instructions," please issue the check for the purchase price of any Shares purchased, and return any Shares not tendered or not purchased, in the name(s) of the undersigned (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility). Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of any Shares purchased and any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the purchase price of any Shares purchased and return any Shares not tendered or not purchased in the name(s) of, and mail said check and any certificates to, the person(s) so indicated. The undersigned recognizes that the Purchaser has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if the Purchaser does not accept for payment any of the Shares so tendered. SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 6, 7 AND 8) To be completed ONLY if the check for the purchase price of Shares purchased (less the amount of any federal income and backup withholding tax required to be withheld) or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue [ ] check [ ] certificates to: Name - -------------------------------------------------------------------------------- (PLEASE PRINT) Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (ZIP CODE) - -------------------------------------------------------------------------------- TAXPAYER IDENTIFICATION NUMBER SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 6, 7 AND 8) To be completed ONLY if the check for the purchase price of Shares purchased (less the amount of any federal income and backup withholding tax required to be withheld) or certificates for Shares not tendered or not purchased are to be mailed to someone other than the undersigned or to the undersigned at an address other than that shown below the undersigned's signature(s). Mail [ ] check [ ] certificates to: Name - -------------------------------------------------------------------------------- (PLEASE PRINT) Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (ZIP CODE) 5 Z SIGN HERE Z (PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SIGNATURE(S) OF SHAREHOLDER(S) Dated: , 2003 ------------------------------ Name(s): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT) Capacity (full title): - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (ZIP CODE) Area Code and Telephone Number: - -------------------------------------------------------------------------------- (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) GUARANTEE OF SIGNATURE(S) (IF REQUIRED; SEE INSTRUCTIONS 1 AND 5) (FOR USE BY ELIGIBLE INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE BELOW) Name of Firm: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (ZIP CODE) Authorized Signature: - -------------------------------------------------------------------------------- Name: - -------------------------------------------------------------------------------- (PLEASE PRINT) Area Code and Telephone Number: - -------------------------------------------------------------------------------- Dated: , 2003 ------------------------------ 6 - ----------------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART I TAXPAYER IDENTIFICATION NO. -- FOR ALL ACCOUNTS FORM W-9 ------------------------------------------------------------------ PART II FOR PAYEES EX- DEPARTMENT OF THE TREASURY EMPT FROM BACKUP INTERNAL REVENUE SERVICE WITHHOLDING (SEE ENCLOSED PAYER'S REQUEST FOR GUIDELINES) TAXPAYER IDENTIFICATION NO. Enter your taxpayer identifica- tion number in the appropriate Social Security Number box. For most individuals and sole proprietors, this is your social security number. For other entities, it is your OR employer identification number. If you do not have a number, see "How to Obtain a TIN" in the enclosed Guidelines. Employer Identification Number Note: If the account is in more than one name, see the chart in the enclosed Guidelines to determine what number to enter. - ----------------------------------------------------------------------------------------------------------------------- PART III CERTIFICATION -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number or I am waiting for a number to be issued to me; (2) I am not subject to backup withholding either because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding; and (3) I am a U.S. person (including a U.S. resident alien). Certification Instructions -- You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because you have failed to report all interest and dividends on your tax return. - ----------------------------------------------------------------------------------------------------------------------- SIGNATURE _____________________________________________ DATE ______________________________________, 2003 - ----------------------------------------------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING TAX BEING WITHHELD ON ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. - -----------------------------------------------------------------------------------------------------------------------
7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) that is a member of a recognized Medallion Program approved by The Securities Transfer Association, Inc., including the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock Exchange, Inc. Medallion Signature Program (MSP) or any other "eligible guarantor institution" (as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended) (each an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (i) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) has not completed the box entitled "Special Payment Instructions" on this Letter of Transmittal or (ii) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book- Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal by the Expiration Date. Shareholders who cannot deliver their Shares and all other required documents to the Depositary by the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Purchaser must be received by the Depositary by the Expiration Date and (iii) the certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, WE RECOMMEND REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IN TIME TO BE RECEIVED ON OR PRIOR TO THE EXPIRATION DATE. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. By executing this Letter of Transmittal (or facsimile thereof), the tendering shareholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be issued and sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the boxes entitled "Special Payment Instructions" or "Special Delivery Instructions," as the case may be, on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 8 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby is held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made, or Shares not tendered or not purchased are to be returned, in the name of any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Purchaser of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. The Purchaser will pay any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be returned in the name of, any person other than the registered holder(s), or if a transfer tax is imposed for any reason other than the sale or transfer of Shares to the Purchaser pursuant to the Offer, then the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted herewith. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the share certificate(s) evidencing the Shares tendered hereby. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase price of any Shares purchased is to be issued, or any Shares not tendered or not purchased are to be returned, in the name of a person other than the person(s) signing this Letter of Transmittal or if the check or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Shareholders tendering Shares by book-entry transfer may request that Shares not purchased be credited to such account at the Book-Entry Transfer Facility as such shareholder may designate under "Special Payment Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated above. 8. SUBSTITUTE FORM W-9. Under the U.S. federal income tax laws, the Depositary will be required to withhold 28% of the amount of any payments made to certain shareholders pursuant to the Offer. In order to avoid such backup withholding, each tendering shareholder, and, if applicable, each other payee, must provide the Depositary with such shareholder's or payee's correct taxpayer identification number and certify that such shareholder or payee is not subject to such backup withholding by completing the Substitute Form W-9 set forth above. In general, if a shareholder or payee is an individual, the taxpayer identification number is the social security number of such individual. If the Depositary is not provided with the correct taxpayer identification number, the shareholder or payee may be subject to a $50 penalty imposed by the Internal Revenue Service. Certain shareholders or payees (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order to satisfy the Depositary that a foreign individual 9 qualifies as an exempt recipient, such shareholder or payee must submit a Form W-8BEN Certificate of Foreign Status to the Depositary. Such certificates can be obtained from the Depositary. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Shares are held in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause Shares to be deemed invalidly tendered, but may require the Depositary to withhold 28% of the amount of any payments made pursuant to the Offer. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is furnished to the Internal Revenue Service. FAILURE TO COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 28% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 9. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. If the certificate(s) representing Shares to be tendered have been mutilated, lost, stolen or destroyed, shareholders should (i) complete this Letter of Transmittal and check the appropriate box above and (ii) contact The Elder-Beerman Stores Corp.'s transfer agent, Wells Fargo Bank Minnesota, N.A., immediately by calling Shareowner Services at (800) 468-9716. The Elder-Beerman Stores Corp.'s transfer agent will provide such holder with all necessary forms and instructions to replace any such mutilated, lost, stolen or destroyed certificates. The shareholder may be required to give the Purchaser a bond as indemnity against any claim that may be made against it with respect to the certificate(s) alleged to have been mutilated, lost, stolen or destroyed. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal may be obtained from the Information Agent or the Dealer Manager at their respective addresses or telephone numbers set forth below. THE INFORMATION AGENT FOR THE OFFER IS: [INNISFREE LOGO] 501 Madison Avenue, 20th Floor New York, New York 10022 Shareholders Call Toll-Free: (888) 750-5834 Banks and Brokerage Firms Call Collect: (212) 750-5833 THE DEALER MANAGER FOR THE OFFER IS: [LAZARD LOGO] 30 Rockefeller Center New York, New York 10020 Call Collect: (212) 632-6717 10 THE INFORMATION AGENT FOR THE OFFER IS: [INNISFREE LOGO] 501 Madison Avenue, 20th Floor New York, New York 10022 Shareholders Call Toll-Free: (888) 750-5834 Banks and Brokerage Firms Call Collect: (212) 750-5833 THE DEALER MANAGER FOR THE OFFER IS: [LAZARD LOGO] 30 Rockefeller Center New York, New York 10020 Call Collect: (212) 632-6717 EX-99.(A)(3) 5 w90059exv99wxayx3y.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT (a)(3) NOTICE OF GUARANTEED DELIVERY TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF THE ELDER-BEERMAN STORES CORP. PURSUANT TO THE OFFER TO PURCHASE DATED SEPTEMBER 23, 2003 TO ELDER ACQUISITION CORP. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF THE BON-TON STORES, INC. This form, or a substantially equivalent form, must be used to accept the Offer (as defined below) if the certificates for shares of common stock, no par value, and the associated preferred stock purchase rights, of The Elder-Beerman Stores Corp. and any other documents required by the Letter of Transmittal cannot be delivered to the Depositary by the expiration of the Offer. Such form may be delivered by hand, or transmitted by telegram, telex, facsimile transmission, or mail to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY BY MAIL: BY OVERNIGHT COURIER: BY HAND: 59 Maiden Lane 59 Maiden Lane 59 Maiden Lane -- Ground New York, New York 10038 New York, New York 10038 Level New York, New York 10038
BY FACSIMILE: (FOR ELIGIBLE INSTITUTIONS ONLY) (718) 234-5001 CONFIRM FACSIMILE TRANSMISSION: (BY TELEPHONE ONLY) Toll Free: (877) 248-6417 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to Elder Acquisition Corp. (the "Purchaser"), an Ohio corporation and an indirect wholly owned subsidiary of The Bon-Ton Stores, Inc., a Pennsylvania corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated September 23, 2003, and the related Letter of Transmittal (which, together with any amendments and supplements thereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged, shares of common stock, no par value, and the associated preferred stock purchase rights (together, the "Shares"), of The Elder-Beerman Stores Corp., an Ohio corporation, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Certificate Numbers (if available) - ------------------------------------------------------ - ------------------------------------------------------ If delivery will be by book-entry transfer: Name of Tendering Institution - ------------------------------------------------------ Account Number - ------------------------------------------------------ Transaction Code Number - ------------------------------------------------------ SIGN HERE - ------------------------------------------------------ Signature(s) - ------------------------------------------------------ (Name(s)) (Please Print) - ------------------------------------------------------ (Addresses) - ------------------------------------------------------ (Zip Code) - ------------------------------------------------------ (Area Code and Telephone Number) 2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm that is a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of a recognized Medallion Program approved by the Securities Transfer Association Inc., including the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock Exchange, Inc. Medallion Signature Program (MSP) or any other "eligible guarantor institution" (as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended), guarantees (i) that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (ii) that such tender of Shares complies with Rule 14e-4 and (iii) to deliver to the Depositary the Shares tendered hereby, together with a properly completed and duly executed Letter(s) of Transmittal (or facsimile(s) thereof) and certificates for the Shares to be tendered or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents, all within three Nasdaq National Market trading days of the date hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal (or a manually signed facsimile thereof) and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. -------------------------------------- (NAME OF FIRM) -------------------------------------- (ADDRESS) -------------------------------------- (ZIP CODE) -------------------------------------- (AUTHORIZED SIGNATURE) -------------------------------------- (NAME) -------------------------------------- (AREA CODE AND TELEPHONE NUMBER) Dated: , 2003 --------------- 3 EX-99.(A)(4) 6 w90059exv99wxayx4y.txt FORM OF LETTER TO BROKERS, DEALERS EXHIBIT (a)(4) [LAZARD LOGO] [LAZARD LETTERHEAD] OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF THE ELDER-BEERMAN STORES CORP. AT $8.00 NET PER SHARE BY ELDER ACQUISITION CORP. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF THE BON-TON STORES, INC. September 23, 2003 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Elder Acquisition Corp. (the "Purchaser"), an Ohio corporation and an indirect wholly owned subsidiary of The Bon-Ton Stores, Inc., a Pennsylvania corporation ("Parent") to act as Dealer Manager in connection with its offer to purchase all outstanding shares of common stock, without par value, and the associated preferred stock purchase rights (together, the "Shares"), of The Elder-Beerman Stores Corp., an Ohio corporation (the "Company"), at $8.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated September 23, 2003, and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offer to Purchase dated September 23, 2003; 2. Letter of Transmittal, including a Substitute Form W-9, for your use and for the information of your clients; 3. Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents cannot be delivered to American Stock Transfer & Trust Company, the Depositary for the Offer, by the expiration of the Offer; 4. A form of letter that may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 5. The letter to shareholders of the Company from Steven C. Mason, Chairman of the Company's Board of Directors, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company; [LAZARD CITY OFFICES] 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding; and 7. Return envelope addressed to the Depositary. The Offer is conditioned upon, among other things, (a) there being validly tendered and not withdrawn before the expiration of the Offer a number of Shares that, together with the Shares then owned by Parent and its subsidiaries (including the Purchaser), represents at least two-thirds of the total number of Shares outstanding on a fully diluted basis, and (b) Parent having received proceeds of the financings contemplated by its existing commitment letters or such other financings that are sufficient, together with cash on hand, to consummate the Offer and the proposed merger and to refinance all debt of the Company and Parent that is or could be required to be repurchased or becomes, or could be declared, due and payable as a result of the Offer or the proposed merger or the financing thereof, and to pay all related fees and expenses. The Offer is also subject to the other conditions described in the Offer to Purchase. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 21, 2003, UNLESS THE OFFER IS EXTENDED. The Purchaser will not pay any fees or commissions to any broker, dealer or other person (other than the Dealer Manager, the Information Agent and the Depositary as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. The Purchaser will, however, upon request, reimburse brokers, dealers, banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. The Purchaser will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. In order to accept the Offer, a duly executed and properly completed Letter of Transmittal and any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry delivery of Shares, and any other required documents, should be sent so that it is received by the Depositary by 12:00 Midnight, New York City time, on Tuesday, October 21, 2003. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained from, the Information Agent or the undersigned at the addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Very truly yours, LAZARD FRERES & CO. LLC NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF ELDER ACQUISITION CORP., THE BON-TON STORES, INC., THE DEALER MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.(A)(5) 7 w90059exv99wxayx5y.txt FORM OF LETTER TO CLIENTS EXHIBIT (a)(5) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF THE ELDER-BEERMAN STORES CORP. AT $8.00 NET PER SHARE BY ELDER ACQUISITION CORP. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF THE BON-TON STORES, INC. To Our Clients: Enclosed for your consideration are the Offer to Purchase dated September 23, 2003 and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Elder Acquisition Corp. (the "Purchaser"), an Ohio corporation and an indirect wholly owned subsidiary of The Bon-Ton Stores, Inc. (the "Parent"), a Pennsylvania corporation, to purchase for cash all outstanding shares of common stock, no par value (the "Common Stock"), and the associated preferred stock purchase rights (the "Rights," and together with the Common Stock, the "Shares"), of The Elder-Beerman Stores Corp., an Ohio corporation (the "Company"). We are the holder of record of Shares held for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase and the Letter of Transmittal. Your attention is directed to the following: 1. The tender price is $8.00 per Share, net to you in cash upon the terms and subject to the conditions of the Offer. 2. The Offer and withdrawal rights expire at 12:00 Midnight, New York City time, on Tuesday, October 21, 2003, unless extended (as extended, the "Expiration Date"). 3. The independent directors of the Company (with one director absent) unanimously (1) determined that the Merger Agreement, the Offer and the proposed merger are advisable, fair to and in the best interests of the Company and its shareholders, (2) approved the Merger Agreement, the Offer, and the proposed merger, and (3) recommended that the Company's shareholders accept the Offer and tender their Shares pursuant to the Offer. 4. The Offer is conditioned upon, among other things, (a) there being validly tendered and not withdrawn before the Expiration Date a number of Shares that, together with the Shares then owned by the Parent and its subsidiaries (including the Purchaser), represents at least two-thirds of the total number of Shares outstanding on a fully diluted basis, and (b) the Parent having received proceeds of the financings contemplated by its existing commitment letters or such other financings that are sufficient, together with cash on hand, to consummate the Offer and the proposed merger and to refinance all debt of the Company and the Parent that is or could be required to be repurchased or becomes, or could be declared, due and payable as a result of the Offer or the proposed merger or the financing thereof and to pay all related fees and expenses. The Offer is also subject to the other conditions described in the Offer to Purchase. 5. Any stock transfer taxes applicable to the sale of Shares to the Purchaser pursuant to the Offer will be paid by the Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form below. An envelope to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the instruction form. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf by the Expiration Date. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. Payment for Shares purchased pursuant to the Offer will in all cases be made only after timely receipt by American Stock Transfer & Trust Company (the "Depositary") of (i) certificates representing the Shares tendered or timely confirmation of the book-entry transfer of such Shares into the account maintained by the Depositary at The Depository Trust Company (the "Book-Entry Transfer Facility"), pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase), in connection with a book-entry delivery, and (iii) any other documents required by the Letter of Transmittal. Accordingly, payment may not be made to all tendering shareholders at the same time depending upon when certificates for or confirmations of book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility are actually received by the Depositary. 2 INSTRUCTION FORM WITH RESPECT TO OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF THE ELDER-BEERMAN STORES CORP. BY ELDER ACQUISITION CORP. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated September 23, 2003, and the related Letter of Transmittal, in connection with the offer by Elder Acquisition Corp. to purchase all outstanding shares of common stock, no par value, and the associated preferred stock purchase rights (together, the "Shares"), of The Elder-Beerman Stores Corp. This will instruct you to tender the number of Shares indicated below held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. Number of Shares to be Tendered: SIGN HERE - --------------------------------------------------- Shares* ----------------------------------------------------------- SIGNATURE(S) Dated ---------------------------------------------, 2003 ----------------------------------------------------------- NAME(S) ----------------------------------------------------------- ADDRESS(ES) ----------------------------------------------------------- (ZIP CODE)
* Unless otherwise indicated, it will be assumed that all Shares held for the undersigned's account are to be tendered. EX-99.(A)(6) 8 w90059exv99wxayx6y.txt GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENT. EXHIBIT (a)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER -- Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer.
- --------------------------------------------------------------- GIVE THE SOCIAL SECURITY NUMBER FOR THIS TYPE OF ACCOUNT OF: - --------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) (Uniform Gifts to Minors Act) 4. a. The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under state law 5. Sole proprietorship account The owner(3) - ---------------------------------------------------------------
------------------------------------------------------------------------------- GIVE THE EMPLOYER IDENTIFICATION NUMBER FOR THIS TYPE OF ACCOUNT OF: ------------------------------------------------------------------------------- 6. A valid trust, estate, or pension Legal entity (Do not furnish the trust identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title).(4) 7. Corporate account The corporation 8. Association, club, religious, The organization charitable, educational, or other tax-exempt organization account 9. Partnership account The partnership 10. A broker or registered nominee The broker or nominee 11. Account with the Department of The public entity Agriculture in the name of a public entity (such as a state or local government, school district or prison) that receives agricultural program payments - ---------------------------------------------------------------------------------
1. List first and circle the name of the person whose number you furnish. 2. Circle the minor's name and furnish the minor's social security number. 3. You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or employer identification number (if you have one). 4. List first and circle the name of the legal trust, estate, or pension trust. NOTE: IF NO NAME IS CIRCLED WHEN MORE THAN ONE NAME IS LISTED, THE NUMBER WILL BE CONSIDERED TO BE THAT OF THE FIRST NAME LISTED. HOW TO OBTAIN A TIN If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service ("IRS") and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees exempt from backup withholding on all payments include the following: - An organization exempt from tax under section 501(a), any IRA, or a custodial account under section 403(b)(7) if the account satisfies the requirements of Section 401(f)(2). - The United States or any of its agencies or instrumentalities. - A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. - A foreign government or any of its political subdivisions, agencies, or instrumentalities. - An international organization or any of its agencies or instrumentalities. Other payees that may be exempt from backup withholding include: - A corporation. - A foreign central bank of issue. - A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States. - A futures commission merchant registered with the Commodity Futures Trading Commission. - A real estate investment trust. - An entity registered at all times during the tax year under the Investment Company Act of 1940. - A common trust fund operated by a bank under section 584(a). - A financial institution. - A middleman known in the investment community as a nominee or custodian. - A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade of business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. Exempt payees described above should file Substitute Form W-9 to avoid possible erroneous backup withholding. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM IN PART II, SIGN AND DATE THE FORM, AND RETURN IT TO THE PAYER. Certain payments, other than interest, dividends and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045 and 6050A. PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend, interest or other payments to give their correct taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of tax returns. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 28% (or such other rate specified by the Internal Revenue Code) of taxable interest, dividend and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. 2 EX-99.(B)(1) 9 w90059exv99wxbyx1y.txt COMMITMENT LETTER FROM GENERAL ELECTRIC CAPITAL EXHIBIT (b)(1) GENERAL ELECTRIC CAPITAL CORPORATION 800 CONNECTICUT AVENUE, TWO NORTH NORWALK, CONNECTICUT 06854 August 29, 2003 The Bon-Ton Stores, Inc. 2801 E. Market Street P.O. Box 2801 York, PA 17405 Attn: James H. Baireuther Re: Commitment Letter Ladies and Gentlemen: You have advised General Electric Capital Corporation ("GE Capital" or "Agent") that The Bon-Ton Stores, Inc., a Pennsylvania corporation ("Parent"), and a newly organized Ohio corporation ("Acquisition Co."), which is a direct, wholly owned subsidiary of The Bon-Ton Department Stores, Inc. ("Bon-Ton"), may enter into a merger agreement, in form and substance reasonably satisfactory to us (the "Merger Agreement") (it being acknowledged that the draft dated August 29, 2003 previously delivered to us will be satisfactory to us, subject to our reasonable approval of the disclosure schedules), with The Elder-Beerman Stores Corp., an Ohio corporation ("Elder-Beerman"), pursuant to which Acquisition Co. will (i) make a cash tender offer ("Tender Offer") for up to 100% of the issued and outstanding shares of common stock, no par value (the "Shares"), of Elder-Beerman at a price not to exceed $7.00 per Share and (ii) be merged with and into Elder-Beerman, with Elder-Beerman being the surviving corporation (the "Merger"), as soon as practicable after the completion and consummation of the Tender Offer and in any event within three (3) business days after the date on which Acquisition Co. acquires a sufficient number of Shares to cause the Merger to be effected without a vote of the shareholders of Elder-Beerman (the "Short Form Merger Threshold"). The Tender Offer and the Merger are herein referred to as the "Acquisition". The Acquisition will be approved by the board of directors of each of Parent and Elder-Beerman and such approval shall not have been withdrawn or qualified in a manner adverse to Parent or the Lenders (as defined in the Term Sheets referred to below). The Tender Offer will be conditioned upon the receipt of at least two-thirds of the total number of Shares outstanding on a "fully diluted basis" (on a "fully-diluted basis" meaning the number of Shares then issued and outstanding plus all Shares which the Company may be required to issue as of such date pursuant to options, deferred shares, warrants, rights, convertible or exchangeable securities or similar obligations then outstanding, whether or not then vested or exercisable) (the "Minimum Shares"). The Merger Agreement will, among other things, provide that each shareholder of Elder-Beerman (other than Acquisition Co. and The Bon-Ton Stores, Inc. August 29, 2003 Parent and other than shareholders who have perfected appraisal rights) who has not participated in the Tender Offer will, upon consummation of the Merger, receive a cash merger price per Share equal to $7.00. You have further advised us that it is your intention so long as the Minimum Shares are tendered (and the conditions precedent to the purchase of such Shares in the Merger Agreement are satisfied), to purchase the Shares tendered on the expiration of the Tender Offer period (the "Initial Offer Period"). We understand that in the event that the Short Form Merger Threshold is not obtained simultaneously with the Minimum Shares (a) in order to finance the Tender Offer, certain related fees and expenses and to refinance certain of its outstanding indebtedness, Bon-Ton and certain of its subsidiaries (including The Bon-Ton Stores of Lancaster, Inc. ("Lancaster")) will require a senior secured credit facility of up to $203,000,000 comprised of (i) a $150,000,000 revolving credit facility, (ii) a $15,000,000 term loan B facility and (iii) a $38,000,000 term loan C facility (collectively, the "Tender Facility") and (b) to refinance certain indebtedness of Elder-Beerman, Elder-Beerman will require a senior secured revolving credit facility of up to $75,000,000 (the "Target Facility"). You have further advised us that upon the consummation of the Merger (and in order to refinance the Tender Facility and the Target Facility if the Minimum Shares are purchased but the Short Form Merger Threshold is not obtained), Bon-Ton, Lancaster and Elder-Beerman will require a senior secured credit facility of up to $325,000,000 comprised of (a) a $300,000,000 revolving credit facility (which will include a letter of credit subfacility of up to $50,000,000) and (b) a $25,000,000 term loan B (collectively, the "Permanent Facility" and together with the Tender Facility and the Target Facility, each a "Facility" and collectively, the "Facilities"). We understand that no external financing will be required in connection with the Acquisition other than (i) as reflected in the Tender Facility Term Sheet attached hereto as Exhibit A (the "Tender Facility Term Sheet"), the Target Facility Term Sheet attached hereto as Exhibit B (the "Target Facility Term Sheet") and the Permanent Facility Term Sheet attached hereto as Exhibit C (the "Permanent Facility Term Sheet," and together with the Tender Facility Term Sheet and the Target Facility Term Sheet, each a "Term Sheet" and collectively, the "Term Sheets", and together with this letter, this "Commitment Letter") and (ii) (A) amendments to the "Securitization Documents" (the "Existing BT Securitization Documents") as defined in that certain Amended and Restated Credit Agreement dated as of May 21, 2003, among Bon-Ton, Lancaster, the lenders party thereto and GE Capital, as administrative agent (the "Existing Credit Agreement") or a new securitization facility (the "New BT Securitization Documents"), which New BT Securitization Documents will be effective on the date on which Acquisition Co. acquires the Minimum Shares and (B) a waiver of the "change of control" (the "EB Securitization Amendment" and together with the New BT Securitization Documents, the "New Securitization Documents") under the "Securitization Documents" (the "Existing EB Securitization Documents"), as defined in that certain Amended and Restated Credit Agreement dated as of July 9, 2002 among Elder-Beerman, the Lenders party thereto, Citibank, N.A., as Issuer, and Citicorp USA, Inc., as agent and swing loan bank, which EB Securitization Amendment will be effective from the date of acquisition of the Minimum Shares by Acquisition Co. through the date of the Merger. As used in this Commitment Letter, the term "Transactions" means (i) the Tender Offer and the Merger, (ii) the execution, delivery and performance of the definitive documentation evidencing the Tender Facility, the Target Facility and/or the Permanent Facility, as the case may be (including, without limitation, the borrowing of any loans thereunder, the incurrence of any obligations in respect of letters of credit and the granting of 2 The Bon-Ton Stores, Inc. August 29, 2003 liens on the Collateral with the priority contemplated by this Commitment Letter), and (iii) the other transactions contemplated by this Commitment Letter (including the New Securitization Documents). Based on our understanding of the Transactions and the information which you have provided to us to date, GE Capital is pleased to offer to commit to provide (i) the entire amount of the Tender Facility, (ii) the entire amount of the Target Facility and (iii) the entire amount of the Permanent Facility, in each case on the terms and conditions set forth herein and described in the Tender Facility Term Sheet, the Target Facility Term Sheet and the Permanent Facility Term Sheet, as the case may be, and in the letter agreement of even date herewith from GE Capital to you providing for the payment of certain fees and consideration relating to the Facilities (the "Fee Letter"). GE Capital's commitments hereunder and agreement to perform the services described herein are subject to (i) our not having discovered or otherwise become aware of any information not previously disclosed to us that we believe to be inconsistent in a material and adverse manner with the information provided to us prior to the date hereof regarding the business, assets, financial condition or results of operations of either Parent and its subsidiaries, taken as a whole, or Elder-Beerman and its subsidiaries, taken as a whole, (ii) our satisfaction that, prior to and during the syndication of the Facilities, there shall be no competing issues of debt securities or commercial bank or other credit facilities of Parent, Elder-Beerman or their respective subsidiaries being offered, placed or arranged relating to the Transactions (other than the New Securitization Documents) and (iii) the other conditions set forth in the Term Sheets. Upon acceptance of this Commitment Letter, GECC Capital Markets Group, Inc. ("GECMG") will initiate discussions with potential Lenders relating to the syndication of the Facilities. It is expressly understood by you that GE Capital, through GECMG, intends to syndicate the Facilities to allow GE Capital to sell down the Facilities to its desired hold position. You will agree to a syndication timetable that allows for the primary syndication of the Facilities prior to the closing thereof. GE Capital's commitment hereunder is expressly subject to the immediately preceding sentences; however, the success of the syndication will not be a condition precedent to the closing of the relevant Facilities. GECMG will syndicate the Transactions with the assistance of Borrower. Such assistance shall include, but not be limited to (i) prompt assistance in the preparation of the information memorandum and the verification of the completeness and accuracy of the information contained therein; (ii) preparation of offering materials and projections by you and your advisors taking into account the proposed Transactions and Facilities; (iii) providing GECMG with all information reasonably deemed necessary by GECMG to successfully complete the syndication; (iv) confirmation as to the accuracy and completeness of such offering materials, information and projections; (v) participation of your senior management in meetings and conference calls with potential Lenders at such times and places as GECMG may reasonably request; and (vi) using reasonable best efforts to ensure that the syndication efforts benefit from your existing lending relationships. It is understood that, GECMG and GE Capital intend to request that the lenders party to the Existing Credit Agreement participate in the Facilities. In the event that Requisite Lenders (as defined in the Existing Credit Agreement) commit to provide the 3 The Bon-Ton Stores, Inc. August 29, 2003 Facilities, the definitive documentation for the Tender Facility and/or the Permanent Facility may take the form of an amendment and restatement of the Existing Credit Agreement as to one or more of such Facilities or any of the loans thereunder. GECMG may provide to industry trade organizations information with respect to the Facilities that is necessary and customary for inclusion in league table measurements. You agree that GECMG will act as the sole syndication agent for the Facilities and that no additional agents, co-agents or arrangers will be appointed, or other titles conferred, without GECMG's consent. You agree that no Lender will receive any compensation of any kind for its participation in the Facilities, except as expressly provided for in this Commitment Letter or the Fee Letter. To ensure an orderly and effective syndication of the Facilities, you agree that until the termination of the syndication, as determined by GECMG, you will not and will not permit any of your affiliates to (and, from and after the execution of the Merger Agreement, Elder-Beerman will not and will not permit any of its affiliates to), syndicate or issue, attempt to syndicate or issue, announce or authorize the announcement of the syndication of or issuance of, or engage in discussions concerning the syndication or issuance of, any debt facility or debt security (including any renewals thereof), without the prior written consent of GECMG (other than the New Securitization Documents). This Commitment Letter is being provided to you on the condition that, except as required by law, neither it, the Fee Letter, the Prior Letter (as defined below), nor their contents will be disclosed publicly or privately except (i) to those individuals who are your directors, officers, employees or advisors who have a need to know of them as a result of their being specifically involved in the Transactions under consideration and then only on the condition that such matters may not be further disclosed, (ii) to Elder-Beerman and its directors, officers, employees and advisors or (iii) as may be compelled to be disclosed in a judicial or administrative proceeding or as otherwise required by law; provided that upon your acceptance of this Commitment Letter in accordance with the terms hereof you may disclose this Commitment Letter (or the terms or substance hereof) but not the Fee Letter (nor the terms or substance thereof) in any Schedule TO filed with the Securities Exchange Commission and in any offer to purchase sent to the holders of the Shares. No person, other than the parties signatory hereto, is entitled to rely upon this Commitment Letter or any of its contents. We agree that we will maintain any information delivered to us by you or your advisors and identified as confidential in accordance with Section 11.8 of the Existing Credit Agreement. No person shall, except as required by law, use the name of, or refer to, GE Capital, or any of its affiliates, in any correspondence, discussions, press release, advertisement or disclosure made in connection with the Transactions without the prior written consent of GE Capital. Notwithstanding anything to the contrary set forth in this Commitment Letter, the Fee Letter, the Prior Letter or in any other agreement to which the parties hereto are parties or by which they are bound, the obligations of confidentiality contained herein and therein, as they relate to the Facilities and the Transactions, shall not apply to the federal tax structure or federal tax treatment of the Transactions, and each party hereto (and any employee, representative, or agent of any party hereto) may disclose to any and all persons, without limitation of any kind, the federal tax structure and federal tax treatment of the 4 The Bon-Ton Stores, Inc. August 29, 2003 Transactions. The preceding sentence is intended to cause the Transactions not to be treated as having been offered under conditions of confidentiality for purposes of Section 1.6011-4(b)(3) (or any successor provision) of the Treasury Regulations promulgated under Section 6011 of the Internal Revenue Code of 1986, as amended, and shall be construed in a manner consistent with such purpose. In addition, each party hereto acknowledges that it has no proprietary or exclusive rights to the tax structure of the Transactions or any tax matter or tax idea related to the Transactions. Regardless of whether the commitment herein is terminated or the Transactions or the Facilities close, you agree to pay upon demand to GE Capital all out-of-pocket expenses ("Transaction Expenses") which may be incurred by GE Capital or GECMG in connection with the Facilities or the Transactions (including all reasonable legal, environmental, and other consultant costs and fees incurred in the preparation of this Commitment Letter, the Fee Letter, the Prior Letter, and evaluation of and documenting of the Facilities and the Transactions). By countersignature below, you agree that GE Capital may charge any and all Transaction Expenses to the Existing Credit Facility. Regardless of whether the commitment herein is terminated or the Transactions or the Facilities close, you shall indemnify and hold harmless each of GE Capital, GECMG, the Lenders, their respective affiliates, and the directors, officers, employees, agents, attorneys and representatives of any of them (each, an "Indemnified Person"), from and against all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including, but not limited to, attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal), which may be instituted or asserted against or incurred by any such Indemnified Person in connection with, or arising out of, this Commitment Letter, the Fee Letter, the Prior Letter, the Facilities or the Transactions under consideration, the documentation related thereto, any other financing related thereto, any actions or failures to act in connection therewith, and any and all environmental liabilities and legal costs and expenses arising out of or incurred in connection with any disputes between or among any parties to any of the foregoing, and any investigation, litigation, or proceeding related to any such matters. Notwithstanding the preceding sentence, indemnitors shall not be liable for any indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results solely from that Indemnified Person's gross negligence, willful misconduct or material breach of this Commitment Letter, as finally determined by a court of competent jurisdiction. Under no circumstances shall GE Capital, GECMG, you or any of their or your respective affiliates be liable to you or any other person for any punitive, exemplary, consequential or indirect damages which may be alleged in connection with this Commitment Letter, the Fee Letter, the Prior Letter, the Transactions, the Facilities, the documentation related thereto or any other financing, regardless of whether the commitment herein is terminated or the Transactions or the Facilities close. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS COMMITMENT LETTER, THE FEE LETTER, THE PRIOR LETTER, ANY TRANSACTIONS RELATING HERETO OR THERETO, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY HERETO CONSENTS AND AGREES THAT THE 5 The Bon-Ton Stores, Inc. August 29, 2003 STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG ANY OF THE PARTIES HERETO PERTAINING TO THIS COMMITMENT LETTER, THE FEE LETTER, THE PRIOR LETTER, THE FACILITIES OR THE TRANSACTIONS UNDER CONSIDERATION, ANY OTHER FINANCING RELATED THERETO, AND ANY INVESTIGATION, LITIGATION, OR PROCEEDING RELATED TO OR ARISING OUT OF ANY SUCH MATTERS, PROVIDED, THAT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT (INCLUDING AN APPELLATE COURT) LOCATED OUTSIDE OF SUCH JURISDICTION. EACH PARTY HERETO EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND HEREBY WAIVES ANY OBJECTION, WHICH SUCH PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR INCONVENIENT FORUM. This Commitment Letter and the Fee Letter may be executed in any number of counterparts, each of which shall be an original and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Commitment Letter or the Fee Letter by facsimile transmission shall be effective as delivery of a manually executed counterpart. By signing this Commitment Letter, Parent, Bon-Ton, Lancaster and GE Capital acknowledge that this Commitment Letter supersedes any and all discussions and understandings, written or oral, between or among GE Capital and any other person as to the subject matter hereof, including, without limitation, any prior commitment letters and the letter of interest dated July 30, 2003, between GE Capital Commercial Finance, Inc. and Bon-Ton (collectively, the "Prior Letter"). No amendments, waivers or modifications of this Commitment Letter or any of its contents shall be effective unless expressly set forth in writing and executed by Parent, Bon-Ton, Lancaster and Agent. This Commitment Letter is governed by and shall be construed in accordance with the laws of the State of New York applicable to contracts made and performed in that state. The compensation, reimbursement, indemnification, confidentiality and syndication provisions contained herein and in the Fee Letter shall remain in full force and effect regardless of whether definitive documentation shall be executed and delivered and notwithstanding the termination of this Commitment Letter or GE Capital's commitment hereunder. This Commitment Letter shall be of no force and effect unless and until (i) this Commitment Letter and the Fee Letter are each executed and delivered to the undersigned at GE Capital on or before 5:00 p.m. on September 8, 2003 at 800 Connecticut Avenue, Two North, Norwalk, CT 06854 and (ii) such delivery is accompanied by payment of any fee, deposits or other amounts due and payable to GE Capital as provided in the Fee Letter. Once effective, GE Capital's commitment to provide financing in accordance with the terms of this Commitment Letter shall cease if the Transactions do not close and the Tender Facility and Target Facility or the Permanent Facility are not funded for any reason, on or before November 5, 2003 and, notwithstanding any further discussions, negotiations or other actions taken after such date, neither GE Capital nor any of its affiliates shall have any liability (other than solely as a result of a material breach of this Commitment Letter by us) to any person in connection with its refusal to fund the Facilities or any portion thereof after such date. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 6 The Bon-Ton Stores, Inc. August 29, 2003 We look forward to continuing to work with you toward completing this transaction. Our business is helping yours. Sincerely, GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Chris Chioslo -------------------------------- Its Duly Authorized Signatory AGREED AND ACCEPTED THIS 29th DAY OF September, 2003 THE BON-TON STORES, INC. By: /s/ James H. Baireuther ------------------------- Its: Vice Chairman THE BON-TON DEPARTMENT STORES, INC. By: /s/ James H. Baireuther ------------------------- Its: Vice Chairman THE BON-TON STORES OF LANCASTER, INC. By: /s/ James H. Baireuther ------------------------- Its: Vice Chairman [SIGNATURE PAGE TO COMMITMENT LETTER] EXHIBIT A $203,000,000 SENIOR SECURED TENDER FACILITY Summary of Terms and Conditions The following sets forth the terms and conditions for the Tender Facility that will be available to Bon-Ton, Lancaster and Acquisition Co. in connection with the Tender Offer. AGENT: GE Capital. LEAD ARRANGER: GECMG. BORROWERS: Bon-Ton and Lancaster ("Borrowers"). LENDERS: GE Capital and other lenders acceptable to Agent. SUMMARY OF TERMS FOR REVOLVER: MAXIMUM REVOLVER AMOUNT: A non-amortizing revolving credit facility in an aggregate principal amount of up to $150,000,000 for revolving credit advances (each, an "Advance") (including a letter of credit subfacility of up to $25,000,000) (the "Revolver"). Letters of credit (each, a "Letter of Credit") will be issued by GE Capital and/or one of its affiliates (each such issuer, an "Issuing Bank"), on terms acceptable to Agent and Issuing Bank, and will be guaranteed or otherwise backed by the Revolver Lenders. GE Capital's Revolver commitment may also include a swing line subfacility of up to $15,000,000. Upon the Tender Facility Closing Date (as defined below), all Letters of Credit issued under the Existing Credit Agreement will be deemed to be issued under the Tender Facility. Loans under the Tender Facility will be available during the period commencing on the date on which Acquisition Co. accepts for payment the Minimum Shares in the Tender Offer (the "Tender Facility Closing Date") and ending on the Tender Facility Maturity Date (as defined below). A-1 TERM: The earliest of (a) the date of the Merger, (b) ninety (90) days after the Tender Facility Closing Date and (c) January 30, 2004 (the date on which the loans are repayable, the "Tender Facility Maturity Date"). AVAILABILITY: The sum of (a) up to the lesser of (i) 75% of Borrowers' eligible inventory valued at the lower of cost (FIFO) or market ("Book Value"), and (ii) 85% of the net realizable liquidation value of Borrowers' eligible inventory and (b) an amount equal to the lesser of (i) $15,000,000 and (ii) the sum of (x) 40% of the appraised orderly liquidation value of eligible fixtures, machinery and equipment of Borrowers and (y) 50% of the appraised fair market value of certain designated real properties, in each case, less reserves established by Agent in its reasonable credit judgment, but not to exceed the Maximum Revolver Amount. Agent will retain the right from time to time to establish or modify advance rates, standards of eligibility and reserves against availability, in the exercise of Agent's reasonable credit judgment. In addition to any other reserves established by Agent, the following reserves shall be established against availability: (a) 35% of eligible trade letter of credit obligations; (b) 100% of the face amount of all other letters of credit outstanding; (c) in the event the outstanding amount of the Term Loan B exceeds the lesser of (i) 7.5% of Borrowers' eligible inventory valued at Book Value and (ii) 7.5% of the net realizable liquidation value of eligible inventory, the amount of such excess; and (d) to the extent that more than the Minimum Shares but less than the Short Form Merger Threshold are tendered on the Tender Facility Closing Date and the Tender Offer is extended (or if there is a subsequent offer period) as to those Shares not tendered, an amount equal to the amount of the Revolver which is necessary to be borrowed to purchase the remaining Shares. A-2 SUMMARY OF TERMS FOR TERM LOAN B MAXIMUM AMOUNT: $15,000,000 to be advanced on the Tender Facility Closing Date ("Term Loan B"). TERM: The Tender Facility Maturity Date. If the Revolver is terminated, the Term Loan B will immediately be due and payable in full on the date of termination of the Revolver. AMORTIZATION: Payable in full on the Tender Facility Maturity Date. SUMMARY OF TERMS FOR TERM LOAN C MAXIMUM AMOUNT: The lesser of (i)$38,000,000 and (ii) fifty percent (50%) of the market value (as set forth in Regulation U) of the Shares accepted and purchased on the Tender Facility Closing Date or on any date after the Tender Facility Closing Date on which Shares are validly tendered and accepted for payment prior to the expiration of the Tender Offer ("Term Loan C"). TERM: The Tender Facility Maturity Date. If the Revolver is terminated, the Term Loan C will immediately be due and payable in full on the date of termination of the Revolver. AMORTIZATION: Payable in full on the Tender Facility Maturity Date. TERMS OF GENERAL APPLICABILITY USE OF PROCEEDS: The proceeds of the Term Loan B will be used solely to make a capital contribution to Acquisition Co. to enable Acquisition Co. to fund the purchase of the Shares of Elder-Beerman validly tendered and accepted for payment as of the Tender Facility Closing Date. The proceeds of the Term Loan C will be used solely to make a capital contribution to Acquisition Co. to enable Acquisition Co. to fund the purchase of the Shares of Elder-Beerman validly tendered and accepted for payment as of the Tender Facility Closing Date or validly tendered and accepted for payment after the Tender Facility Closing Date. Advances made on the A-3 Tender Facility Closing Date under the Revolver will be used to refinance the indebtedness outstanding in respect of the Existing Credit Agreement, to make a capital contribution to Acquisition Co. to enable Acquisition Co. to fund the purchase of the Shares validly tendered and accepted for payment to the extent that the Term Loan B has been drawn in full and the Term Loan C has been drawn in the Maximum Amount thereof and to pay certain fees and expenses associated with the Tender Offer and the Tender Facility. Advances made after the Tender Facility Closing Date will be used for Borrowers' working capital purposes, permitted capital expenditures, and other general corporate purposes and to make capital contributions to Acquisition Co. to fund the purchase of Shares validly tendered and accepted for payment prior to the expiration of the Tender Offer (or during a subsequent offer period, if any). INTEREST: Rates: At Borrowers' option, all Revolver loans will bear interest at either (a) a floating rate equal to the Index Rate (to be defined) plus the Applicable Margin(s) (as defined below) or (b) absent a default, a fixed rate for periods of one, two or three months equal to the reserve adjusted London Interbank Offered Rate ("LIBOR Rate") plus the Applicable Margin(s). The interest rate for Term Loan B will be Index Rate plus 6.00%, per annum. The interest rate for Term Loan C will be Index Rate plus 10.00%, per annum. Payment Dates: Interest will be payable monthly in arrears for Index Rate loans and at the expiration of each LIBOR period for LIBOR loans. Other Terms: All interest will be calculated based on a 360-day year and actual days elapsed. The Tender Facility documentation will contain (a) LIBOR breakage provisions and LIBOR borrowing mechanics, (b) LIBOR Rate definitions, and (c) an Index Rate definition which will equal the higher of the prime rate as reported by The Wall Street Journal or the overnight A-4 Federal funds rate plus 50 basis points. APPLICABLE MARGINS: The following Applicable Margins (consisting of per annum rate margins) shall apply: Applicable Revolver Index Margin 1.00% Applicable Revolver LIBOR Margin 2.50% FEES: In addition to the fees payable to GE Capital as specified in the Fee Letter, the following fees will be payable under the Tender Facility documentation. Letter of Credit Fee: For (a) trade letters of credit, a fee equal to the greater of (i) 1.50% per annum and (ii) 0.25% less than the Applicable Revolver LIBOR Margin, per annum and (b) other letters of credit, a fee equal to the Applicable Revolver LIBOR Margin per annum. In either case, the Letter of Credit Fee is calculated on the basis of a 360-day year and actual days elapsed on the face amount of such letters of credit under the Revolver, payable monthly in arrears, plus any costs and expenses incurred by Agent in arranging for the issuance or guaranty of letters of credit and any charges assessed by the issuing financial institution. Unused Facility Fee: 0.50% per annum (calculated on the basis of a 360-day year and actual days elapsed) on the average unused daily balance of the Revolver, payable monthly in arrears. DEFAULT RATES: From and after the occurrence and during the continuance of a default, the interest rates applicable to all loans and the Letter of Credit Fee will be increased by 2% per annum over the interest rate or Letter of Credit Fee otherwise applicable and such interest and fees will be payable on demand. SECURITY/GUARANTORS: To secure all obligations of Borrowers in connection with the Tender Facility, GE Capital, for itself and the other Lenders, would receive a fully perfected first priority security interest in all of the existing and after acquired real and personal, tangible and intangible assets of Borrowers and their respective subsidiaries (other than Elder-Beerman and its subsidiaries) including, without limitation, all cash, cash equivalents, bank accounts, accounts, other receivables, chattel A-5 paper, contract rights, inventory (wherever located), instruments, documents, securities (whether or not marketable), including the Shares accepted and purchased by Acquisition Co. (the "Margin Stock Collateral"), equipment, fixtures, real property interests, franchise rights, patents, trade names, trademarks, copyrights, intellectual property, general intangibles, investment property and all substitutions, accessions and proceeds of the foregoing (including insurance proceeds) (collectively, the "Collateral"), except for Designated Assets, as that term is defined in the existing Intercreditor Agreement dated April 1997 among GE Capital, The Bon-Ton Department Stores, Inc., The Bon-Ton Receivable Partnership and The First National Bank of Chicago (the "BT Intercreditor Agreement"). All Collateral would be free and clear of other liens, claims and encumbrances, except permitted liens and encumbrances acceptable to GE Capital; it being understood that with respect to the Borrowers, liens and encumbrances (A) with respect to the New BT Securitization Documents and (B) otherwise permitted under the Existing Credit Agreement (other than in respect of the Existing Credit Agreement) are acceptable. Proceeds of the Margin Stock Collateral shall be used to pay the Term Loan C prior to the Revolver and the Term Loan B. Proceeds of Collateral, other than the Margin Stock Collateral, shall be applied to the loans in the following order: Revolver, the Term Loan B and then the Term Loan C. All obligations of Borrowers under the Tender Facility would be cross-defaulted to each other and to all other material indebtedness of Borrowers and any of their respective subsidiaries. All such obligations would be cross-collateralized and guaranteed by Parent, The Bon-Ton Corp. ("Holdings"), Bon-Ton, Lancaster, Acquisition Co. and certain subsidiaries of Borrowers including The Bon-Ton Trade Corp., and The Bon-Ton Giftco, Inc., but excluding Elder-Beerman and its subsidiaries. In addition, Agent shall receive a pledge of all of the issued and outstanding stock of the subsidiaries of Borrowers including The Bon-Ton Trade Corp. and The Bon-Ton Giftco, Inc. A-6 Agent is authorized to pre-file financing statements and other evidences of liens with respect to all of the Collateral, including "all-assets" filings, if applicable, naming Agent as secured party. COMMITMENT Borrowers may, from time to time, reduce the REDUCTIONS/OPTIONAL Revolver commitment in amounts and at such PREPAYMENTS: times to be agreed. Neither the Term Loan B nor the Term Loan C may be voluntarily prepaid. MANDATORY PREPAYMENTS: Borrowers shall make prepayments against principal in the following amounts: (a) all net proceeds of any sale or other disposition of any assets of Borrowers and any of their respective subsidiaries, if any, (other than (i) the sale of inventory in the ordinary course, (ii) the sale or other disposition of equipment, fixtures and real estate that are obsolete or no longer used or useful in the Borrowers' and their subsidiaries business, (iii) sales of Borrowers' private-label credit card receivables pursuant to the New BT Securitization Documents and (iv) other customary exceptions consistent with the Existing Credit Agreement), (b) subject to exceptions for repairs and replacements, all net insurance proceeds or other awards payable in connection with the loss, destruction or condemnation of any assets of either Borrower and its subsidiaries, if any and (c) 100% of the net proceeds from the sale or issuance of equity or debt securities. CONDITIONS PRECEDENT The closing shall be subject to the TO CLOSING: conditions set forth on Schedule I. CONDITIONS PRECEDENT TO The funding of each Advance (and the EACH ADVANCE OR ISSUANCE issuance of each Letter of Credit) under the OF LETTER OF CREDIT: Tender Facility shall be subject to conditions precedent as follows: There shall exist no default or Event of Default (as defined below) under the Tender Facility documentation at the time of or after giving effect to the making of, the applicable Advances or Letters of Credit. The representations and warranties of Borrowers therein, including those regarding Material Adverse Change, shall be true and correct in all material respects A-7 immediately prior to, and after giving effect to, funding or issuance. No Advance (or issuance of any Letter of Credit) shall result in the outstanding principal amount of the Tender Facility exceeding the Availability. REPRESENTATIONS AND The Tender Facility documentation will WARRANTIES: contain representations and warranties customary for transactions of this size and type and other representations and warranties deemed by Agent appropriate to the specific transaction (which will be applicable to Borrowers and their respective subsidiaries), including, without limitation, the following: corporate status of Borrowers and each of their respective subsidiaries; corporate powers; authorization and no conflict; financial statements and projections; governmental approvals and consents; obligations binding; use of proceeds and margin stock; Investment Company Act and PUHC Act of 1935; Material Adverse Change; litigation; ERISA; accuracy of financial statements and all other information provided in connection with the transactions contemplated hereby (including copies of all material documents and diligence information); no violation; title to properties and liens; licenses and permits; compliance with law; taxes and environmental matters; insurance; brokers; environmental matters; deposit accounts; government contracts; customer and trade relations; and solvency. FINANCIAL REPORTING: The Tender Facility documentation will require Borrowers, on a monthly basis, to provide to Agent and Lenders internally prepared financial statements. Annually, Borrowers will be required to provide audited financial statements. All financial statements shall be prepared on a consolidated basis. OTHER REPORTING The Tender Facility documentation will REQUIREMENTS: require Borrowers to provide to Agent and Lenders borrowing base certificates weekly. Borrowers will be required to deliver a board approved operating plan for the subsequent year and all material communications and letters from Borrowers' auditors, including any "final" management letter, if any. In addition, Borrowers will provide, from time to time, such other information A-8 reasonably requested by Agent or Lenders. AFFIRMATIVE COVENANTS: The Tender Facility documentation will contain affirmative covenants customary for transactions of this size and type and other covenants deemed by Agent appropriate to the specific transaction (which will be applicable to Borrowers and their respective subsidiaries), including, without limitation, the following: maintenance of existence and compliance with laws; compliance with and maintenance of licenses, permits, authorizations and material agreements; at Borrowers' expense, monitoring of all collateral to include weekly borrowing base certificates and periodic field exams and Appraisals on a schedule to be determined and upon the occurrence of a default or Event of Default; provision of access to properties, books and records and access to facilities, management and auditors; maintenance of insurance; use of proceeds; maintenance of properties; payment of all taxes and other obligations as and when due; environmental matters; further assurances; ERISA; environmental matters; and maintenance of a cash management system acceptable to Agent (including sweeps of cash receipts and repayments of the loans on a daily basis). FINANCIAL COVENANTS: The Tender Facility documentation will contain minimum fixed charge coverage requirements, tested quarterly, of not less than 1.0 to 1.0 and maximum capital expenditures limitations. All definitions and levels of capital expenditures are to be agreed. NEGATIVE COVENANTS: The Tender Facility documentation will contain negative covenants customary for transactions of this size and type and other covenants deemed by Agent appropriate to the specific transaction (which will be applicable to Borrowers and their respective subsidiaries) including, without limitation: - restrictions on debt, guaranties and other contingent liabilities; - restrictions on liens; - restrictions on investments; A-9 - restrictions on the sale, transfer or other disposition of assets of Borrowers and their respective subsidiaries other than in the ordinary course (subject to exceptions for sales of inventory in the ordinary course of business and sales and dispositions of obsolete assets no longer used or useful in the operations of their respective businesses); - restrictions on mergers, consolidations and acquisitions of Borrowers and their respective subsidiaries; - restrictions on dividends, distributions, redemptions and repurchases by Borrowers and their respective subsidiaries on or of the capital stock of Borrowers; it being understood that Borrowers may continue to pay dividends at the current annualized rate consistent with amounts previously paid; - restrictions on payments in respect of other debt and payment of management fees to affiliates; - prohibition on the prepayment of certain intercompany notes; - restrictions on affiliate transactions; - restrictions on changes in business or capital structure; - restrictions on changes in fiscal year or accounting method; - restrictions on amendments of constituent documents and material contracts that would have an adverse affect on Lenders; - restrictions on speculative transactions; - restrictions on other negative pledges and other restrictions on distributions applicable to Borrowers and their respective subsidiaries; and A-10 - restrictions on sale leaseback or synthetic lease arrangements applicable to Borrowers and their respective subsidiaries. EVENTS OF DEFAULT: The Tender Facility documentation will contain events of default customary for transactions of this size and type and other events of default deemed by Agent appropriate to the specific transaction (which would be applicable to Borrowers and their respective subsidiaries), including, without limitation: non-payment of principal, interest, or fees when due; non-payment of other amounts within ten (10) days of the date when due; breach of representation or warranty; breach of covenants (with certain covenants to be subject to a period of grace to be negotiated); certain enforcement proceedings; ERISA events; change of control; insolvency events; cross defaults to other material indebtedness of Borrowers and their respective subsidiaries and Borrowers' securitization facility; certain judgments; and invalidity of the loan documents. INDEMNIFICATION: Borrowers shall indemnify and hold harmless, and provide limitations of liability to Agent, the Lead Arranger, Lenders, and each of their affiliates and each of their respective officers, directors, employees, agents, advisors, attorneys, and representatives, in connection with the Tender Facility, subject to customary limitations for gross negligence and willful misconduct. EXPENSES: Borrowers shall jointly and severally pay the expenses of Agent and the Lead Arranger including, without limitation, the reasonable fees and disbursements of counsel and third party appraisers, consultants and auditors advising Agent and the Lead Arranger, internally allocated charges and expenses relating to Agent's initial and ongoing borrowing base examinations, expenses in connection with periodic field audits, the monthly and other monitoring of assets, syndication, enforcement of rights, other miscellaneous disbursements, in connection with the preparation and negotiation of the Tender Facility and any amendments thereto, including the reasonable expenses of counsel, Weil, Gotshal & Manges LLP. A-11 ASSIGNMENTS AND Assignments in minimum amounts to be PARTICIPATIONS: determined (other than assignments to existing Lenders or their affiliates, for which there is no minimum) shall be permitted subject to the consent of Agent and the Issuing Bank. Participations (which shall permit voting only on matters requiring unanimous consent of Lenders) shall be permitted. Assignment fee of $3,500 shall be payable to Agent by the assigning Lender. REQUIRED LENDERS: Lenders holding more than 50% of the outstanding commitments and/or exposure under the Tender Facility. AMENDMENTS: The Tender Facility documentation will contain amendment provisions customary for transactions of this size and type and others deemed by Agent appropriate to the specific transaction which may include voting by types of tranche and supermajority voting for certain types of amendments. GOVERNING LAW: State of New York COUNSEL TO AGENT: Weil, Gotshal & Manges LLP A-12 SCHEDULE I CONDITIONS PRECEDENT TO CLOSING The closing and the availability of the Tender Facility shall be conditioned upon the satisfaction of the following conditions precedent on or before November 5, 2003. 1. The negotiation, execution and delivery of definitive documentation relating to the Tender Facility in form and substance satisfactory to Agent and Lenders. In addition, each of the Lenders shall have received such documents, instruments and opinions as are customary for transactions of this size and type (including, without limitation, organic documents, governmental certifications as to good standing and qualification, resolutions, officers' certificates and the like, in each case in form and substance satisfactory to Agent). 2. The documents and materials filed publicly in connection with the Tender Offer (the "Offer Materials") and the Merger shall have been furnished to Agent and shall be in form and substance reasonably satisfactory to Agent. 3. The Tender Offer shall have been, or shall be concurrently, consummated pursuant to the Offer Materials and the Merger Agreement, which shall be in form and substance reasonably satisfactory Agent; and no provision of the Tender Offer or the Merger Agreement shall have been amended, supplemented, waived or otherwise modified without the consent of Agent. 4. The board of directors of Parent and Elder-Beerman shall have approved the Tender Offer and the Merger and such approval shall not have been withdrawn or qualified in a manner adverse to Parent, Acquisition Co. or Lenders. 5. Acquisition Co. shall have acquired, concurrently with the making of the first loans under the Tender Facility, not fewer than the Minimum Shares, and there shall not have been any material change in the number of Shares outstanding from the 11,581,445 Shares outstanding on June 12, 2003 (net of treasury stock), options to purchase Shares outstanding from the 1,746,297 options to purchase Shares outstanding on June 12, 2003, or deferred shares outstanding from the 59,655 deferred shares outstanding on June 25, 2003. 6. Agent and Lenders shall have received satisfactory opinions of special and local independent counsel to Borrowers, addressing such matters as Agent and Lenders shall reasonably request, including, without limitation, existence, good standing and foreign qualification; the due authorization, execution and enforceability of all Tender Facility documentation; no conflicts with organic documents, laws, regulations (including Regulations U and X of the Board of Governors of the Federal Reserve System) or material agreements; creation and perfection of liens; and no litigation. A-I-1 7. To the extent required, each Lender shall have received form FR U-1 or Form FR G-3, as applicable, executed by Borrowers. 8. All fees and expenses (including fees and expenses of counsel) required to be paid to Agent, the Lead Arranger and each of the Lenders on or before the Tender Facility Closing Date shall have been paid. 9. There shall have occurred no material adverse change, individually or in the aggregate, in (i) the business, condition (financial or otherwise), operations, performance, properties or prospects of Borrowers taken as a whole, Elder-Beerman and its subsidiaries taken as a whole or the industry in which any Borrower or Elder-Beerman and their respective subsidiaries operates, in each case since May 3, 2003, (ii) the ability of Borrowers or any Guarantor to perform any of their respective obligations under the Tender Facility documentation, (iii) the ability of Agent and Lenders to enforce the Tender Facility documentation or (iv) the financial, capital or credit markets generally or in the market for issuances of syndicated loans which could, in the reasonable judgment of GECMG, reasonably be expected to materially impair the satisfactory syndication of the Tender Facility, the Target Facility or the Permanent Facility (any of the foregoing being a "Material Adverse Change"). 10. The consummation of the Transactions shall not (i) violate any applicable law, statute, rule or regulation or (ii) conflict with, or result in a default or event of default under, any organic documents or any material agreement of Borrowers or any of their respective subsidiaries or Elder-Beerman or any of its subsidiaries (other than change of control provisions in material agreements representing indebtedness being paid in full on the date of such change of control) after giving effect to the Transactions. 11. There shall be in effect no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Transactions, nor shall any proceeding by any governmental entity seeking any of the foregoing be pending. There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Transactions, that makes the consummation of the Transactions illegal. 12. All governmental and third party approvals necessary or, in the reasonable discretion of Agent, advisable in connection with the Transactions and the continuing operations of Borrowers and their respective subsidiaries and Elder-Beerman and its subsidiaries shall have been obtained and be in full force and effect, and all applicable waiting or appeal periods shall have expired without any action being taken or known to be threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Transactions or the financing thereof. A-I-2 13. Agent shall have received the results of a recent UCC, tax and judgment lien searches in each relevant jurisdiction with respect to Borrowers and their respective subsidiaries and Elder-Beerman and its subsidiaries and such search shall reveal no liens on any of the assets of Borrowers or their respective subsidiaries or Elder-Beerman and its subsidiaries, except for liens that will be removed prior to the Tender Facility Closing Date. 14. Agent shall be reasonably satisfied with the existing cash management system of Borrowers and their respective subsidiaries and Elder-Beerman and its subsidiaries; it being acknowledged that Agent is satisfied with the structure of the cash management system of the Borrowers on the date hereof with the institution of the cash sweep and repayment mechanics described in this Commitment Letter. 15. All actions and filings necessary or, in the judgment of Agent, desirable to perfect the security interests in the Collateral shall have been taken or made (or arrangements reasonably satisfactory to Agent shall have been made with respect thereto), including, without limitation (i) full cash dominion by means of control or similar agreements in respect of all deposit and securities accounts of Borrowers and their respective subsidiaries, (ii) the filing of UCC financing statements in respect of Borrowers and their respective subsidiaries and (iii) the filing of mortgages and security agreements in respect of Borrowers, Elder-Beerman and their respective subsidiaries (and Agent shall have received satisfactory real property surveys, title commitments and title insurance policies with respect to real property (including such evidence of zoning and other legal compliance, certificates of occupancy, other permits and endorsements as Agent may reasonably require) in an amount and from an insurer acceptable to Agent). 16. Agent and Lenders shall have received an update of the appraisal dated April 18, 2003 from GB Asset Advisors LLC of the Collateral comprised of inventory. 17. Borrowers and their respective subsidiaries (including Elder-Beerman) shall have no outstanding indebtedness, liens or preferred equity after giving effect to the Tender Offer other than (i) in the case of Borrowers and their respective subsidiaries (other than Elder-Beerman), the indebtedness under and liens in respect of (A) the Tender Facility, (B) the New BT Securitization Documents and (C) indebtedness otherwise permitted under the Existing Credit Agreement (other than the Existing Credit Agreement) and (ii) in the case of Elder-Beerman and its subsidiaries the indebtedness under and liens in respect of (A) the Target Facility, (B) the Existing EB Securitization Documents, as amended by the EB Securitization Amendment and (C) such other indebtedness or liens in respect of capital leases, purchase money liens and real estate loans not required to be paid as a result of the Transactions and which are acceptable to Lenders. The Target Facility shall have been, or shall be concurrently, funded pursuant to definitive documentation which shall be in form and substance satisfactory to Agent. A-I-3 18. The following shall have occurred: (i) the New Securitization Documents shall be in form and substance reasonably satisfactory to the Lenders and shall provide financing of not less than $250,000,000 pursuant to (A) the New BT Securitization Documents based on the receivables of Bon-Ton and its subsidiaries (including Elder-Beerman and its subsidiaries) or (B) $100,000,000 pursuant to a continuation of the facility covered by the Existing EB Securitization Documents and $150,000,00 based on the Existing BT Securitization Documents, (ii) the BT Intercreditor Agreement shall have been amended or replaced in form and substance satisfactory to the Lenders to reflect the New BT Securitization Documents and (iii) Agent, on behalf of the Lenders, shall have entered into an Intercreditor Agreement in form and substance satisfactory to the Lenders, in respect of the Existing EB Securitization Documents, as amended by the EB Securitization Amendment. 19. Agent's review of and satisfaction with Borrowers' tax assumptions which, if not true, could have a Material Adverse Effect. 20. The corporate and capital structure and ownership of Borrowers, Elder-Beerman and their respective subsidiaries after the Tender Offer and as contemplated by the Merger Agreement shall be reasonably satisfactory to Agent. 21. The Lenders shall be satisfied that (a) there is no litigation or other proceeding with respect to the Acquisition or the other Transactions which is material and adverse to the interests of the Lenders or the Transactions, (b) there is no other litigation or proceeding deemed material by the Lenders and not heretofore disclosed to Agent and (c) there are no developments in any litigation or proceedings which, in the case of clauses (b) and (c), could reasonably be expected to have a Material Adverse Effect. 22. Agent, the Lead Arranger and Lenders shall have been given ongoing access to the management, outside consultants, records, books of account, contracts, and properties of Borrowers and their respective subsidiaries (and, from and after the execution of the Merger Agreement, Elder-Beerman and its subsidiaries) and shall have received such financial, business, legal, and other information or documents regarding Borrowers, Elder-Beerman, and their respective subsidiaries, in each case as Agent, the Lead Arranger, Lenders and their respective counsel shall have requested. 23. Borrowers (and, from and after the execution of the Merger Agreement, Elder-Beerman) shall have granted Agent access to and the right to inspect all reports, audits and other internal information of Borrowers, Elder-Beerman and their respective subsidiaries relating to environmental matters and Agent and Lenders shall be reasonably satisfied that Borrowers, Elder-Beerman and their respective subsidiaries are in compliance with all applicable environmental laws and regulations and be satisfied with the costs of maintaining such compliance. If, and to the extent requested by Agent, Borrowers will provide environmental A-I-4 surveys or reviews in scope and form, by firms, and with results acceptable to Agent. 24. Agent and Lenders shall be reasonably satisfied with the insurance protection for Borrowers, Elder-Beerman and their respective subsidiaries given the industry, size, risk and the collateral position (terms, underwriter, scope and coverage to be reasonably acceptable to Agent and Lenders including, without limitation, flood insurance as necessary, and non-renewal, cancellation and amendment riders to provide thirty (30) days advance notice to Agent (or shorter notice as may be reasonably acceptable to Agent) and Agent shall be named as loss payee with respect to the Collateral and additional insured, as the case may be, on the policies of Borrowers, Elder-Beerman and their respective subsidiaries. 25. Borrowers (and, from and after the execution of the Merger Agreement, Elder-Beerman) shall provide to Agent and Lenders the following information: (i) receipt and review of the following financial statements: (A) within thirty (30) days after the end of each fiscal month, the reports required to be delivered pursuant to clause (a) of Annex E to the Existing Credit Agreement; and (B) within forty-five (45) days after the end of each fiscal quarter, the reports required to be delivered pursuant to clause (b) of Annex E to the Existing Credit Agreement; (ii) at least ten (10) business days prior to the Tender Facility Closing Date, projected consolidated income statements, balance sheets and statements of cash flow in the format utilized by Borrowers in the preparation of their respective financial statements set forth in their respective SEC filings prior to the date hereof and otherwise in form and substance satisfactory to Agent and Lenders for Borrowers and their respective subsidiaries; and (iii) the unaudited consolidated and consolidating balance sheet, income statement, statement of cash flows and availability projections of Borrowers and their subsidiaries as of February 1, 2003 after giving pro forma effect to the Transactions. 26. All representations and warranties in the definitive Tender Facility documentation (including, without limitation, the material adverse change and litigation representations) shall be true and correct in all respects. 27. No default or Event of Default under the definitive Tender Facility documentation shall exist at the time of, or after giving effect to the making of, the Advances or loans to be made or the Letters of Credit to be issued on the Tender Facility Closing Date. 28. Agent shall be satisfied that Borrowers and their subsidiaries (other than Elder-Beerman and its subsidiaries), on a consolidated basis, are solvent after giving effect to the Tender Offer, the Transactions and the other transactions A-I-5 contemplated hereby and shall have received a certificate from the CFO of Bon-Ton to such effect, in form and substance satisfactory to Agent. 29. "Borrowing Availability" (as defined in the Existing Credit Agreement) less the aggregate amount of all fees, costs and expenses incurred in connection with the Transaction and payable on or about the Tender Facility Closing Date (excluding for purposes of this calculation the purchase price of the Shares and any severance costs) shall be not less than $50,000,000. 30. Borrowers and Elder-Beerman shall have minimum excess availability under the Permanent Facility in the aggregate on the Tender Facility Closing Date (giving pro forma effect to the Transaction, with fees incurred in connection with the Transaction having been paid and with trade payables being paid currently, expenses and liabilities being paid in the ordinary course of business and without acceleration of sales and without deterioration of working capital and assuming the advance rates set forth in the Permanent Facility Term Sheet) of $50,000,000. 31. No person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than Bon-Ton, Acquisition Co. or their affiliates or any group of which any of them is a member, shall have acquired after the date of this Commitment Letter beneficial ownership (as determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of 10% or more of the outstanding Shares (other than any person or group which owns on the date of this Commitment Letter 10% or more of the outstanding Shares and has filed a schedule with the Securities and Exchange Commission reporting such ownership prior to the date of this Commitment Letter). 32. There shall not have occurred any of the following which is material and adverse to the interests of the Lenders or the Transactions: (1) any general suspension of trading in securities on the New York Stock Exchange, the American Stock Exchange or in the Nasdaq National Market System, for a period in excess of three hours (excluding suspensions or limitations resulting solely from physical damage or interference with such exchanges not related to market conditions), (2) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (3) any limitation or proposed limitation (whether or not mandatory) by any United States governmental entity that has a material adverse effect generally on the extension of credit by banks or other financial institutions, (4) the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States or (5) in the case of any of the situations in clauses (1) through (4) of this paragraph existing at the time of the commencement of the Tender Offer, a material acceleration or worsening thereof. A-I-6 EXHIBIT B $75,000,000 SENIOR SECURED TARGET FACILITY Summary of Terms and Conditions The following sets forth the terms and conditions for the Target Facility that will be available to Elder-Beerman in connection with the Tender Offer. AGENT: GE Capital LEAD ARRANGER: GECMG. BORROWER: Elder-Beerman ("Borrower"). GUARANTORS: All of the direct and indirect subsidiaries of Borrower. LENDERS: GE Capital and other lenders acceptable to Agent. TARGET FACILITY AND A non-amortizing revolving credit MAXIMUM TARGET facility in an aggregate principal REVOLVER AMOUNT: amount of up to $75,000,000 for revolving credit advances (each, an "Advance") to Borrower (including a letter of credit subfacility of up to $30,000,000). Letters of credit (each, a "Letter of Credit") will be issued under the Target Facility by GE Capital and/or one of its affiliates (each such issuer, an "Issuing Bank"), on terms acceptable to Agent, and will be guaranteed or otherwise backed by the Revolver Lenders. GE Capital's commitment under the Target Facility may also include a swing line subfacility of up to $10,000,000. Loans under the Target Facility will be available during the period commencing on the date on which Acquisition Co. accepts for payment the Minimum Shares in the Tender Offer (the "Target Facility Closing Date") and ending on the Target Facility Maturity Date (as defined below). TERM: The earliest of (a) the date of the Merger, (b) ninety (90) days after the Target Facility Closing Date and (c) January 30, 2004 (the date on which the loans are repayable, the "Target Facility Maturity Date"). B-1 AVAILABILITY: The sum of up to the lesser of (a) 75% of Borrower's eligible inventory valued at the lower of cost (FIFO) or market ("Book Value"), and (b) 85% of the net realizable liquidation value of Borrower's eligible inventory, less reserves established by Agent in its reasonable credit judgment, but not to exceed the Maximum Target Revolver Amount. Agent will retain the right from time to time to establish or modify advance rates, standards of eligibility and reserves against availability, in the exercise of Agent's reasonable credit judgment. In addition to any other reserves established by Agent, the following reserves shall be established against availability: (a) 35% of eligible trade letter of credit obligations and (b) 100% of the face amount of all other letters of credit outstanding. USE OF PROCEEDS: Loans made on Target Facility Closing Date will be used to refinance existing debt of Elder-Beerman and its subsidiaries. Loans made after the Target Facility Closing Date will be used for Borrower's working capital purposes, permitted capital expenditures, and other general corporate purposes. INTEREST: Rates: At Borrower's option, all loans will bear interest at either (a) a floating rate equal to the Index Rate (to be defined) plus the Applicable Margin(s) (as defined below) or (b) absent a default, a fixed rate for periods of one, two or three months equal to the reserve adjusted London Interbank Offered Rate ("LIBOR Rate") plus the Applicable Margin(s). Payment Dates: Interest will be payable monthly in arrears for Index Rate loans and at the expiration of each LIBOR period for LIBOR loans. Other Terms: All interest will be calculated based on a 360 day year and actual days elapsed. The Target Facility documentation will contain (a) LIBOR breakage provisions and LIBOR borrowing mechanics, (b) LIBOR Rate definitions, and (c) an Index Rate definition which will equal the higher of the prime rate B-2 as reported by The Wall Street Journal or the overnight Federal funds rate plus 50 basis points. APPLICABLE MARGINS The following Applicable Margins (consisting of per annum rate margins) shall apply: Applicable Revolver Index Margin 0.25% Applicable Revolver LIBOR Margin 1.75% FEES: In addition to the fees payable to GE Capital as specified in the Fee Letter, the following fees will be payable under the Target Facility documentation. Letter of Credit Fee: For (a) trade letters of credit, a fee equal to the greater of (i) 1.50% per annum and (ii) 0.25% less than the Applicable Revolver LIBOR Margin, per annum and (b) other letters of credit, a fee equal to the Applicable Revolver LIBOR Margin per annum. In either case, the Letter of Credit Fee is calculated on the basis of a 360-day year and actual days elapsed on the face amount of such letters of credit under the Target Facility, payable monthly in arrears, plus any costs and expenses incurred by Agent in arranging for the issuance or guaranty of letters of credit and any charges assessed by the issuing financial institution. Unused Facility Fee: 0.375% per annum (calculated on the basis of a 360-day year and actual days elapsed) on the average unused daily balance of the Revolver, payable monthly in arrears. DEFAULT RATES: From and after the occurrence and during the continuance of a default, the interest rates applicable to all loans and the letter of credit fee will be increased by 2% per annum over the interest rate or Letter of Credit Fee otherwise applicable and such interest and fees will be payable on demand. YIELD PROTECTION: The Target Facility documentation will contain customary yield protection provisions, including, without limitation, provisions relating to compliance with risk-based capital guidelines, increased costs, and payments free and clear of withholding taxes. SECURITY/GUARANTORS: To secure all obligations of Borrower in connection with the Target Facility, GE Capital, for itself and the B-3 other Lenders, would receive a fully-perfected, first-priority security interest in all of the existing and after-acquired real and personal, tangible and intangible assets of Borrower and its subsidiaries including, without limitation, all cash, cash equivalents, bank accounts, accounts, other receivables, chattel paper, contract rights, inventory (wherever located), instruments, documents, securities (whether or not marketable), equipment, fixtures, real property interests, franchise rights, patents, trade names, trademarks, copyrights, intellectual property, general intangibles, investment property and all substitutions, accessions and proceeds of the foregoing (including insurance proceeds) (collectively, the "Collateral"). All Collateral would be free and clear of other liens, claims and encumbrances, except permitted liens and encumbrances in respect of (A) the Existing EB Securitization Documents, as amended by the EB Securitization Amendment and (B) capital leases, purchase money liens and real estate loans not required to be paid as a result of the Transactions and which are acceptable to GE Capital. All obligations of the Borrower under the Target would be cross-defaulted to all other material indebtedness of Borrower and any of its subsidiaries. All such obligations would be cross-collateralized and guaranteed by the Guarantors. In addition, Agent would receive a pledge of all of the issued and outstanding stock of each direct and indirect subsidiary of Borrower. Agent would be authorized to pre-file financing statements and other evidences of liens with respect to all of the Collateral, including "all-assets" filings, if applicable, naming Agent as secured party. COMMITMENT REDUCTIONS/ Borrower may, from time to time, OPTIONAL PREPAYMENTS: reduce the Target Facility commitment in amounts and at such times to be agreed. MANDATORY PREPAYMENTS: Borrower shall make prepayments against principal in the following amounts: (a) all net proceeds of any sale or other disposition of any assets of Borrower and any B-4 of its subsidiaries, if any, (other than the sale of inventory in the ordinary course and other customary exceptions to be agreed), (b) subject to exceptions for repairs and replacements, all net insurance proceeds or other awards payable in connection with the loss, destruction or condemnation of any assets of Borrower and its subsidiaries, if any and (c) 100% of the net proceeds from the sale or issuance of equity or debt securities. CONDITIONS PRECEDENT The closing shall be subject to the TO CLOSING: conditions set forth on Schedule I. CONDITIONS PRECEDENT TO The funding of each Advance (and EACH ADVANCE ORISSUANCE OF the issuance of each Letter of LETTER OF CREDIT: Credit) under the Target Facility shall be subject to conditions precedent as follows: There shall exist no default or Event of Default (as defined below) under the Target Facility documentation at the time of or after giving effect to the making or issuance of the appliable Advances or Letter of Credit. The representations and warranties of Borrower and each Guarantor therein, including those regarding Material Adverse Change, shall be true and correct in all material respects immediately prior to, and after giving effect to, funding or issuance. No Advance (or issuance of any Letter of Credit) shall result in the outstanding principal amount of the Target Facility exceeding the Availability. REPRESENTATIONS AND WARRANTIES: The Target Facility documentation will contain representations and warranties customary for transactions of this size and type and other representations and warranties deemed by Agent appropriate to the specific transaction (which will be applicable to Borrower, the Guarantors and their respective subsidiaries), including, without limitation, the following: corporate status of Borrower and each of its subsidiaries; corporate powers; authorization and no conflict; financial statements and projections; governmental approvals and consents; obligations binding; use of proceeds and margin stock; Investment Company Act and PUHC Act of 1935; Material B-5 Adverse Change; litigation; ERISA; accuracy of financial statements and all other information provided in connection with the transactions contemplated hereby (including copies of all material documents and diligence information); no violation; title to properties and liens; licenses and permits; compliance with law; taxes and environmental matters; insurance; brokers; environmental matters; deposit accounts; government contracts; customer and trade relations; and solvency. FINANCIAL REPORTING: The Target Facility documentation will require Borrower, on a monthly basis, to provide to Agent and Lenders internally prepared financial statements. Annually, Borrower will be required to provide audited financial statements. All financial statements shall be prepared on a consolidated basis. OTHER REPORTING REQUIREMENTS: The Target Facility documentation will require Borrower to provide to Agent and Lenders borrowing base certificates monthly and more frequently if a default exists or if excess availability is less than an amount to be agreed. Borrower will be required to deliver a board approved operating plan for the subsequent year and all material communications and letters from Borrower's auditors, including any "final" management letters, if any. In addition, Borrower will provide, from time to time, such other information reasonably requested by Agent or Lenders. AFFIRMATIVE COVENANTS: The Target Facility documentation will contain affirmative covenants customary for transactions of this size and type and other covenants deemed by Agent appropriate to the specific transaction (which will be applicable to Borrower, the Guarantors and their respective subsidiaries), including, without limitation, the following: maintenance of existence and compliance with laws; compliance with and maintenance of licenses, permits, authorizations and material agreements; at Borrower's expense, monitoring of all collateral to include monthly borrowing base certificates and periodic field exams and Appraisals on a schedule to be determined, in each case more frequently (i) upon the occurrence of a default or Event of Default and (ii) if excess availability is less than an amount to be determined; provision of access to properties, books and records and access to facilities, management and B-6 auditors; maintenance of insurance; use of proceeds; maintenance of properties; payment of all taxes and other obligations as and when due; environmental matters; further assurances; ERISA; environmental matters; and maintenance of a cash management system acceptable to Agent. FINANCIAL COVENANTS: The Target Facility documentation will contain minimum fixed charge coverage requirements, tested quarterly, of not less than 1.0 to 1.0; maximum capital expenditures limitations; and minimum excess availability required to be maintained at all times. All definitions and levels of capital expenditures are to be agreed. NEGATIVE COVENANTS: The Target Facility documentation will contain negative covenants customary for transactions of this size and type and other covenants deemed by Agent appropriate to the specific transaction (which will be applicable to Borrower, the Guarantors and their respective subsidiaries) including, without limitation: - restrictions on debt, guaranties and other contingent liabilities; - restrictions on liens; - restrictions on investments; - restrictions on the sale, transfer or other disposition of assets of Borrower and its subsidiaries other than in the ordinary course (subject to exceptions for sales of inventory in the ordinary course business and sales and dispositions of obsolete assets no longer used or useful in the operations of their respective businesses); - restrictions on mergers, consolidations and acquisitions of Borrower and its subsidiaries; - restrictions on dividends, distributions, redemptions and repurchases by Borrower and its subsidiaries on or of the capital stock of Borrower; B-7 - restrictions on payments in respect of other debt and payment of management fees to affiliates; - prohibition on the prepayment of certain intercompany notes; - restrictions on affiliate transactions; - restrictions on changes in business or capital structure; - restrictions on changes in fiscal year or accounting method; - restrictions on amendments of constituent documents and material contracts that would have an adverse affect on Lenders; - restrictions on speculative transactions; - restrictions on other negative pledges and other restrictions on distributions applicable to Borrower and its subsidiaries; and - restrictions on sale leaseback or synthetic lease arrangements applicable to Borrower and its subsidiaries. EVENTS OF DEFAULT: The Target Facility documentation will contain events of default customary for transactions of this size and type and other events of default deemed by Agent appropriate to the specific transaction (which would be applicable to Borrower and its Subsidiaries), including, without limitation: non-payment of principal, interest, or fees when due; non-payment of other amounts within ten (10) days of the date when due; breach of representation or warranty; breach of covenants (with certain covenants to be subject to a period of grace to be negotiated); certain enforcement proceedings; ERISA events; change of control; insolvency events; cross defaults to material indebtedness of Borrower and its subsidiaries; certain judgments; and invalidity of the loan documents. INDEMNIFICATION: Borrower and each Guarantor shall indemnify and hold harmless, and provide limitations of liability to Agent, B-8 the Lead Arranger, Lenders, and each of their affiliates and each of their respective officers, directors, employees, agents, advisors, attorneys, and representatives, in connection with the Target Facility, subject to customary limitations for gross negligence and willful misconduct. EXPENSES: Borrower and each Guarantor shall jointly and severally pay the expenses of Agent and the Lead Arranger including, without limitation, the reasonable fees and disbursements of counsel and third party appraisers, consultants and auditors advising Agent and the Lead Arranger, internally allocated charges and expenses relating to Agent's initial and ongoing borrowing base examinations, expenses in connection with periodic field audits, the monthly and other monitoring of assets, syndication, enforcement of rights, other miscellaneous disbursements, in connection with the preparation and negotiation of the Target Facility and any amendments thereto, including the reasonable expenses of counsel, Weil, Gotshal & Manges LLP. ASSIGNMENTS AND PARTICIPATIONS: Assignments in minimum amounts to be determined (other than assignments to existing Lenders or their affiliates, for which there is no minimum) shall be permitted subject to the consent of Agent and the Issuing Bank. Participations (which shall permit voting only on matters requiring unanimous consent of Lenders) shall be permitted. Assignment fee of $3,500 shall be payable to Agent by the assigning Lender. REQUIRED LENDERS: Lenders holding more than 50% of the outstanding commitments and/or exposure under the Target Facility. AMENDMENTS: The Target Facility documentation will contain amendment provisions customary for transactions of this size and type and others deemed by Agent appropriate to the specific transaction which may include supermajority voting for certain types of amendments. GOVERNING LAW: State of New York COUNSEL TO AGENT: Weil, Gotshal & Manges LLP B-9 SCHEDULE I CONDITIONS PRECEDENT TO CLOSING(1) The closing and the availability of the Target Facility shall be conditioned upon the satisfaction of the following conditions precedent on or before November 5, 2003. 1. The negotiation, execution and delivery of definitive documentation relating to the Target Facility in form and substance satisfactory to Agent and Lenders. In addition, each of the Lenders shall have received such documents, instruments and opinions as are customary for transactions of this size and type (including, without limitation, organic documents, governmental certifications as to good standing and qualification, resolutions, officers' certificates and the like, in each case in form and substance satisfactory to Agent). 2. Agent and Lenders shall have received satisfactory opinions of special and local independent counsel to Borrower and the Guarantors, addressing such matters as Agent and Lenders shall reasonably request, including, without limitation, existence, good standing and foreign qualification; the due authorization, execution and enforceability of all Target Facility documentation; no conflicts with organic documents, laws, regulations (including Regulations U and X of the Board of Governors of the Federal Reserve System) or material agreements; creation and perfection of liens; and no litigation. 3. All fees and expenses (including fees and expenses of counsel) required to be paid to Agent, the Lead Arranger and each of the Lenders on or before the Target Facility Closing Date shall have been paid. 4. There shall have occurred no material adverse change, individually or in the aggregate, in (i) the business, condition (financial or otherwise), operations, performance, properties or prospects of Borrower and its subsidiaries, taken as a whole, or the industry in which Borrower and its subsidiaries operate, in each case since May 3, 2003, (ii) the ability of Borrower or any Guarantors to perform any of their respective obligations under the Target Facility documentation, (iii) the ability of Agent and Lenders to enforce the Target Facility documentation or (iv) the financial, capital or credit markets generally or in the market for issuances of syndicated loans which could, in the reasonable judgment of GECMG, reasonably be expected to materially impair the satisfactory syndication of the Target Facility, the Tender Facility or the Permanent Facility (any of the foregoing being a "Material Adverse Change"). 5. All actions and filings necessary or, in the judgment of Agent, desirable to perfect the security interests in the Collateral shall have been taken or made (or arrangements reasonably satisfactory to Agent shall have been made with respect - ------------ (1) Additional conditions precedent may be appropriate based upon the business and legal diligence of GE Capital and its counsel. B-I-1 thereto), including, without limitation (i) full cash dominion by means of control or similar agreements in respect of all deposit and securities accounts of Borrower and its subsidiaries, (ii) the filing of UCC financing statements in respect of Borrower and its subsidiaries and (iii) the filing of mortgages and security agreements in respect of the Borrower and its subsidiaries. 6. Agent and Lenders shall have received written reports consistent with verbal reports of the appraisal from Great American Group in form and substance acceptable to Agent that reflects the orderly liquidation value of the Collateral comprised of inventory. 7. The Lenders shall be satisfied that (a) there is no litigation or other proceeding with respect to the Acquisition or the other Transactions which is material and adverse to the interest of the Lenders or the Transactions, (b) there is no other litigation or proceeding deemed material by the Lenders and not heretofore disclosed to Agent and (c) there are no developments in any litigation or proceedings which, in the case of clauses (b) and (c), could reasonably be expected to have a Material Adverse Effect. 8. All representations and warranties in the definitive Target Facility documentation (including, without limitation, the material adverse change and litigation representations) shall be true and correct in all respects. 9. No default or Event of Default under the definitive Target Facility documentation shall exist at the time of, or after giving effect to the making of, the Advances to be made or the Letters of Credit to be issued on the Target Facility Closing Date. 10. The loans shall have been made under the Tender Facility and all conditions to the effectiveness thereof set forth in Exhibit A shall have been satisfied concurrently therewith unless waived by Agent hereunder. 11. Agent shall be satisfied that Borrower and its subsidiaries, on a consolidated basis, are solvent after giving effect to the Tender Offer, the Transactions and the other Transactions contemplated hereby and shall have received a certificate from the CFO of Borrower to such effect, in form and substance satisfactory to Agent.. 12. Borrower shall have minimum excess availability under the Target Facility in the aggregate on the Target Facility Closing Date (giving pro forma effect to the Transactions, with fees incurred in connection with the Transaction and payable on or about the Target Facility Closing Date having been paid and with trade payables being paid currently, expenses and liabilities being paid in the ordinary course of business and without acceleration of sales and without deterioration of working capital) of $25,000,000. B-I-2 EXHIBIT C $325,000,000 SENIOR SECURED PERMANENT FACILITY Summary of Terms and Conditions The following sets forth the terms and conditions for the Permanent Facility that will be available to Bon-Ton, Lancaster and Elder-Beerman upon the consummation of the Merger. AGENT: GE Capital. LEAD ARRANGER: GECMG. BORROWERS: Bon-Ton, Lancaster and Elder-Beerman ("Borrowers"). LENDERS: GE Capital and other lenders acceptable to Agent. SUMMARY OF TERMS FOR REVOLVER: MAXIMUM REVOLVER AMOUNT: A non-amortizing revolving credit facility in an aggregate principal amount of up to $300,000,000 for revolving credit advances (each an "Advance") (including a letter of credit subfacility of up to $50,000,000) (the "Revolver"). Letters of credit (each, a "Letter of Credit") will be issued by GE Capital and/or one of its affiliates (each such issuer, an "Issuing Bank"), on terms acceptable to Agent and Issuing Bank, and will be guaranteed or otherwise backed by the Revolver Lenders. GE Capital's Revolver commitment may also include a swing line subfacility of up to $25,000,000. Upon the Permanent Facility Closing Date (as defined below), all Letters of Credit issued under the Existing Credit Agreement or the Tender Facility and the Target Facility, as the case may be, will be deemed to be issued under the Permanent Facility. C-1 Loans under the Permanent Facility will be available during the period commencing on the date (in no event later than January 30, 2004) on which the Merger is consummated (the "Permanent Facility Closing Date") and ending on the Permanent Facility Maturity Date (as defined below). TERM: 48 months commencing on the Permanent Facility Closing Date (the last day of such period, the "Permanent Facility Maturity Date"). AVAILABILITY: The sum of (a) up to the lesser of (i) 75% of such Borrowers' eligible inventory valued at the lower of cost (FIFO) or market ("Book Value"), and (ii) 85% of the net realizable liquidation value of such Borrowers' eligible inventory and (b) an amount equal to the lesser of (i) $15,000,000 and (ii) the sum of (x) 40% of the appraised orderly liquidation value of eligible fixtures, machinery and equipment of such Borrowers and (y) 50% of the appraised fair market value of designated real properties, in each case, less reserves established by Agent in its reasonable credit judgment, but not to exceed the Maximum Revolver Amount. The Revolver availability shall be allocated among the Borrowers on the Permanent Facility Closing Date in an amount based on the appraisals of the inventory, fixed assets and designated real properties. Agent will retain the right from time to time to establish or modify advance rates, standards of eligibility and reserves against availability, in the exercise of Agent's reasonable credit judgment. In addition to any other reserves established by Agent, the following reserves shall be established against availability: (a) 35% of eligible trade letter of credit obligations; (b) 100% of the face amount of all other letters of credit outstanding; and (c) in the event the outstanding amount of the Term Loan B exceeds the lesser of (i) 7.5% of Borrowers' combined eligible inventory valued at Book Value and (ii) 7.5% of Borrowers' combined net realizable liquidation value of eligible inventory, the amount of such excess. C-2 SUMMARY OF TERMS FOR TERM LOAN B MAXIMUM AMOUNT: $25,000,000 to be advanced on the Permanent Facility Closing Date ("Term Loan B"). The Term Loan B shall be allocated among the Borrowers on the Permanent Facility Closing Date in an amount based on the appraisals of the inventory, fixed assets and designated real properties utilized in calculating the availability as of the Permanent Facility Closing Date. TERM: 48 months. If the Revolver is terminated, the Term Loan B will immediately be due and payable in full on the date of termination of the Revolver. AMORTIZATION: Payable in full on the Permanent Facility Maturity Date. TERMS OF GENERAL APPLICABILITY USE OF PROCEEDS: Loans made on the Permanent Facility Closing Date will be used to refinance the Tender Facility and the Target Facility (or, if the Short-Form Merger Threshold is obtained prior to the expiration of the Initial Offer Period, to make capital contributions to Acquisition Co. to fund the purchase of the Shares of Elder-Beerman validly tendered and accepted for payment as of the Permanent Facility Closing Date), to pay any other cash consideration required under the Merger Agreement and certain fees and expenses of the Transactions and to pay certain fees and expenses associated with the Permanent Facility. Loans made after the Permanent Facility Closing Date will be used for Borrowers' working capital purposes, permitted capital expenditures, and other general corporate purposes. INTEREST: Rates: At Borrowers' option, all Revolver loans will bear interest at either (a) a floating rate equal to the Index Rate (to be defined) plus the Applicable Margin(s) (as defined below) or (b) absent a default, a fixed rate for periods of one, two or three months equal to the reserve adjusted London Interbank Offered Rate ("LIBOR Rate") plus the Applicable Margin(s). C-3 The interest rate for Term Loan B will be Index Rate plus 5.00% per annum. Payment Dates: Interest will be payable monthly in arrears for Index Rate loans and at the expiration of each LIBOR period for LIBOR loans. Other Terms: All interest will be calculated based on a 360-day year and actual days elapsed. The Permanent Facility documentation will contain (a) LIBOR breakage provisions and LIBOR borrowing mechanics, (b) LIBOR Rate definitions, and (c) an Index Rate definition which will equal the higher of the prime rate as reported by The Wall Street Journal or the overnight Federal funds rate plus 50 basis points. APPLICABLE MARGINS: The following Applicable Margins (consisting of per annum rate margins) shall apply until the Applicable Margins are adjusted as described below: Applicable Revolver Index Margin 0.25% Applicable Revolver LIBOR Margin 1.75% Starting with the delivery to Agent of Borrowers' consolidated quarterly financial statements for the fiscal quarter ending closest to January 31, 2004, the Applicable Margins shall be subject to adjustment (up or down) prospectively, based on Borrowers' average excess availability for the preceding quarter most recently ended in accordance with a grid to be determined upon receipt of financial projections. The grid will allow for a 0.25% reduction and 0.50% increase in Applicable Margins. The definitive Permanent Facility documentation will contain provisions regarding the delivery of financial statements, and the timing and mechanics of subsequent prospective adjustments in Applicable Margins. If a default is continuing at the time that a reduction in Applicable Margins is to be implemented, that reduction will be deferred until the first month commencing after the cure or waiver thereof. FEES: In addition to the fees payable to GE Capital as specified in the Fee Letter, the following fees will be payable under the Permanent Facility documentation. C-4 Letter of Credit Fee: For (a) trade letters of credit, a fee equal to the greater of (i) 1.50% per annum and (ii) 0.25% less than the Applicable Revolver LIBOR Margin, per annum and (b) other letters of credit, a fee equal to the Applicable Revolver LIBOR Margin per annum. In either case, the Letter of Credit Fee is calculated on the basis of a 360-day year and actual days elapsed on the face amount of such letters of credit under the Revolver, payable monthly in arrears, plus any costs and expenses incurred by Agent in arranging for the issuance or guaranty of letters of credit and any charges assessed by the issuing financial institution. Unused Facility Fee: Initially 0.375% per annum (calculated on the basis of a 360-day year and actual days elapsed) on the average unused daily balance of the Revolver, payable monthly in arrears subject to adjustments in accordance with a grid to be determined upon receipt of financial projections. DEFAULT RATES: From and after the occurrence and during the continuance of a default, the interest rates applicable to all loans and the Letter of Credit Fee will be increased by 2% per annum over the interest rate or Letter of Credit Fee otherwise applicable and such interest and fees will be payable on demand. SECURITY/GUARANTORS: To secure all obligations of Borrowers in connection with the Permanent Facility, GE Capital, for itself and the other Lenders, would receive a fully perfected first priority security interest in all of the existing and after acquired real and personal, tangible and intangible assets of Borrowers and their respective subsidiaries including, without limitation, all cash, cash equivalents, bank accounts, accounts, other receivables, chattel paper, contract rights, inventory (wherever located), instruments, documents, securities (whether or not marketable), equipment, fixtures, real property interests, franchise rights, patents, trade names, trademarks, copyrights, intellectual property, general intangibles, investment property and all substitutions, accessions and proceeds of the foregoing (including insurance proceeds) (collectively, the "Collateral"), except for Designated Assets, as that term is defined in the BT Intercreditor Agreement (or any replacement intercreditor agreement), as amended to include The El- C-5 Bee Receivables Corporation in connection with the New Securitization Documents. All Collateral would be free and clear of other liens, claims and encumbrances, except permitted liens and encumbrances acceptable to GE Capital. Proceeds of Collateral shall be used to pay the Revolver prior to the Term Loan B. All obligations of Borrowers under the Permanent Facility would be cross-defaulted to each other and to all other material indebtedness of Borrowers and any of their respective subsidiaries. All such obligations would be cross-collateralized and guaranteed by Parent, Holdings, Bon-Ton, Lancaster, Elder-Beerman and certain subsidiaries of Borrowers including The Bon-Ton Trade Corp., The Bon-Ton Giftco, Inc., Elder-Beerman West Virginia, Inc., Elder-Beerman Holdings, Inc., The Bee-Gee Shoe Corp., Elder-Beerman Indiana, L.P., The El-Bee Chargit Corp. and Elder-Beerman Operations, LLC. In addition, Agent shall receive a pledge of all of the issued and outstanding stock of certain subsidiaries of Borrowers including the subsidiaries of Elder-Beerman, The Bon-Ton Trade Corp., and The Bon-Ton Giftco, Inc. Agent is authorized to pre-file financing statements and other evidences of liens with respect to all of the Collateral, including "all-assets" filings, if applicable, naming Agent as secured party. COMMITMENT REDUCTIONS/OPTIONAL Borrowers may, from time to time, PREPAYMENTS: reduce the Revolver commitment in amounts and at such times to be agreed. Voluntary prepayments of the Term Loan B following the second anniversary will be upon terms and conditions to be agreed. MANDATORY PREPAYMENTS: Borrowers shall make prepayments against principal in the following amounts: (a) all net proceeds of any sale or other disposition of any assets of Borrowers and any of their respective subsidiaries, if any, (other than (i) the sale of inventory in the ordinary course, (ii) the sale or other disposition of equipment, fixtures and real estate that are obsolete and no longer used or useful in the Borrowers' and their subsidiaries business, (iii) sales of C-6 Borrowers' private-label credit card receivables pursuant to the New Securitization Documents and (iv) other customary exceptions consistent with the Existing Credit Agreement), (b) subject to exceptions for repairs and replacements, all net insurance proceeds or other awards payable in connection with the loss, destruction or condemnation of any assets of either Borrower and its subsidiaries, if any and (c) 100% of the net proceeds from the sale or issuance of equity or debt securities. CONDITIONS PRECEDENT TO CLOSING: The closing shall be subject to the conditions set forth on Schedule I. CONDITIONS PRECEDENT TO EACH The funding of each Advance (and ADVANCE OR ISSUANCE OF the issuance of each Letter of LETTER OF CREDIT: Credit) under the Permanent Facility shall be subject to conditions precedent as follows: There shall exist no default or Event of Default (as defined below) under the Permanent Facility documentation at the time or after giving effect to the making of or issuance of, the applicable Advances of Letters of Credit. The representations and warranties of Borrowers therein, including those regarding Material Adverse Change, shall be true and correct in all material respects immediately prior to, and after giving effect to, funding or issuance. No Advance (or issuance of any Letter of Credit) shall result in the outstanding principal amount of the Permanent Facility exceeding the Availability. REPRESENTATIONS AND WARRANTIES: The Permanent Facility documentation will contain representations and warranties customary for transactions of this size and type and other representations and warranties deemed by Agent appropriate to the specific transaction (which will be applicable to Borrowers and their respective subsidiaries), including, without limitation, the following: corporate status of Borrowers and each of their respective subsidiaries; corporate powers; authorization and no conflict; financial statements and projections; governmental approvals and consents; C-7 obligations binding; use of proceeds and margin stock; Investment Company Act and PUHC Act of 1935; Material Adverse Change; litigation; ERISA; accuracy of financial statements and all other information provided in connection with the transactions contemplated hereby (including copies of all material documents and diligence information); no violation; title to properties and liens; licenses and permits; compliance with law; taxes and environmental matters; insurance; brokers; environmental matters; deposit accounts; government contracts; customer and trade relations; and solvency. FINANCIAL REPORTING: The Permanent Facility documentation will require Borrowers, on a monthly basis, to provide to Agent and Lenders internally prepared financial statements. Annually, Borrowers will be required to provide audited consolidated and unaudited consolidating (for Bon-Ton and Elder-Beerman only) financial statements. All financial statements shall be prepared on a consolidated and consolidating basis. OTHER REPORTING REQUIREMENTS: The Permanent Facility documentation will require Borrowers to provide to Agent and Lenders borrowing base certificates monthly and more frequently if a default exists or excess availability is less than an amount to be agreed. Borrowers will be required to deliver a board approved operating plan for the subsequent year and all material communications and letters from Borrowers' auditors, including any "final" management letters, if any. In addition, Borrowers will provide, from time to time, such other information reasonably requested by Agent AFFIRMATIVE COVENANTS: The Permanent Facility documentation will contain affirmative covenants customary for transactions of this size and type and other covenants deemed by Agent appropriate to the specific transaction (which will be applicable to Borrowers and their respective subsidiaries), including, without limitation, the following: maintenance of existence and compliance with laws; compliance with and maintenance of licenses, permits, authorizations and material agreements; at Borrowers' expense, monitoring of all collateral to include monthly borrowing base certificates and field exams and Appraisals semi-annually, in each C-8 case more frequently (i) upon the occurrence of a default or Event of Default and (ii) if excess availability is less than an amount to be determined; provision of access to properties, books and records and access to facilities, management and auditors; maintenance of insurance; use of proceeds; maintenance of properties; payment of all taxes and other obligations as and when due; environmental matters; further assurances; ERISA; environmental matters; and maintain a cash management system acceptable to Agent. FINANCIAL COVENANTS: The Permanent Facility documentation will contain minimum fixed charge coverage requirements, tested quarterly, of not less than 1.0 to 1.0; maximum capital expenditures limitations, tested annually; and minimum excess availability of not less than $10,000,000 required to be maintained at all times. All definitions and levels of capital expenditures are to be agreed. NEGATIVE COVENANTS: The Permanent Facility documentation will contain negative covenants customary for transactions of this size and type and other covenants deemed by Agent appropriate to the specific transaction (which will be applicable to Borrowers and their respective subsidiaries) including, without limitation: - restrictions on debt, guaranties and other contingent liabilities; - restrictions on liens; - restrictions on investments; - restrictions on the sale, transfer or other disposition of assets of Borrowers and their respective subsidiaries other than in the ordinary course (subject to exceptions for sales of inventory in the ordinary course of business and sales and dispositions of obsolete assets no longer used or useful in the operations of their respective businesses); - restrictions on mergers, consolidations and acquisitions of Borrowers and their respective subsidiaries; C-9 - restrictions on dividends, distributions, redemptions and repurchases by Borrowers and their respective subsidiaries on or of the capital stock of Borrowers; - restrictions on payments in respect of other debt and payment of management fees to affiliates; - prohibition on the prepayment of certain intercompany notes; - restrictions on affiliate transactions; - restrictions on changes in business or capital structure; - restrictions on changes in fiscal year or accounting method; - restrictions on amendments of constituent documents and material contracts that would have an adverse affect on Lenders; - restrictions on speculative transactions; - restrictions on other negative pledges and other restrictions on distributions applicable to Borrowers and their respective subsidiaries; and - restrictions on sale leaseback or synthetic lease arrangements applicable to Borrowers and their respective subsidiaries. EVENTS OF DEFAULT: The Permanent Facility documentation will contain events of default customary for transactions of this size and type and other events of default deemed by Agent appropriate to the specific transaction (which would be applicable to Borrowers and their respective subsidiaries), including, without limitation: non-payment of principal, interest, or fees when due; non-payment of other amounts within ten (10) days of the date when due; breach of representation or warranty; breach of covenants (with certain covenants to be subject to a period of grace to be negotiated); certain enforcement proceedings; ERISA events; change of control; insolvency events; cross defaults to other C-10 material indebtedness of Borrowers and their respective subsidiaries and Borrowers' securitization facility; certain judgments; and invalidity of the loan documents. INDEMNIFICATION: Borrowers shall indemnify and hold harmless, and provide limitations of liability to Agent, the Lead Arranger, Lenders, and each of their affiliates and each of their respective officers, directors, employees, agents, advisors, attorneys, and representatives, in connection with the Permanent Facility, subject to customary limitations for gross negligence and willful misconduct. EXPENSES: Borrowers shall jointly and severally pay the expenses of Agent and the Lead Arranger including, without limitation, the reasonable fees and disbursements of counsel and third party appraisers, consultants and auditors advising Agent and the Lead Arranger, internally allocated charges and expenses relating to Agent's initial and ongoing borrowing base examinations, expenses in connection with periodic field audits, the monthly and other monitoring of assets, syndication, enforcement of rights, other miscellaneous disbursements, in connection with the preparation and negotiation of the Permanent Facility and any amendments thereto, including the reasonable expenses of counsel, Weil, Gotshal & Manges LLP. ASSIGNMENTS AND PARTICIPATIONS: Assignments in minimum amounts of $5,000,000 (other than assignments to existing Lenders or their affiliates, for which there is no minimum) shall be permitted subject to the consent of Agent and the Issuing Bank. Participations (which shall permit voting only on matters requiring unanimous consent of Lenders) shall be permitted. Assignment fee of $3,500 shall be payable to Agent by the assigning Lender. REQUIRED LENDERS: Lenders holding more than 50% of the outstanding commitments and/or exposure under the Permanent Facility. AMENDMENTS: The Permanent Facility documentation will contain amendment provisions customary for transactions of this size and type and others deemed by Agent appropriate to the specific transaction which may include voting by type of tranche and supermajority voting for certain types of amendments. C-11 GOVERNING LAW: State of New York COUNSEL TO AGENT: Weil, Gotshal & Manges LLP C-12 SCHEDULE I CONDITIONS PRECEDENT TO CLOSING The closing and the availability of the Permanent Facility shall be conditioned upon the satisfaction of the following conditions precedent on or before January 30, 2004: If the Short Form Merger Threshold is obtained simultaneously with the purchase of the Minimum Shares and without any funding of the Tender Facility and the Target Facility prior to the expiration of the Initial Offer Period, 1. The Merger shall have been consummated on the terms set forth on the Merger Agreement; and 2. The conditions precedent set forth in Exhibit A shall apply to the Permanent Facility and the Permanent Facility Closing Date mutatis mutandis. If the Short Form Merger Threshold is not obtained simultaneously with the purchase of the Minimum Shares, the following conditions precedent shall apply to the Permanent Facility: 1. The negotiation, execution and delivery of definitive documentation relating to the Permanent Facility in form and substance satisfactory to Agent and Lenders. In addition, each of the Lenders shall have received such documents, instruments and opinions as are customary for transactions of this size and type (including, without limitation, organic documents, governmental certifications as to good standing and qualification, resolutions, officers' certificates and the like, in each case in form and substance satisfactory to Agent). 2. The Merger shall have been consummated on the terms set forth in the Merger Agreement. 3. Agent and Lenders shall have received satisfactory opinions of special and local independent counsel to Borrowers, addressing such matters as Agent and Lenders shall reasonably request, including, without limitation, existence, good standing and foreign qualification; the due authorization, execution and enforceability of all Permanent Facility documentation; no conflicts with organic documents, laws, regulations (including Regulations U and X of the Board of Governors of the Federal Reserve System) or material agreements; creation and perfection of liens; and no litigation. 4. All fees and expenses (including fees and expenses of counsel) required to be paid to Agent, the Lead Arranger and each of the Lenders on or before the Permanent Facility Closing Date shall have been paid. 5. There shall have occurred no material adverse change, individually or in the aggregate, in (i) the business, condition (financial or otherwise), operations, performance, properties or prospects of Borrowers taken as a whole, Elder- C-I-1 Beerman and its subsidiaries taken as a whole or the industry in which any Borrower or Elder-Beerman and their respective subsidiaries operates, in each case since May 3, 2003, (ii) the ability of Borrowers or any Guarantor to perform any of their respective obligations under the Permanent Facility documentation, (iii) the ability of Agent and Lenders to enforce the Permanent Facility documentation or (iv) the financial, capital or credit markets generally or in the market for issuances of syndicated loans which could, in the reasonable judgment of GECMG, reasonably be expected to materially impair the satisfactory syndication of the Permanent Facility (any of the foregoing being a "Material Adverse Change"). 6. The consummation of the Transactions shall not (i) violate any applicable law, statute, rule or regulation or (ii) conflict with, or result in a default or event of default under, any organic documents or any material agreement of Borrowers or any of their respective subsidiaries after giving effect to the Transactions. 7. There shall be in effect no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Transactions, nor shall any proceeding by any governmental entity seeking any of the foregoing be pending. There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Transactions, that makes the consummation of the Transactions illegal. 8. All governmental and third party approvals necessary or, in the reasonable discretion of Agent, advisable in connection with the Transactions and the continuing operations of Borrowers and their respective subsidiaries shall have been obtained and be in full force and effect, and all applicable waiting or appeal periods shall have expired without any action being taken or known to be threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Transactions or the financing thereof. 9. All actions and filings necessary or, in the judgment of Agent, desirable to perfect the security interests in the Collateral shall have been taken or made (or arrangements reasonably satisfactory to Agent shall have been made with respect thereto), including, without limitation (i) full cash dominion by means of control or similar agreements in respect of all deposit and securities accounts of Borrowers and their respective subsidiaries, (ii) the filing of UCC financing statements in respect of Borrowers and their respective subsidiaries and (iii) the filing of mortgages and security agreements in respect of Borrowers and their respective subsidiaries (and Agent shall have received satisfactory real property surveys, title commitments and title insurance policies with respect to such real property (including such evidence of zoning and other legal compliance, certificates of occupancy, other permits and endorsements as Agent may reasonably require) in an amount and from an insurer acceptable to Agent). To the extent requested by Agent, Borrowers shall use reasonable best efforts (it being understood "reasonable best efforts" shall not require Borrower to pay any C-I-2 consent or waiver fee) to obtain landlord, mortgagee and bailee waivers and consignment or similar filings in form and substance acceptable to Agent. 10. The Lenders shall be satisfied that (a) there is no litigation or other proceeding with respect to the Acquisition or the other Transactions which is material and adverse to the interest of the Lenders or the Transactions, (b) there is no other litigation or proceeding deemed material by the Lenders and not heretofore disclosed to Agent and (c) there are no developments in any litigation or proceedings which, in the case of clauses (b) and (c), could reasonably be expected to have a Material Adverse Effect. 11. Agent, the Lead Arranger and Lenders shall have been given ongoing access to the management, outside consultants, records, books of account, contracts, and properties of Borrowers and their respective subsidiaries and shall have received such financial, business, legal, and other information or documents regarding Borrowers and their respective subsidiaries, in each case as Agent, the Lead Arranger, Lenders and their respective counsel shall have requested. 12. All representations and warranties in the definitive Permanent Facility documentation (including, without limitation, the material adverse change and litigation representations) shall be true and correct in all respects. 13. No default or Event of Default under the definitive Permanent Facility documentation shall exist at the time of, or after giving effect to the making of, the Advances to be made or the Letters of Credit to be issued on the Permanent Facility Closing Date. 14. Agent shall be satisfied that Borrowers and their subsidiaries, on a consolidated basis, are solvent after giving effect to the Tender Offer, the Transactions and the other transactions contemplated hereby and shall have received a certificate from the CFO of Bon-Ton to such effect, in form and substance satisfactory to Agent. 15. Borrowers shall have minimum excess availability under the Permanent Facility in the aggregate on the Permanent Facility Closing Date (giving pro forma effect to the Transactions, with fees incurred in connection with the Transaction having been paid and with trade payables being paid currently, expenses and liabilities being paid in the ordinary course of business and without acceleration of sales and without deterioration of working capital) of $50,000,000. C-I-3 EX-99.(B)(2) 10 w90059exv99wxbyx2y.txt 1ST AMEND. TO COMMIT LETTER FROM G.E. CAPITAL EXHIBIT (b)(2) GENERAL ELECTRIC CAPITAL CORPORATION 800 CONNECTICUT AVENUE, TWO NORTH NORWALK, CONNECTICUT 06854 September 10, 2003 The Bon-Ton Stores, Inc. 2801 E. Market Street P.O. Box 2801 York, PA 17405 Attn: James H. Baireuther Re: Amendment to the Commitment Letter Ladies and Gentlemen: Reference is made to the Commitment Letter dated August 29, 2003 (the "Commitment Letter") among General Electric Capital Corporation ("GE Capital"), The Bon-Ton Stores, Inc., The Bon-Ton Department Stores, Inc. and The Bon-Ton Stores of Lancaster, Inc. whereby GE Capital committed to provide the entire amount of the Tender Facility, the Target Facility and the Permanent Facility, in each case on the terms and conditions set forth therein and described in the Tender Facility Term Sheet, the Target Facility Term Sheet and the Permanent Facility Term Sheet, as the case may be, and in the Fee Letter dated August 29, 2003. Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Commitment Letter. The parties have agreed (i) to amend the Commitment Letter (this "Amendment") to increase the agreed upon maximum purchase price for the Shares of Elder-Beerman from $7.00 per Share to $7.25 per Share and (ii) to amend the Fee Letter in accordance with the terms of the separate amendment to the Fee Letter of even date herewith (the "Amended Fee Letter"). This Amendment is provided to you on the condition that, except as required by law, neither it, the Amended Fee Letter, nor their contents will be disclosed publicly or privately except (i) to those individuals who are your directors, officers, employees or advisors who have a need to know of them as a result of their being specifically involved in the Transactions under consideration and then only on the condition that such matters may not be further disclosed or (ii) as may be compelled to be disclosed in a judicial or administrative proceeding or as otherwise required by law; provided that upon your acceptance of this Amendment and the Amended Fee Letter you may disclose this Amendment (or the terms or substance hereof) but not the Amended Fee Letter (nor the terms or substance thereof) (x) to Elder-Beerman and its directors, officers, employees and advisors and (y) in any Schedule TO filed with the Securities Exchange Commission and in any offer to purchase sent to the holders of the Shares. Except as expressly amended hereby and by the Amended Fee Letter, all of the terms and provisions of the Commitment Letter and the Fee Letter are and shall remain in full force and effect and are hereby ratified and confirmed. This Amendment shall be of no force and effect unless and until this Amendment and the Amended Fee Letter are each executed and delivered to the undersigned at GE Capital on or before 5:00 p.m. on September 11, 2003 at 800 Connecticut Avenue, Two North Norwalk, CT 06854. This Amendment and the Amended Fee Letter may be executed in any number of counterparts, each of which shall be an original and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Amendment or the Amended Fee Letter by facsimile transmission shall be effective as delivery of a manually executed counterpart. This Amendment is governed by and shall be construed in accordance with the laws of the State of New York applicable to contracts made and performed in that state. Sincerely, GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Chris Chioslo --------------------------------- Its Duly Authorized Signatory AGREED AND ACCEPTED THIS 10th DAY OF September, 2003 THE BON-TON STORES, INC. By: /s/James H. Baireuther -------------------------- Its: Vice Chairman THE BON-TON DEPARTMENT STORES, INC. By: /s/ James H. Baireuther -------------------------- Its: Vice Chairman THE BON-TON STORES OF LANCASTER, INC. By: /s/ James H. Baireuther --------------------------- Its: Vice Chairman EX-99.(B)(3) 11 w90059exv99wxbyx3y.txt 2ND AMEND. TO COMMIT. LETTER FROM G.E. CAPITAL EXHIBIT (b)(3) GENERAL ELECTRIC CAPITAL CORPORATION 800 CONNECTICUT AVENUE, TWO NORTH NORWALK, CONNECTICUT 06854 September 12, 2003 The Bon-Ton Stores, Inc. 2801 E. Market Street P.O. Box 2801 York, PA 17405 Attn: James H. Baireuther Re: Amendment to the Commitment Letter Ladies and Gentlemen: Reference is made to the Commitment Letter dated August 29, 2003 (as amended pursuant to that certain letter regarding amendment to the commitment letter dated September 10, 2003, the "Commitment Letter") among General Electric Capital Corporation ("GE Capital"), The Bon-Ton Stores, Inc., The Bon-Ton Department Stores, Inc. and The Bon-Ton Stores of Lancaster, Inc. whereby GE Capital committed to provide the entire amount of the Tender Facility, the Target Facility and the Permanent Facility, in each case on the terms and conditions set forth therein and described in the Tender Facility Term Sheet, the Target Facility Term Sheet and the Permanent Facility Term Sheet, as the case may be, and in the Fee Letter dated August 29, 2003 (as amended prior to the date hereof, the "Amended Fee Letter"). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Commitment Letter. The parties have agreed (i) to further amend the Commitment Letter (this "Amendment") to increase the agreed upon maximum purchase price for the Shares of Elder-Beerman from $7.25 per Share to $8.00 per Share and (ii) to amend the conditions set forth in Schedule I to Exhibit A to the Commitment Letter. The Commitment Letter is hereby amended as follows: 1. The references to "$7.25" set forth in the first paragraph of the Commitment Letter shall be deleted and "$8.00" shall be substituted in lieu thereof. 2. The following sentence shall be added as the penultimate sentence of the second full paragraph of the Commitment Letter. "We understand that Parent shall have received an aggregate net amount not less than the differential between $8.00 per Share and $7.50 per Share, in cash, as common equity from Tim Grumbacher, on terms and subject to conditions reasonably satisfactory to Agent and Parent shall have contributed such amount to Holdings, Holdings shall have contributed such amount to Bon-Ton and Bon-Ton shall, in turn, have contributed such amount to Acquisition Co. (collectively, the "Equity Contribution")." 3. The phrase "Equity Contribution," shall be inserted in clause (i) of the last sentence of the second full paragraph of the Commitment Letter immediately prior to the phrase "Tender Offer". 4. Annex I to Exhibit A of the Commitment Letter shall be amended by adding the following new sentence at the end of item 3 thereof. "The Equity Contribution shall have been made." This Amendment is provided to you on the condition that, except as required by law, neither it, the Amended Fee Letter, nor their contents will be disclosed publicly or privately except (i) to those individuals who are your directors, officers, employees or advisors who have a need to know of them as a result of their being specifically involved in the Transactions under consideration and then only on the condition that such matters may not be further disclosed or (ii) as may be compelled to be disclosed in a judicial or administrative proceeding or as otherwise required by law; provided that upon your acceptance of this Amendment you may disclose this Amendment (or the terms or substance hereof) but not the Amended Fee Letter (nor the terms or substance thereof) (x) to Elder-Beerman and its directors, officers, employees and advisors and (y) in any Schedule TO filed with the Securities Exchange Commission and in any offer to purchase sent to the holders of the Shares. Except as expressly amended hereby, all of the terms and provisions of the Commitment Letter and the Amended Fee Letter are and shall remain in full force and effect and are hereby ratified and confirmed. This Amendment shall be of no force and effect unless and until this Amendment is executed and delivered to the undersigned at GE Capital on or before 5:00 p.m. on September 13, 2003 at 800 Connecticut Avenue, Two North Norwalk, CT 06854. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart. This Amendment is governed by and shall be construed in accordance with the laws of the State of New York applicable to contracts made and performed in that state. Sincerely, GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Chris Chioslo _________________________________ Its Duly Authorized Signatory AGREED AND ACCEPTED THIS 12th DAY OF September, 2003 THE BON-TON STORES, INC. By: /s/ James H. Baireuther -------------------------- Its: Vice Chairman THE BON-TON DEPARTMENT STORES, INC. By: /s/ James H. Baireuther -------------------------- Its: Vice Chairman THE BON-TON STORES OF LANCASTER, INC. By: /s/ James H. Baireuther -------------------------- Its: Vice Chairman EX-99.(B)(4) 12 w90059exv99wxbyx4y.txt COMMITMENT LETTER FROM BANK ONE, NA August 29, 2003 Exhibit (b)(4) BANC ONE CAPITAL MARKETS tel 312 732 4000 ASSET-BACKED FINANCE fax 312 732 3600 Mail Code I11-1729 1 Bank One Plaza Chicago, IL 60670 BANC ONE CAPITAL MARKETS, INC. This letter is confidential and therefore shall not be disclosed by you to any third party or governmental entity without the prior written consent of Bank One, NA, except as otherwise set forth herein. CONFIDENTIAL August 29, 2003 The Bon-Ton Stores, Inc. 2801 East Market Street York, Pennsylvania 17405 Attn: James H. Baireuther RE: COMMITMENT LETTER Ladies and Gentlemen: You have advised Bank One, NA, with its main office in Chicago, Illinois ("BANK ONE") and Banc One Capital Markets, Inc. ("BOCM") that The Bon-Ton Stores, Inc., a Pennsylvania corporation (the "PARENT") intends to acquire all of the outstanding capital stock (the "ACQUISITION") of The Elder-Beerman Stores Corp., an Ohio corporation (the "TARGET") in a transaction that will include (i) a tender offer (the "TENDER OFFER") by the Parent and/or one or more of its subsidiaries to acquire all of the outstanding capital stock of the Target, (ii) the payment of all fees and expenses associated with the Acquisition, (iii) the merger (the "MERGER") of the Target with a subsidiary of the Parent following the Acquisition, and (iv) the refinancing (the "REFINANCING") of certain existing indebtedness of the Parent and certain of its subsidiaries and Target and certain of its subsidiaries, including, without limitation, certain indebtedness that is or could be required to be repurchased or becomes, or could be declared, due and payable as a result of the Tender Offer, the Acquisition or the financing of the Acquisition, or the Merger, and to pay related fees and expenses. The Tender Offer, the Acquisition, the Merger and the Refinancing, and the payment of related fees and expenses are herein referred to collectively as the "TRANSACTIONS." 1. Commitment. You have advised us that the commitment to provide the financing contemplated hereby is a condition precedent to the signing of a definitive agreement in connection with the Acquisition (the "ACQUISITION AGREEMENT"). You have also advised us that, subject to the other provisions of this letter, a copy of this letter August 29, 2003 (together with the exhibits hereto, the "COMMITMENT LETTER") will be provided to the Target but that you understand that our obligation to make any monies available pursuant hereto is subject expressly to the execution and delivery of definitive documentation, including, without limitation, the Fee Letter (defined below), a definitive receivables purchase agreement, reasonably satisfactory to us and covering the matters expressly referred to herein and in the exhibits hereto (collectively, the "DEFINITIVE DOCUMENTS"), and is subject to satisfaction of the other conditions precedent set out in the Indicative Summary of Terms and Conditions attached as Exhibit A hereto (the "TERM SHEET") and in the Definitive Documents. In connection with the foregoing, we are pleased to advise you that Bank One hereby commits (the "COMMITMENT"), subject to the terms and conditions set forth herein and in the Term Sheet and in the Definitive Documents, that it and/or one or more of its affiliates will make up to $250 million in initial aggregate commitments to purchase Receivables INTERESTS, the proceeds of which, together with other financing arranged by the Parent, will be used to effect the Refinancing of the receivables facilities in connection with the effectiveness of the Merger (as defined in the Acquisition Agreement), which Commitment shall automatically be reduced to $125 million on January 15, 2004 and which shall terminate on the date that is 364 days after the date any portion of this Commitment is first made available, subject to earlier termination of such Commitment pursuant to the terms of this Commitment Letter and the Definitive Documents. At the option of the Parent, up to $100 million of the Commitment will be available to refinance on the "Share Acceptance Date" (as defined in the Acquisition Agreement draft dated 8/20/03 provided to us) a corresponding portion of the receivables financing facility currently provided by Eagle Funding Corporation, CRC Funding, LLC (formerly Corporate Receivables Corporation) and certain other institutions to The El-Bee Receivables Corporation, such refinancing to be subject to substantially the same terms and conditions as provided in the existing definitive documents for such receivables financing facility that have been provided to us and to the execution of definitive documents with respect to the refinancing of such receivables financing facility. The portion of the Commitment utilized to effect such refinancing shall terminate on the date that is 364 days after the closing date of such refinancing. At the option of the Parent, up to $150 million of the Commitment will be available to refinance on the Share Acceptance Date a corresponding portion of the existing receivables financing facility currently provided by Bank One and certain other persons to The Bon-Ton Receivables Partnership, L.P., such refinancing to be subject to substantially the same terms and conditions as provided in the existing definitive documents for such receivables financing facility provided that (i) such definitive documents are amended to reflect a "AA" level of credit enhancement, as outlined in Exhibit B hereto and the pricing for such receivables financing facility shall be amended as described in the Fee Letter and (ii) the portion of the Commitment utilized to effect such refinancing shall terminate on the date that is 364 days after the closing date of such refinancing. In addition, any portion of the Commitment utilized by the Parent pursuant to this paragraph shall be subject to the automatic reduction of the Commitment to $125 million on January 15, 2004 as described in the preceding paragraph and any such reduction shall be allocated between the refinanced receivables facilities at the option of the Parent. Bank One and BOCM have reviewed certain historical and pro forma financial statements of the Parent and Target prepared by or on behalf of the Parent and the Target. Bank One's Commitment is subject to there not having occurred or become known any material adverse change with respect to the financial condition, operations, liabilities, assets or prospects of Target and its subsidiaries, as shown in such materials. If Bank One's or BOCM's continuing review of materials about Target or the Acquisition discloses information, or either otherwise discovers information not previously disclosed to it, which either Bank One or BOCM believes has a materially negative impact on the Parent, Target and their respective 2 August 29, 2003 subsidiaries' financial condition, operations, liabilities, assets and prospects taken as a whole either may, in its respective sole discretion, suggest alternative financing amounts or structures that ensure adequate protection for the Financial Institutions or decline to participate in the proposed financing. Bank One's Commitment is further subject to (i) Bank One's receipt of the fee payable pursuant to the terms of the Fee Letter on the date the Parent signs this Commitment Letter, (ii) Bank One's review and approval of the terms of the financing arranged by the Parent to effect the Acquisition and (iii) no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of (a) the Parent and its subsidiaries since December 31, 2002, (b) the Target and its subsidiaries since December 31, 2002, or (c) the Parent, the Target and their respective subsidiaries, taken as a whole, since the pro forma financial statements (dated August 18, 2003) received by the Bank One and BOCM. Agents, officers, directors and employees of Bank One, BOCM and their affiliates will have the right to share amongst themselves information received from Parent and its affiliates and their respective agents, officers, directors and employees. 2. Fees. The Parent agrees to pay or cause to be paid to Bank One and BOCM the fees and expenses provided in that certain Fee Letter Agreement, dated as of the date hereof, among Bank One, BOCM and the Parent (the "FEE LETTER"). 3. Syndication. Bank One and BOCM shall have the right to syndicate, sell, transfer, or assign any portion of Bank One's Commitment hereunder and any portion of the Receivables Interests (as defined in the Term Sheet), and the Parent agrees to use, and cause the Target to use, all commercially reasonable efforts to assist Bank One and BOCM in the syndication process. Any third party to which any portion of the Commitment or the Receivables Interests is so syndicated, sold, transferred or assigned shall become a Financial Institution hereunder (a "FINANCIAL INSTITUTION") and shall have all of the rights of Bank One and the other Financial Institutions set forth herein, unless otherwise expressly agreed, and Bank One shall be released from all liability with respect to any portion of its Commitment that has been so syndicated, sold, transferred or assigned. You agree to actively assist, and to cause the Target to actively assist, Bank One and BOCM in achieving syndication of the Commitment and the Receivables Interests in a manner reasonably satisfactory to Bank One. Bank One and BOCM shall be entitled, after consultation with the Parent, to change any or all of the structure, terms or pricing of the receivables financing facilities (the "FACILITIES") for the Parent and the Target referenced in this Commitment Letter if the syndication has not been completed (ie Bank One's Commitment has not been reduced to $125 million prior to November 15, 2003) and if Bank One and BOCM determine that such changes are advisable in order to ensure a successful syndication of the Facilities. BOCM's undertaking and Bank One's Commitment hereunder are subject to the agreements in this paragraph and this paragraph shall survive the closing of the Facilities. You hereby represent and warrant that (i) all information, other than Projections (as defined below), which has been or is hereafter made available to us or the other Financial Institutions by you or any of your representatives in connection with the transactions contemplated hereby ("INFORMATION") has been or will be reviewed and analyzed by you in connection with your own due diligence investigation and is now and as of the Closing Date (as defined below) as supplemented by you prior to the Closing Date, will be complete and correct in all material respects and does not now and as of the Closing Date (as supplemented by you prior to the Closing Date), will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained 3 August 29, 2003 therein not misleading and (ii) all financial projections that have been or are hereafter made available to us or the other Financial Institutions by you or any of your representatives in connection with the Acquisition (the "PROJECTIONS") have been or will be prepared in good faith based upon assumptions believed to be reasonable. You agree to promptly furnish, or cause the Parent and its subsidiaries and, following the execution of the Acquisition Agreement, the Target and its subsidiaries, to promptly furnish, us with such Information and Projections as we may reasonably request and to supplement such Information and such Projections from time to time until the initial funding under the Commitment (the "CLOSING DATE") so that the representation and warranty in the preceding sentence is correct on the Closing Date. You hereby covenant that all Information that is hereafter made available to you by the Parent and its subsidiaries and the Target and its subsidiaries, or any of their respective representatives in connection with the Acquisition and the Receivables Facility will be reviewed and analyzed by you in connection with performing your own due diligence investigation. The representations and warranties contained in this paragraph shall remain effective until the Definitive Documents are executed, and, thereafter, the disclosure representations contained herein shall be superseded by those contained in such Definitive Documents; provided that in the event such Definitive Documents are not executed, such representations and warranties will remain effective after the termination of the Commitment. 4. Confidentiality. By accepting delivery of this Commitment Letter, the Parent hereby agrees that it will not disclose, either expressly or impliedly, without Bank One's and BOCM's consent, to any person any of the terms of the Commitment, or the fact that the Commitment or the financing proposal represented thereby exists except that the Parent may disclose any of the foregoing to any employee, director, officer, financial advisor (BUT NOT TO ANY FINANCIAL ADVISOR WHICH MAY BE A PROVIDER OF FINANCING IN THIS TRANSACTION) or attorney of the Parent to whom, in each case, it is necessary to disclose such information so long as any such employees, directors, officers, advisors or attorneys are directed to observe this confidentiality obligation; provided, however, that (i) the Parent may disclose the Commitment Letter and the Term Sheet (but not the Fee Letter) in connection with its bid for the Target in order to demonstrate its ability to obtain financing and (ii) upon the Parent's execution of this Commitment Letter, the Parent may make public disclosure of the existence and the amount of the Commitment and the Parent may publicly file a copy of the Commitment Letter and the Term Sheet (but not the Fee Letter), or make such other disclosures if such disclosure is, in the opinion of the Parent's counsel, required by law. Without limiting the generality of the foregoing, the Parent will not make a public disclosure of the Fee Letter without a written opinion of its counsel indicating such disclosure is required by law or regulation. Notwithstanding the foregoing, however, the Parent (and each employee, representative or other agent of the Parent) may disclose to any and all persons, without limitation of any kind, the "tax treatment" and "tax structure" (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are or have been provided to the Parent relating to such tax treatment or tax structure, except that, with respect to any document or similar item that in either case contains information concerning such tax treatment or tax structure of the transactions contemplated hereby as well as other information, this proviso shall only apply to such portions of the document or similar item that relate to such tax treatment or tax structure of the transactions contemplated hereby. In the event that you disclose the contents of this Commitment Letter in contravention of the preceding paragraph, you shall be deemed to have accepted the terms and conditions of this Commitment Letter and the Fee Letter. Additionally, you agree to allow Bank One, BOCM or any of their affiliates to reference this Commitment for the benefit of promoting Bank One, BOCM or any of their affiliates. 4 August 29, 2003 6. Expenses; Indemnification. The Parent agrees (i) to reimburse Bank One and BOCM for all out-of-pocket expenses (including the fees and expenses of outside counsel and time charges for inside counsel) incurred in connection with this Commitment Letter, Fee Letter, and the Term Sheet (the Commitment Letter, Fee Letter and Term Sheet collectively the "RECEIVABLES LETTERS"), the transactions contemplated by the Receivables Letters, and Bank One's and BOCM's on-going due diligence, including without limitation travel expenses and costs incurred in connection with the preparation, negotiation, execution, administration, syndication, distribution (including, without limitation, via the internet), and enforcement of any document relating to this transaction and Bank One's and BOCM's roles hereunder; (ii) to indemnify and hold harmless Bank One, BOCM, the Financial Institutions and their respective officers, employees, agents, attorneys, directors, and affiliates (collectively, the "Indemnified Persons") against any and all losses, claims, damages, or liabilities of every kind whatsoever to which the Indemnified Persons may become subject in connection in any way with the transaction which is the subject of the Receivables Letters, including without limitation expenses incurred in connection with investigating or defending against any liability or action whether or not a party thereto, except to the extent any of the foregoing is found in a final judgment by a court of competent jurisdiction to have arisen primarily from such Indemnified Person's gross negligence or willful misconduct; and (iii) that no Indemnified Person shall have any liability to the Parent for consequential damages on any theory of liability in connection in any way with the transaction which is the subject of the Receivables Letters (including without limitation any liability resulting from Bank One's multiple capacities in the transaction). The obligations described in this paragraph are independent of all other obligations of the Parent hereunder and under the Definitive Documents, shall survive the expiration, revocation or termination of the Receivables Letters, and shall be payable whether or not the financing transactions contemplated by the Receivables Letters shall close. Bank One's and BOCM's respective obligations under the Receivables Letters are enforceable solely by the party signing the Receivables Letters and may not be relied upon by any other person. For purposes of this paragraph, the terms "Bank One" and "BOCM" shall include any affiliate of either. 7. Miscellaneous. This Commitment Letter (including the exhibits hereto) and the Fee Letter set forth the entire understanding of the parties thereto as to the subject matter thereof. The Commitment will expire at 11:00 a.m. Chicago, Illinois time on September 2, 2003 unless accepted prior to such time; provided that, after acceptance, the Commitment hereunder will terminate upon the earliest of (i) the termination of the Acquisition Agreement, (ii) the acceptance by the Target or any of its affiliates of an offer for all or any substantial portion of the capital stock or assets of the Target other than the Tender Offer, or (iii) 5:00 p.m. Chicago, Illinois time on November 26, 2003 (unless the Commitment has been utilized on or prior to such time). The Commitment is not assignable by you, and nothing in this Commitment Letter, express or implied, shall give any person, other than the parties hereto and the Indemnified Parties referred to herein, any benefit or any legal or equitable right, remedy or claim under this Commitment Letter. In connection with the services and transactions contemplated hereby, the Parent agrees that Bank One is permitted to access, use and share with any of its bank or non-bank affiliates, agents, advisors (legal or otherwise) or representatives, any information concerning the Parent, the Target or any of their respective affiliates that is or may come into the possession of Bank One or any of such affiliates. Bank One and its affiliates will treat confidential information relating to the Parent, the Target and their respective affiliates with the same degree of care as they treat their own confidential information. 5 August 29, 2003 As you know, other business units and/or affiliates of BANK ONE CORPORATION ("BOC") are, or may be, providing other financial services and products to you in connection with the transaction which is the subject of this letter. You acknowledge and consent to these multiple roles, and further acknowledge that the fact that another unit of BOC is providing another service or product or proposal therefor to you does not mean that such service, product or proposal (i) is acceptable to Bank One and BOCM (both of which are affiliates of BOC) in their capacities hereunder; (ii) is consistent with the terms or this commitment; or (iii) is or will be acceptable to any other Financial Institutions. You understand that Bank One and BOCM may each have other customers with interests conflicting with your interests and that each may from time to time provide financing or other services to these customers. Consistent with its policy to hold in confidence the affairs of its customers, each of Bank One and BOCM will not furnish confidential information obtained from you to any other customer. By the same token, neither Bank One nor BOCM will make available to you confidential information that it has obtained from any other customer. This Commitment Letter and the Term Sheet supersede any and all prior versions hereof or thereof. This Commitment Letter may only be amended by a writing signed by all parties hereto. This Commitment Letter shall be governed by, and construed in accordance with, the internal laws of the State of Illinois as applied to agreements made and performed within such state without giving effect to the principles and conflicts of law thereof. To the fullest extent permitted by applicable law, each of Bank One, BOCM and the Parent hereby irrevocably submits to the jurisdiction of any Illinois State court or Federal court sitting in Chicago, Illinois in respect of any suit, action or proceeding arising out of or relating to the provisions of this Commitment Letter (including the exhibits hereto and the Fee Letter) and irrevocably agrees that all claims in respect of any such suit, action, or proceeding may be heard and determined in any such court. EACH OF BANK ONE, BOCM AND THE PARENT WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDINGS BROUGHT IN ANY SUCH COURT, AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 6 August 29, 2003 Please indicate your acceptance of our Commitment and your agreement to the matters contained in this Commitment Letter (including the exhibits hereto and the Fee Letter) by executing this document and returning it to us prior to the time of expiration set forth above. This commitment letter may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together shall constitute but one and the same agreement. Sincerely, BANK ONE, NA By: /s/ Elizabeth Chung ------------------------------------------ Name: Elizabeth Chung Title: Managing Director BANC ONE CAPITAL MARKETS, INC. By: /s/ Elizabeth Chung ------------------------------------------ Name: Elizabeth Chung Title: Managing Director Accepted and agreed to as of August 29, 2003: THE BON-TON STORES, INC. By: /s/ James H. Baireuther ------------------------------- Name: James H. Baireuther Title: Vice Chairman 7 August 29, 2003 EXHIBIT A - TERM SHEET THE BON-TON RECEIVABLES PARTNERSHIP, LP INDICATIVE SUMMARY OF TERMS AND CONDITIONS $250,000,000 REVOLVING CREDIT CARD RECEIVABLES FACILITY [ ] indicates to be determined The following term sheet is meant to provide indicative terms and conditions for a credit card receivables securitization facility. It does not purport to contain all, or the expected phrasing of, such terms and conditions that would ultimately be contained in the final legal documentation for such facility. Any transaction is subject to satisfactory documentation. Bracketed items or "TBD" are those items to be determined or finalized pending further discussion, receipt of additional information or due-diligence. I. FACILITY AND PARTICIPANTS ORIGINATOR(S): The Bon-Ton Department Stores, Inc. and [The El-Bee Chargit Corp./The Elder-Beerman Stores Corp.] (the "Originators"). Pursuant to a Transfer Agreement ("TA"), the Originators will from time to time transfer (and/or contribute) to the Seller (as defined below) all their respective right, title and interest in and to Receivables (as defined below) via a series of true sales (and/or other outright assignments), as opined by outside legal counsel for the Originator. SELLER: The Bon-Ton Receivables Partnership, LP ("SPE" or "Seller"), a bankruptcy-remote entity, which is wholly owned by subsidiaries of The Bon-Ton Department Stores, Inc. SPE's sole purpose is to acquire credit card Receivables from each Originator pursuant to the TA. SPE, in turn, will sell undivided interests in the Receivables and certain related rights to the Purchasers pursuant to an Amended and Restated Receivables Purchase Agreement ("RPA"). PURCHASERS: Multi-seller asset-backed commercial paper conduits (the "Conduits"), including a conduit administered by Bank One, NA ("Bank One"), and such other financial institutions that may be party to the Facility (the "Financial Institutions")(the Financial Institutions, together with the Conduits, are collectively, the "Purchasers"). August 29, 2003 AGENT: Bank One, NA ARRANGER: Banc One Capital Markets, Inc. ("BOCM"). PERFORMANCE GUARANTOR: The Bon-Ton Stores, Inc. or The Bon-Ton Department Stores, Inc. ("Performance Guarantor"). The Performance Guarantor will guarantee the performance by each Originator of their servicing, payment, and other obligations under the transaction documents. COLLECTION AGENT: The Seller. The Seller has designated The Bon-Ton Department Stores, Inc. ("The Bon-Ton") and El-Bee Chargit Corp. as sub-servicers. The Agent shall have the right at any time to designate an alternative Collection Agent if deemed necessary to protect their interests in the Receivables. SUB-SERVICER FEE: The Seller shall pay the sub-servicer a monthly fee, payable in arrears, equal to 2% per annum multiplied by the average outstanding principal balance of all Receivables sold during the preceding calendar month. FACILITY: Facility for the purchase of undivided interests ("Receivable Interests") in all Receivables (as defined below), the associated Collections and related security (including, without limitation, all of SPE's rights under the Transfer Agreement and all contracts and records related to the Receivables). During the term of the Facility, each Conduit will make purchases of Receivable Interests on an offering basis, and if a Conduit shall decline to make its pro-rata share of such purchase, the Financial Institution providing liquidity to such Conduit will commit to make such purchase. Each Conduit will fund its on-going purchases of Receivable Interests with commercial paper issued by such Conduit which is rated at least A-1 and P-1 by, respectively, Standard and Poor's and Moody's (the "Rating Agencies"). In addition, the Financial Institution which administers such Conduit will provide a liquidity back-up facility for the commercial paper issued by the Conduit. A-2 August 29, 2003 FACILITY LIMIT: The maximum investment in Receivables by all Purchasers at any one time will be $250 million, as such amount may be increased from time to time with consent of each of the Purchasers. The maximum investment in Receivables by a Bank One administered conduit or Bank One, NA shall not exceed $250 million (prior to January 15, 2004) or $125 million (on and after January 15, 2004). The liquidity commitment provided by each Financial Institution to its respective Conduit shall be sized to at least 100% of the Facility Limit for such Conduit. Bank One's liquidity commitment to Falcon shall be sized to 102% of the Facility Limit. REVOLVING PERIOD: The Purchasers will make purchases of Receivable Interests on and from the Closing Date until the occurrence of the Facility Termination Date. CLOSING DATE: [ ] FACILITY TERMINATION DATE: The earliest to occur of (i) the Liquidity Termination Date, (ii) the date the Seller shall exercise its right to repurchase outstanding Receivable Interests, and (iii) any date following the occurrence and during the continuance of any Termination Event which the Agent or the Required Investors (Purchasers with commitments exceeding 66 2/3% of the Facility Limit) declare to be the Facility Termination Date. LIQUIDITY TERMINATION DATE: 364 days from the Closing Date. On an annual basis thereafter, upon receiving 30 days notice from the Seller, the Liquidity Termination Date shall be extended for another 364 day period at the sole discretion of the Purchasers. TERMINATION DATE: For any Receivable Interest, the Facility Termination Date, and solely with respect to a Receivable Interest of a Conduit Purchaser or the Seller, that business day so designated by the Seller or a Conduit Purchaser by notice to each of the other Conduit Purchasers and the Seller. LIQUIDATION DAY: For any Receivable Interest, the earliest to occur of (i) any business day so designated by the Agent on or at any time following any day on which the conditions precedent are not satisfied, (ii) any business day so designated by the Seller or the Agent after the occurrence of a Termination Event and (iii) the A-3 August 29, 2003 business day immediately prior to the occurrence of a Termination Event caused by the bankruptcy of an Originator or Seller. INTEREST RATE SWAPS: Subject to terms and conditions which will be outlined in the program documents, Seller will be required, on or prior to the 30th day following the Closing Date, to enter into interest rate swap agreements or caps with approved counterparties rated at least A-1/P-1 to hedge 100% of the notional amount of the aggregate amounts borrowed under the facility. All fees and hedge payments will be included in the finance charge waterfall and excess spread computations. INTERCREDITOR AGREEMENT: Seller and The Bon-Ton Department Stores, Inc. are both parties to an Intercreditor Agreement with General Electric Capital Corporation (GECC) and Bank One, NA (f/k/a as The First National Bank of Chicago), dated as of April 15, 1997, which provides GECC, as administrative agent for itself and the lenders under The Bon-Ton Department Stores, Inc.'s asset-based Credit Agreement as amended, dated April 15, 1997, a subordinated interest in the Receivables. This Agreement will be amended in conjunction with the closing of The Bon-Ton's new asset-based facility. CHARITABLE CONTRIBUTIONS: BTRGP, Inc. the general partner of the Seller reserves the right to make a charitable contribution of $60,000 to a non-profit institution unaffiliated with BTRGP, Inc, the Seller, each Originator, or any affiliate thereof, and receive a credit on account of such contribution against the amount of Pennsylvania taxes payable by BTRGP, Inc. Such contributions will only be made from the proceeds of distributions received by BTRGP, Inc. from the Seller. II. RECEIVABLES PURCHASES RECEIVABLES: The indebtedness and other obligations owed to the Seller whether constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale or lease of goods or the rendering of services under, with the use of or otherwise in connection with an Account including, without limitation, the obligation to pay any Finance Charges with respect thereto. A-4 August 29, 2003 ACCOUNT: With respect to any obligor, any type of charge account under or pursuant to which such obligor is permitted to make purchases of inventory, goods, insurance and/or services or leased goods or inventory, in any such case on credit. Such term shall include without limitation, a revolving credit account. FINANCE CHARGES: Any finance, interest, late payment charges or similar charges owing by an obligor pursuant to a contract. ELIGIBLE RECEIVABLES: All Receivables which meet the criteria in Exhibit I. NET RECEIVABLE BALANCE: The principal amount of all Eligible Receivables at such time, reduced by the aggregate amount by which the principal balance of all Eligible Receivables of all obligors that are natural persons not resident in the United States exceeds an amount equal to the product of (a) [1]% and (b) an amount equal to the average of the outstanding principal balance of Eligible Receivables at the end of the most recently ended fiscal month. DEEMED COLLECTIONS: If on any day the principal receivable balance of, or finance charges in respect of, a Receivable is (a) reduced as a result of any defective or rejected goods and services, any cash discount or any adjustment by the Seller, the Collection Agent, or each Originator, (b) reduced or cancelled as a result of a setoff in respect of any claim by any person, or (c) reduced as a result of a representation or warranty no longer being true with respect to a Receivable, the Seller shall be deemed to have received a Collection of such Receivable in full. RECEIVABLE INTERESTS: At any time, an undivided percentage ownership interest associated with a designated amount of Capital, Discount Rate and Tranche Period(s) selected by the Seller in (i) all Receivables arising prior to the time existing and hereafter arising Receivables, (ii) all related security and (iii) all Collections with respect to, and other proceeds of, such Receivables. THE UNDIVIDED PERCENTAGE EVIDENCED BY EACH RECEIVABLE INTEREST SHALL EQUAL: C A-5 August 29, 2003 NRB - R C = THE CAPITAL OF SUCH RECEIVABLE INTEREST. NRB = THE NET RECEIVABLES BALANCE R = RESERVES EQUALS THE SUM OF THE LOSS RESERVE AND DILUTION RESERVE RESERVES: The Reserves will be the sum of the Loss Reserve and the Dilution Reserve. LOSS RESERVE: The Loss Percentage MULTIPLIED BY THE NET RECEIVABLES BALANCE. LOSS PERCENTAGE: The greater of (i) the LP Multiplier times the highest Loss-to-Liquidation Ratio calculated as of the last day of each of the three complete fiscal month period then most recently ended or (ii) 15% LP MULTIPLIER: [The LP Multiplier shall be 4; provided, that if, as of the last day of any fiscal month, the average Loss-to-Liquidation Ratio in respect of the three fiscal months then most recently ended shall exceed 3%, the LP Multiplier shall at all times thereafter be 5 until the average Loss-to-Liquidation Ratio in respect of the three fiscal months then ended shall, for a period of six consecutive months, have been less than 3%.] The Agent intends to simplify this calculation. DILUTION RESERVE: The greater of (a) 8% and (b) the average Dilution Ratio in respect of the three fiscal months then most recently ended, MULTIPLIED BY THE NET RECEIVABLE BALANCE. DILUTION RATIO: In respect of any fiscal month a percentage equal to (i) the DR Multiplier times the aggregate amount of Dilutions which occurred during such fiscal month, divided by (ii) the Net Receivable Balance on the last day of such fiscal month. DR MULTIPLIER: [The DR Multiplier shall be 2.75; provided, that if, as of the last day of any fiscal month, the average Loss-to-Liquidation Ratio in A-6 August 29, 2003 respect of the three fiscal months then most recently ended shall exceed 3%, the LP Multiplier shall at all times thereafter be 3.50 until the average Loss-to-Liquidation Ratio in respect of the three fiscal months then ended shall, for a period of six consecutive months, have been less than 3%.] The Agent intends to simplify this calculation. DILUTIONS: The aggregate amount of reductions in the principal balance of Receivables as a result of set-off, discount, adjustment, or otherwise, other than cash Collections on account of the Receivables. CHARGED-OFF RECEIVABLE: A Receivable (i) as to which the obligor has become bankrupt, (ii) as to which the obligor is deceased, (iii) which consistent with the credit and collection policy is written-off as uncollectible, or (iv) which has been identified by the Seller has uncollectible. DEFAULTED RECEIVABLE: A receivable which remains unpaid for more than 150 days from the original due date. DELINQUENT RECEIVABLE: A receivable which remains unpaid for more than 90 days from the original due date. DELINQUENCY RATIO: As of any date, a percentage equal to (i) the aggregate outstanding PRINCIPAL BALANCE of all Receivables that were more than 90 days past due as of the last day of the most recently ended calendar month divided by (ii) the aggregate outstanding PRINCIPAL BALANCE of all Receivables as of the last day of the most recently ended calendar month. LOSS-TO-LIQUIDATION RATIO: The ratio computed as of the last day of the most recently ended calendar month by dividing (i) the outstanding GROSS PRINCIPAL BALANCE of all Receivables that became Charged-Off Receivables during such month, by (ii) the aggregate amount of all principal Collections (including principal recoveries) received during such month. EXCESS SPREAD: As of any date, the per annum rate equal to (I) the Portfolio Yield, minus (ii) the weighted average Discount Rate applicable to the Receivable Interests of the Purchasers and hedge A-7 August 29, 2003 payments and applicable fees, minus (iii) 2%, minus (iv) all fees and expenses (expressed as a percentage of the Facility Limit) then due and payable by the Seller to the Agent for its own account for the account of any Purchaser. PORTFOLIO YIELD: For any period, a fraction expressed as a percentage, the numerator which is Finance Charge Collections (including finance charge recoveries) less gross principal charged-off Receivables, and the denominator of which is the average aggregate outstanding principal balance of all Receivables for such month. PERFECTION: In connection with the TA, each Originator will be required to grant a security interest and perfect the SPE's ownership interest in the Receivables, associated collections and related security. Such security interest will be assigned to the Agent for the benefit of the Purchasers under the RPA. In connection with the RPA, the Seller will be required to grant a security interest and perfect the Agent's interest, for the benefit of the Purchasers, in the Receivables, associated collections and related security. UCC filings will be required in connection with both the TA and RPA. SELLER INTEREST: The Seller shall ensure that the aggregate Receivable Interests shall at no time exceed 100% of the Facility Limit. If the aggregate Receivable Interests of the Purchasers exceeds 100%, the Seller shall make the required repayment within one business day after the delivery of a daily or monthly report as applicable (the "Required Cure Period"). III. COLLECTION AND SETTLEMENT COLLECTION AGENT DUTIES : The Collection Agent shall be responsible for the servicing and collection of the Receivables. Servicing shall be conducted in accordance with the Collection Agent's existing credit and collection policies. The Collection Agent will hold all documents, instruments, and records relating to the Receivables for the benefit of the Purchasers and the Seller. REPORTING: The Collection Agent will furnish to the Agent for the Purchasers a monthly report, which shall be due on the 15th day (or the next business day) of the following month and a daily report which A-8 August 29, 2003 shall be due on the following business day. Borrowing base shortfalls will be deposited into a new cash collateral account established for the benefit of the Agent and the Purchasers. Reporting of aged accounts shall be in accordance with the Missing Payment Indicator (MPI) aging methodology. El-Bee Chargit Corp will be permitted to estimate principal receivables, collections, dilution, and charge-offs until December 31, 2003 or such later date as agreed to by the Agent COLLECTIONS AND ACCOUNTS: The Collection Agent shall instruct obligors to make payments in respect of the Receivables (the "Collections") either to a lockbox in the name of the Seller (which is currently administered by Regulus West LLC) (the "lockbox"), other lockboxes as approved by the Agent, or at a store location of each Originator. All Collections in the approved lockboxes shall be remitted on the same business day to a concentration account with a permitted concentration account bank (which is currently Wachovia Bank, National Association). The Agent shall have a perfected security interest in all lockboxes, concentration and collection accounts. Furthermore, the Agent shall have the ability at any time to take control of any lockbox, concentration, or collection account pursuant to control agreements executed by each Originator, Seller, Agent, and the depository institutions holding such accounts. Each Originator has agreed to cause each of its stores (a) to deposit all in-store collections with a local bank within one business day of its receipt thereof, and (b) on the same day as such deposit, to initiate a remittance to a concentration account with a permitted concentration account bank (Wachovia); provided that neither the Seller nor any Originator shall be in breach of its obligations under clause (a) above if an amount not to exceed [5]% of the aggregate in-store collections during any month shall fail to be deposited within one business day of the receipt thereof so long as all such in-store collections are deposited within two business days of receipt. A-9 August 29, 2003 The Agent may at any time, on written notice to the Seller, direct that the Seller, and the Seller thereupon shall, direct each Originator to (i) cease accepting in-store collections at individual cash registers within a store, (ii) accept all in-store collections at a single collection point within each store, and otherwise segregate, record, and maintain the separateness of all in-store collections from all other cash and payment items handled or located at such store, and (iii) remit on a daily basis from each store location all in-store collections to an account specified by the Agent. The Servicer shall distribute Collections from these accounts to either the Agent (for the benefit of the Purchasers) or the Seller, pursuant to the terms of the RPA. Such payments will be subject to daily settlement in conjunction with the delivery of the daily Report. SELECTION OF TRANCHE PERIODS: Each Receivable Interest purchased by the Purchasers shall at all times have an associated amount of Capital, a Discount Rate and Tranche Period applicable to it. TRANCHE PERIOD: (a) if Discount for such Receivable Interest is calculated with respect to the Conduit CP Rate, a period of days not to exceed 270 days commencing on a business day requested by the Seller and agreed to by each Conduit Purchaser. (b) if Discount for such Receivable Interest is calculated on the basis of the LIBO Rate, a period of one, two, or three months, or such other period as may be mutually agreeable to the Agent and the Seller, commencing on a business day selected by the Seller or Agent. (c) if Discount for such Receivable Interest is calculated on the basis of Bank One's Prime Rate, a period of days not to exceed 30 days commencing on a business day selected by the Seller. If any Tranche Period would end on a day which is not a business day, such Tranche Period shall end on the next succeeding business day, provided, however, that in the case of Tranche Periods corresponding to the LIBO Rate, if such next succeeding business day falls in a new month, such Tranche Period shall end on the immediately preceding business day. A-10 August 29, 2003 In case of any Tranche Period for any Receivable Interest of which commences before the Termination Date and would otherwise end on a day occurring after the Termination Date, such Tranche Period shall end on the Termination Date. The duration of each Tranche Period in respect of any Receivable Interest which commences after the Liquidation Day for such Receivable Interest shall be of such duration as selected by the Agent. TRANSFER TO FINANCIAL INSTITUTIONS: The initial Discount Rate for any Receivable Interest transferred to a Financial Institution shall be Bank One's Prime Rate, until the Seller gives notice to the Financial Institution of another Discount Rate, and the Tranche Period for such Receivable Interest shall be a period of five days commencing on the day that such Receivable is transferred to such Financial Institution. DISCOUNT: For each Receivable Interest for any Tranche Period: DR x C x AD/360 DR= The Discount Rate for such Receivable Interest for such Tranche Period C= The Capital for such Receivable Interest during such Tranche Period AD= The actual number of days elapsed during such Tranche Period DISCOUNT RATE: Either the LIBO rate, the Conduit CP Rate, or Bank One's Prime Rate, as applicable. CONDUIT CP RATE: Either the Falcon CP Rate and/or the CP Rate of each other Conduit Purchaser as applicable . FINANCIAL INSTITUTIONS FUNDING: Capital funded by the Financial Institutions shall accrue discount at either (i) the greater of (a) LIBO rate plus [2.25%] or (b) the interest rate paid pursuant to the Bon-Ton's new asset-based credit facility, or (ii) Bank One's Prime Rate, as selected by the Seller. A-11 August 29, 2003 DEFAULT PRICING EVENT: During the continuance of a Default Pricing Event, the Capital of all of the Purchasers will accrue discount at Bank One's Prime Rate plus 2%. A Default Pricing Event shall occur upon the occurrence of a Termination Event. LIQUIDATION SETTLEMENT PROCEDURES: On the Liquidation Day of a Receivable Interest and on each day thereafter, the Collection Agent shall set aside and hold in trust for the holder of such Receivable Interest, the percentage evidenced by such Receivable Interest of Collections received on such day. On the last day of each Tranche Period of a Receivable Interest after the occurrence of its Liquidation Day, the Collection Agent shall remit to the each Purchaser's account the amounts set aside pursuant to the preceding sentence, together with any remaining amounts due, but not to exceed the sum of (i) the accrued Discount for such Receivable Interest, (ii) the Capital of such Receivable Interest, and (iii) the aggregate of all other amounts then owed by the Seller to the Purchasers. If there shall be insufficient funds on deposit for the Collection Agent to distribute funds in payment in full of the aforementioned amounts, the Collection Agent shall distribute funds in the following order: 1. Payment of sub-servicer fee if sub-servicer is not The Bon-Ton; 2. Reimbursement of the Agent's costs of collection and enforcement of the program documents; 3. Payment of all accrued Discount for the Receivable Interests and/or applicable hedge payments and applicable fees; 4. Reduction of Capital of the Receivable Interests; and 5. Payment of all other amounts due to the Purchasers Following the date on which all accrued and unpaid Discount, Capital, and all other amounts owed hereunder or under the fee letter (collectively, the "Aggregate Unpaids") are reduced to zero, the Collection Agent shall pay to Seller any remaining Collections. A-12 August 29, 2003 PAYMENTS: On the last day of each Tranche Period the Seller shall pay to each Purchaser an amount equal to the accrued and unpaid Discount for such Tranche Period due to such Purchaser. The Seller shall pay to each Purchaser all fees and expenses due as set forth in the fee letter with such Purchaser, and any and all issuing and paying agent fees and commissions of placement agents and commercial paper dealers in respect of commercial paper issued to fund any Receivable Interest. All per annum fees shall be payable monthly in arrears and due on the first business day of each month. IV. OTHER PROVISIONS REPRESENTATIONS AND WARRANTIES: Including the following: 1. Corporate Existence and Power; 2. No Conflict - transaction documents do not contravene or violate any existing corporate agreements of Seller or any Originator; 3. Governmental Authorization - no authorization from any governmental authority is required; 4. Binding Effect - transaction documents are enforceable against the Seller and each Originator; 5. Accuracy of Information; 6. Use of Proceeds - No proceeds from any purchase of Receivables will be used by Seller or any Originator in a manner inconsistent with any regulations of the Federal Reserve System; 7. Title to Receivables Purchased from the Originators - Each Receivable transferred by the Originators has been purchased by the Seller from each Originator in accordance with the terms of the Transfer Agreement and the Seller has obtained legal and equitable title to such Receivable; A-13 August 29, 2003 8. Good Title and Perfection - Immediately prior to each purchase by the Purchasers, the Seller shall be the legal and beneficial owner of the Receivables, free and clear of any adverse claim, except as created by the program documents; 9. Places of Business - The principal places of business and chief executive offices of the Seller and each Originator are those which have been represented to the Agent; 10. Collection Accounts - The Seller has complied with all requirements of the program documents with respect to the collection accounts; 11. Material Adverse Effect - Since [[January 31, 2003]] no event has occurred which would constitute a Material Adverse Effect; 12. Names; 13. Actions, Suits - there are no existing actions or suits which would materially affect the collectibility of the Receivables; 14. Credit and Collection Policies - Each Originator has complied in all material respects with the credit and collection policy; 15. Payments to Originators; 16. Ownership of the Seller - The Bon-Ton and its affiliates own 100% of the capital stock of the Seller; and 17. The Seller is not an Investment Company within the meaning of the Investment Company Act of 1940. 18. Each Originator must be a direct or indirect wholly-owned subsidiary of The Bon-Ton Stores, Inc. CONDITIONS PRECEDENT TO INITIAL PURCHASE: Customary for financing arrangements, including but not limited to the following: A-14 August 29, 2003 1. (i) A field-audit on the Receivables conducted by outside third-party auditors and pursuant to agreed upon procedures developed by the Agent and agreed to by the Collection Agent, and (ii) an on-site due-diligence by the Agent and the Purchasers at the Collection Agent's and/or each Originator's respective principal place of business and/or chief executive office, with each (i) and (ii) producing satisfactory results to allow for the internal credit approval by each of the Financial Institutions; 2. Executed documentation with respect to the Agent's control of lockboxes, concentration, and collection accounts; 3. Any required opinions (including, without limitation, opinions with respect to governmental approvals, consents, filings or actions in each jurisdiction in which Receivables are originated or billed) of (Originator's and/or in-house) Counsel which are satisfactory to Purchasers' counsel and allows for the internal credit approval by each of the Financial Institutions; 4. A pro forma Monthly Report representing the performance of the Receivables to be funded by the Facility for the calendar month immediately prior to the Closing Date; 5. Pro-forma Daily Report; 6. Marking by each Originator and Seller of their respective records evidencing the sale of the Receivables contemplated thereof by the TA and RPA; 7. Executed copies of UCCs to be filed in connection with the TA and RPA; 8. Payment of any up-front fees due to the Purchasers pursuant to their respective Fee Letters and due at the Closing Date; 9. Others as are customary or may be required after due-diligence; and 10. ALL OTHER APPLICABLE CONDITIONS RELATED TO THE CLOSING OF THE ACQUISITION. CONDITIONS PRECEDENT A-15 August 29, 2003 TO ALL PURCHASES: Customary for financing arrangements, plus the following: 1. No breach of any representation or warranty; 2. No Termination Event or potential Termination Event has occurred; 3. The Liquidity Termination Date shall not have occurred; 4. The aggregate Capital of all Receivable Interests does not exceed the Facility Limit and the aggregate Receivable Interests does not exceed 100%. POSITIVE COVENANTS: Including the following: 1. Periodic financial reporting of Originators and Seller; 2. Notice of: Termination Events, potential Termination Events, the entry of any judgment or decree against the Seller or any Originator or any of their respective subsidiaries if the aggregate amount of all judgements exceeds $[5,000,000], or any litigation which is likely to have a material adverse effect on the collectibility of the Receivables. 3. 100% ownership of Seller by The Bon-Ton and its affiliates; 4. Compliance with laws; 5. Proper maintenance of records and books of account; 6. Allowing on-going field audits of the Receivables and Purchasers' due diligence similar to those required under "Conditions Precedent to Initial Purchase" above; 7. Compliance with respect to contracts related to the Receivables and compliance in all material respect with the credit and collection policies; 8. Perfected ownership interest in the Receivables by Seller and perfected first priority undivided percentage ownership interest in the Receivables, related security, and Collections with respect thereto in favor of the Agent and the Purchasers; A-16 August 29, 2003 9. Each Originator and Seller shall take all reasonable steps to maintain the Seller's identity as a separate legal entity; 10. The Seller and each Originator shall perform all required obligations and duties under the Transfer Agreement; 11. The Seller shall cause each Originator to remit all Collections received by the Originator to the concentration account not later than the business day immediately after receipt of such Collections; 12. OTHERS AS ARE CUSTOMARY OR MAY BE REASONABLY REQUIRED NEGATIVE COVENANTS: Including the following: 1. The Seller will not change its name, identity, or corporate structure without (i) providing 45 days prior notice and (ii) delivering to the Agent all required financing statements; 2. The Seller will not add or terminate any collection account or concentration account bank or lockbox provider without, at least 10 days before the proposed effective day, providing prior notice and delivering collection account agreements pertaining to the new accounts. 3. No adverse claim shall be created on or with respect to any Receivable or related security or Collections in respect thereof; 4. The Seller shall not make any material change in the character of its business or the credit and collection policy; 5. Except as otherwise permitted, the Seller shall not extend or modify the terms of any Receivable; 6. The Seller shall not enter into any agreement, merger arrangement, or instrument other than that permitted under the program documents; 7. The Seller shall not amend any of its corporate documents in any respect that would impair its ability to comply with the program documents; and A-17 August 29, 2003 8. The Seller shall not create, incur, guarantee, assume, or suffer to exist any indebtedness other than that allowed under the program documents. 9. OTHERS AS CUSTOMARY OR WHICH MAY BE REASONABLY REQUIRED TERMINATION EVENTS: Including the following: 1. (i) Failure of the Seller, Collection Agent or any Originator (the "Seller Parties") to perform or observe any term, covenant or agreement under the TA or RPA or other program documents subject to a 10 business day grace period or (ii) failure to make any payment or deposit when due thereunder, subject to a 1 business day grace period for any payment or deposit which is not in respect of Capital; 2. Any representations or warranties made by any Seller Party shall prove to have been incorrect when made; 3. Failure of the Seller, any Originator or any of their respective subsidiaries to pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of any creditors; 4. (i) The Seller or any Originator shall fail to observe or perform any covenant, condition, or provision of the Transfer Agreement and such failure shall continue beyond the applicable cure period, (ii) the "Termination Date" in the TA shall have occurred, or (iii) any Originator ceases to transfer or is incapable of transferring Receivables to the Seller or the Seller, for any reason, shall cease to buy Receivables under the TA; 5. Voluntary or involuntary bankruptcy or insolvency proceedings are commenced by or against any Originator or Seller; 6. Excess Spread shall be less than 2% on an annualized basis for three consecutive months; A-18 August 29, 2003 7. The Originator and its affiliates shall cease to own directly 100% of the shares of the outstanding capital stock of the Seller or a change of control shall occur with respect to any Originator; 8. The aggregate Receivable Interests shall exceed 100% at any time and shall not have been cured within the Required Cure Period ; 9. 3-month rolling average Delinquency Ratio exceeds [3.5]%; 10. 3-month rolling average Loss-to-Liquidation Ratio exceeds [2.8]%; 11. 3-month rolling average Principal Payment Ratio exceeds [14]%; 12. FINANCIAL COVENANTS TO BE THE SAME AS INCLUDED IN THE BON-TON'S NEW ASSET-BASED CREDIT FACILITY; 13. The failure of any material entity to make any payment when due (whether at scheduled maturity, by acceleration, when declared to be due and payable or otherwise) in respect of any indebtedness (other than any indebtedness with respect to which the payee is The Bon-Ton Stores, Inc. or any affiliates thereof) outstanding (individually or in the aggregate) in a principal amount of $[5,000,000] and such failure shall remain unremedied for 3 business days. 14. OTHERS WHICH ARE CUSTOMARY OR WHICH MAY BE REASONABLY REQUIRED EXPENSES: The Bon-Ton will reimburse the Agent, the Purchasers, Arranger or other appropriate parties for all out-of-pocket expenses, legal fees, due diligence, and audit fees, etc. incurred in the negotiation, arrangement, enforcement, and administration of this Facility, including those charged to it by Bank One and Banc One Capital Markets. Annual audits will be conducted at Seller's expense (not more than once per year unless a Termination Event occurs) provided that an additional audit of combined monthly reporting and consolidated receivables systems will be performed at Seller's expense upon the consolidation of the receivables systems of The Bon-Ton and The El-Bee Chargit Corp. A-19 August 29, 2003 INDEMNITIES: Indemnities by the Seller. Without limiting any other rights which the Agent or any Purchaser may have hereunder or under applicable law, the Seller hereby agrees to indemnify the Agent and each Purchaser and their respective officers, directors, agents and employees (each an "Indemnified Party") from and against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including reasonable attorneys' fees (which attorneys may be employees of the Agent or such Purchaser) and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts') awarded against or incurred by any of them arising out of or as a result of this agreement or the acquisition, either directly or indirectly, by a Purchaser of an interest in the Receivables, excluding, however: 1. Indemnified Amounts to the extent final judgment of a court of competent jurisdiction holds such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking; 2. Recourse for Receivables that are uncollectible or uncollected (whether on account of the insolvency, bankruptcy or lack of creditworthiness of the related obligor or otherwise); provided that the foregoing shall not negate, impair otherwise modify any (or the effect of any) of the representations, warranties, covenants or other agreements of the Seller contained in this agreement; or 3. Taxes imposed by the jurisdiction in which such Indemnified Party's principal executive office is located, on or measured by the overall net income of such Indemnified Party to the extent that the computation of such taxes is consistent with the characterization of the acquisition by the Purchasers of Receivable Interests as a loan or loans by the Purchasers to the Seller secured by the Receivables, related security, and Collections; Provided, however, that nothing contained in this sentence shall limit the liability of the Seller or the Collection Agent or limit the recourse of the Purchasers to the Seller or Collection Agent for amounts otherwise specifically provided to be paid by the Seller or the Collection Agent under the terms of this indemnification. The Seller shall indemnify the Agent and the Purchasers for A-20 August 29, 2003 Indemnified Amounts (including, without limitation, losses in respect of uncollectible receivables regardless of whether reimbursement therefor would constitute recourse to the Seller or the Collection Agent) relating to or resulting from: 1. Any representation or warranty made by the Seller or the Collection Agent (or any officers of the Seller or the Collection Agent) under or in connection with this agreement, any Monthly Report or any other information or report delivered by the Seller or the Collection Agent pursuant hereto, which shall have been false or incorrect when made or deemed made; 2. The failure by the Seller or the Collection Agent to comply with any applicable law, rule or regulation with respect to any Receivable or contract related thereto, or the nonconformity of any Receivable or contract included therein with any such applicable law, rule or regulation; 3. Any failure of the Seller of the Collection Agent to perform its duties or obligations in accordance with the provisions of this agreement; 4. Any products liability or similar claim arising out of or in connection with merchandise, insurance or services which are the subject of any contract; 5. Any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related contract not being an legal, valid and binding obligation of such obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or service related to such Receivable or the furnishing or failure to furnish such merchandise or services; 6. Any Receivable which is treated as or represented by the Seller to be an Eligible Receivable (including, without limitation, for purposes of computing the Net Receivables Balance at any time) which is not at the date thereof an Eligible Receivable; 7. The commingling of Collections of Receivables at any time with other funds; A-21 August 29, 2003 8. Any investigation, litigation, or proceeding related to or arising from this agreement, the transactions contemplated hereby, the use of the proceeds of a purchase, the ownership of the Receivable Interests or any other investigation, litigation or proceeding relating to the Seller in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby; excluding, however, any investigation, litigation or proceeding that related solely to the compliance or noncompliance by any Purchaser with any state or federal laws applicable to such Purchaser because of such Purchaser's regulatory status or any contractual restriction (other than the program documents) binding on such Purchaser; 9. Any inability to litigate any claim against any obligor in respect of any Receivable as a result of such obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding; and 10. Any Termination Event caused by (i) bankruptcy of the Seller or any Originator or (ii) failure of either the Seller or any Originator to pay its debts when due. The Seller shall be given notice of any claim for indemnified liabilities and, in the case of any litigation or proceeding brought by any person or entity that is not a party to this agreement which litigation or proceeding is reasonably likely to give rise to a claim hereunder for indemnification the Seller shall be afforded a reasonable opportunity to participate in the defense, compromise or settlement thereof. CONFIDENTIALITY: The Seller, Collection Agent, each Originator, Purchasers, and Agent agree to each maintain the confidentiality of the TA, RPA and any other proprietary information with respect to this transaction, except that all parties may disclose the information to their respective regulators, accountants, lawyers, and as required by law or judicial order. The Agent and each Purchaser may disclose the information to the rating agencies, any commercial paper dealers, providers of credit enhancement or liquidity to the Conduit, and the Agent or the Purchasers may A-22 August 29, 2003 disclose the information to prospective or actual assignees or participants. Notwithstanding the foregoing, each party hereto (and each employee, representative, or other agent of any of the foregoing) may disclose to any and all persons, without limitation of any kind, the "tax treatment" and "tax structure" (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transaction contemplated herein and all materials of any kind (including opinions or other tax analyses) that are or have been provided to any of the foregoing relating to such tax treatment or tax structure, and it is hereby confirmed that each of the foregoing has been so authorized since the commencement of discussions regarding the proposed transaction. Exhibit I ELIGIBLE RECEIVABLES "Eligible Receivables" means, at any time, a Receivable: 1. the obligor of which (a) is not an affiliate of any of the parties hereto; and (b) is not a government or a governmental subdivision or agency, 2. the obligor of which is not the obligor of any Defaulted Receivable or any Charged-off Receivable, 3. which is not a Defaulted Receivable (> 150 days past due) or a Charged-Off Receivable, A-23 August 29, 2003 4. which is an account receivable representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3 (c) (5) of the Investment Company Act of 1940, as amended, 5. which is an "account" or "general intangible" within the meaning of Section 9-106 of the UCC of all applicable jurisdictions, 6. which is denominated and payable only in United States dollars in the United States, 7. which, together with the related contract, is in full force and effect and constitutes the legal, valid and binding obligation of the related obligor enforceable by the Seller against such obligor in accordance with its terms subject to no offset, counterclaim or other defense, 8. which arises under a contract which (A) does not require the obligor under such contract to consent to the transfer, sale or assignment of the rights and duties of the Seller or the Originator (or any other originator) under such contract and (B) does not contain a confidentiality provision that purports to restrict the ability of any Purchaser to exercise its rights under this agreement, including, without limitation, its right to review the contract, 9. which is not subject to any right of rescission, set-off, counterclaim, any other defense (including defenses arising out of violation of usury laws) of the obligor or any other adverse claim, 10. as to which the Originator of such Receivable has satisfied and fully performed all obligations on its part with respect to such Receivable required to be fulfilled by it, 11. all right, title and interest to and in which has been validly transferred by the Originator to the Seller under and in accordance with the Transfer Agreement, and the Seller has good and marketable title thereto free and clear of any adverse claim. 12. which has been posted to the applicable Account of the Obligor thereon, 13. (A) which does not arise from an Account which has been classified by the Seller, the Originator of the Collection Agent as being cancelled, counterfeit or fraudulent, and (B) if the card issued in connection with the related Account has been lost or stolen, the Obligor thereon has not asserted the occurrence of any unauthorized charges thereon, 14. which was created in compliance, and continues to be in compliance, in each case, in all material respects with all laws (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) applicable to the Seller and to the Originator (and, if other than the Originator, A-24 August 29, 2003 the originator in respect of such Receivable) and pursuant to a contract which complies in all material respects with all such laws, 15. which satisfies all applicable requirements of the credit and collection policy, 16. which is not an Elder-Beerman Shoebilee receivable, a pharmacy receivable, or any non-private label credit card receivables, 17. which is not a receivable of a deferred account which has a deferred payment terms of greater than forty months, 18. when acquired hereunder does not cause the Outstanding Balance of Receivables arising under deferred accounts to exceed 10% of the Outstanding Balance of Receivables, and 19. which (A) arises in the ordinary course of business of the Originator from an authorized use of an Account with the Originator in connection with the purchase of goods or services of goods by the applicable obligor from the Originator, and (B) arises solely from the sale or the provision of goods or services to the related obligor by the Originator, and not by any other entity (in whole or in part); provided that a Receivable that meets the criteria set forth in this definition but for this clause (xvi) shall nonetheless constitute an "Eligible Receivable" if: (x) such Receivable arises from the purchase of goods or services from an entity that is either (A) a wholly-owned subsidiary of the Originator, (B) an entity that has been merged into the Originator or (C) an entity all or a substantial part of the assets in respect of which the applicable obligor is part of the associated "customer base" have been acquired by the Originator, (y) such Receivable arises from the purchase of goods or services with the use of (A) an Account or (B) a charge account all the rights and obligations of the issuer in connection with which Account have been assigned to and assumed by the Originator, and (z) the principal balance of such Receivable, together with the aggregate principal balance of all other Receivables that constitute Eligible Receivables by reason of this proviso does not exceed an amount equal to [10]% of the principal balance of all Eligible Receivables at such time or such other higher amount as agreed upon by each Purchaser; A-25 August 29, 2003 20. OTHER ELIGIBILITY CRITERIA TO BE DETERMINED. A-26 August 29, 2003 Exhibit B Terms and Conditions for "AA" rated structure for existing $150,000,000 Bon-Ton Receivables Partnership, L.P. facility 1. The loss reserve will be dynamic based upon a to-be-determined, mutually agreed upon calculation, subject to a new floor of 15% (increased from 12% in the current Bon-Ton transaction). 2. The dilution reserve will be dynamic based on a to-be-determined mutually agreed-upon calculation, subject to a floor of 8%. 3. Hedge with A-1/P-1 counterparties required to equal to 100% of the notional amount of the aggregate borrowed amount under the facility. All fees and hedge payments to be included in finance charge waterfall and excess spread computations. 4. New principal payment trigger (>14%) 5. Reduce the Loss-to-Liquidation Ratio trigger level to 2.8% from 3.5% 6. Daily Reporting including borrowing base true-ups into cash collateral account. 7. Aging based on MPI (Missing Payment Indicator) EX-99.(B)(5) 13 w90059exv99wxbyx5y.txt 1ST AMEND. TO COMMIT. LETTER FROM BANK ONE Exhibit (b)(5) BANC ONE CAPITAL MARKETS tel 312 732 4000 ASSET-BACKED FINANCE fax 312 732 3600 Mail Code Il1-1729 1 Bank One Plaza Chicago, IL 60670 BANC ONE CAPITAL MARKETS, INC. This letter is confidential and therefore shall not be disclosed by you to any third party or governmental entity without the prior written consent of Banc One, NA, except as otherwise set forth in the Commitment Letter referred to herein. CONFIDENTIAL September 10, 2003 The Bon-Ton Stores, Inc. 2801 East Market Street York, Pennsylvania 17405 Attn: James H. Baireuther RE: COMMITMENT LETTER DATED AUGUST 29, 2003 Ladies and Gentlemen: Reference is made to the certain Commitment Letter dated August 29, 2003 (acknowledged by you on the same date) from Bank One, NA, with its main office in Chicago, Illinois ("BANK ONE") and Banc One Capital Markets, Inc. ("BOCM"). Capitalized terms used in this letter that are not otherwise defined are defined in the Commitment Letter. You have advised us that in connection with the Tender Offer you intend to increase the consideration from $7.00 per common share of the Target (in cash) to $7.25 per common share of the Target (in cash) and Bank One and BOCM hereby confirm that the Commitment Letter remains effective (subject to the other terms and conditions of the Commitment Letter) notwithstanding the proposed increase in such consideration. Sincerely, BANK ONE, NA By: /s/ Elizabeth Chung ---------------------------- Name: Elizabeth Chung Title: Managing Director BANC ONE CAPITAL MARKETS, INC. By: /s/ Elizabeth Chung ---------------------------- Name: Elizabeth Chung Title: Managing Director EX-99.(B)(6) 14 w90059exv99wxbyx6y.txt 2ND AMEND. TO COMMIT. LETTER FROM BANK ONE, NA Exhibit (b)(6) BANC ONE CAPITAL MARKETS tel 312 732 4000 ASSET-BACKED FINANCE fax 312 732 3600 Mail Code Il1-1729 1 Bank One Plaza Chicago, IL 60670 BANC ONE CAPITAL MARKETS, INC. This letter is confidential and therefore shall not be disclosed by you to any third party or governmental entity without the prior written consent of Banc One, NA, except as otherwise set forth in the Commitment Letter referred to herein. CONFIDENTIAL September 12, 2003 The Bon-Ton Stores, Inc. 2801 East Market Street York, Pennsylvania 17405 Attn: James H. Baireuther RE: COMMITMENT LETTER DATED AUGUST 29, 2003 Ladies and Gentlemen: Reference is made to the certain Commitment Letter dated August 29, 2003 (acknowledged by you on the same date) from Bank One, NA, with its main office in Chicago, Illinois ("BANK ONE") and Banc One Capital Markets, Inc. ("BOCM"). Capitalized terms used in this letter that are not otherwise defined are defined in the Commitment Letter. You have advised us that in connection with the Tender Offer you intend to increase the consideration from $7.25 per common share of the Target (in cash) to $8.00 per common share of the Target (in cash) and Bank One and BOCM hereby confirm that the Commitment Letter remains effective (subject to the other terms and conditions of the Commitment Letter) notwithstanding the proposed increase in such consideration provided that the portion of such consideration in excess of $7.50 per common share of the Target (in cash) is financed exclusively by the issuance of equity of the Parent. Sincerely, BANK ONE, NA By: /s/ William Hendricks -------------------------------- Name: William Hendricks Title: Director, Capital Markets BANC ONE CAPITAL MARKETS, INC. By: /s/ William Hendricks -------------------------------- Name: William Hendricks Title: Director, Capital Markets EX-99.(D)(1) 15 w90059exv99wxdyx1y.txt AGREEMENT AND PLAN OF MERGER Exhibit (d)(1) AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of September 15, 2003, is made and entered into by and among The Elder-Beerman Stores Corp., an Ohio corporation (the "Company"), The Bon-Ton Stores, Inc., a Pennsylvania corporation ("Parent"), and Elder Acquisition Corp., an Ohio corporation ("Sub"). WHEREAS, the Board of Directors of the Company has determined that it is advisable and in the best interest of the Company and its shareholders to consummate and has recommended approval by the shareholders of the Company of the business combination transaction provided for herein in which Sub would merge with and into the Company and the Company would become an indirect wholly owned subsidiary of Parent (the "Merger"); WHEREAS, the Boards of Directors of Parent and Sub have each determined that it is advisable and in the best interests of their respective companies and shareholders to consummate, and have approved, the Merger and this Agreement; WHEREAS, in furtherance of such business combination transaction and the Merger, Parent proposes to cause Sub to make a cash tender offer for all of the issued and outstanding shares of common stock, without par value, of the Company (the "Company Common Shares"), on the terms specified herein and the Board of Directors of the Company has approved the tender offer and recommended that it be accepted by the shareholders of the Company; and WHEREAS, Parent, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer (as hereinafter defined) and the Merger and also to prescribe various conditions to the Offer and the Merger. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I THE OFFER Section 1.01 The Offer. (a) Provided that this Agreement shall not have been terminated in accordance with Section 9.01 hereof and so long as none of the events or circumstances set forth in Annex A hereto shall have occurred and be continuing and shall not have been waived by Parent (other than with respect to matters that by their terms are not required to be satisfied until expiration or consummation of the Offer), Sub shall, and Parent shall cause Sub to, as promptly as practicable commence (within the meaning of the applicable rules and regulations of the Securities and Exchange Commission (the "SEC") promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), but in no event later than fifth business day following the initial public announcement of the execution of this Agreement, an offer to purchase for cash (the "Offer") all of the issued and outstanding Company Common Shares at a price of $8.00 per Company Common Share, subject to any required withholding Taxes (as hereinafter defined) net to the seller in cash. For purposes of this Agreement, the term "Transaction Consideration" shall mean $8.00 per Company Common Share in cash or any higher price as shall be paid in respect of the Company Common Shares in the Offer. The obligations of Sub to commence the Offer and to accept for payment and to pay for any Company Common Shares tendered shall be subject to only the conditions set forth in Annex A hereto (any or all of which may, subject to the provisions hereof, be waived by Parent or Sub, subject to applicable law). The initial expiration date of the Offer shall be the 20th business day following the commencement of the Offer determined using Rule 14d-2 under the Exchange Act, unless this Agreement is terminated in accordance with Section 9.01, in which case the Offer (whether or not previously extended in accordance with the terms hereof) shall expire on such date of termination. Without the prior written consent of the Company, Sub shall not, and Parent shall cause Sub not to (i) decrease the Transaction Consideration, (ii) decrease the number of Company Common Shares to be purchased in the Offer, (iii) change the form of consideration payable in the Offer, (iv) add to or change the conditions to the Offer set forth in Annex A, (v) waive the Minimum Tender Condition (as defined in Annex A) or (vi) make any other change in the terms or conditions of the Offer in any manner materially adverse to the holders of Company Common Shares. Notwithstanding the foregoing, Sub may, without the consent of the Company, (i) extend the Offer in increments of not more than ten business days each, if at the then scheduled expiration date of the Offer any of the conditions to Sub's obligation to purchase Company Common Shares are not satisfied, until such time as such conditions are satisfied or waived, (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer and (iii) make available a subsequent offering period (within the meaning of Rule 14d-11 under the Exchange Act). Without limiting the right of Sub to extend the Offer, provided that this Agreement shall not have been terminated in accordance with Section 9.01 hereof, if the conditions set forth in Annex A are not satisfied or, to the extent permitted hereby, waived by Parent or Sub as of the date the Offer would otherwise have expired, then, except to the extent that such conditions are incapable of being satisfied, at the request of the Company, Sub will extend the Offer from time to time until the earlier of October 31, 2003 (the "Final Date") or the consummation of the Offer. Sub shall, and Parent shall cause Sub to, subject to the terms and conditions of the Offer, accept for payment Company Common Shares validly tendered and not withdrawn promptly after expiration of the Offer in compliance with Rule 14e-1(c) promulgated under the Exchange Act. (b) On the date the Offer is commenced, Parent and Sub shall file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer, which shall contain an offer to purchase and a related letter of transmittal and summary advertisement (such Schedule TO and the documents included therein pursuant to which the Offer will be made, together with any amendments or supplements thereto, the "Offer Documents"). The Company and its counsel shall be given a reasonable opportunity to review and comment on the Offer Documents prior to their being filed with the SEC. Each of Parent, Sub and the Company shall promptly correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or - 2 - misleading in any material respect, and each of Parent and Sub shall take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and to be disseminated to the Company's shareholders, in each case as and to the extent required by applicable federal securities laws. Parent and Sub shall provide the Company and its counsel with any comments, whether written or oral, Parent, Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments and any written or oral responses thereto. Section 1.02 Company Actions. Subject to the right of the Board of Directors of the Company to take action permitted by Section 6.02, the Company hereby consents to the Offer and represents and warrants that (a) its Board of Directors (at a meeting duly called and held) has duly adopted resolutions unanimously (with one director abstaining) (i) declaring that each of the Offer and the Merger is in the best interests of the Company and its shareholders and is advisable and fair to the shareholders of the Company, (ii) approving the Offer and the Merger and approving this Agreement, and (iii) recommending acceptance of the Offer and approval and adoption of the Agreement by the shareholders of the Company and (b) RBC Dain Rauscher Inc., a member company of RBC Capital Markets ("RBC"), (i) has delivered to the Company's Board of Directors its opinion, dated the date hereof, to the effect that, as of the date hereof, the Transaction Consideration to be received in the Offer and the Merger by the shareholders of the Company is fair from a financial point of view to the shareholders of the Company and (ii) has agreed, subject to its reasonable approval, of references to it and its opinion in the Offer Documents and Schedule 14D-9 (as hereinafter defined) to permit therein the inclusion of the full text of its opinion and references to it and its opinion. The Company hereby consents to the inclusion in the Offer Documents of the recommendation of the Company's Board of Directors described above in this Section 1.02, and shall not withdraw or modify such recommendation, except in accordance with Section 6.02. The Company shall provide for inclusion in the Offer Documents any information reasonably requested by Parent or Sub, and to the extent requested by Parent or Sub, the Company shall cooperate in the preparation of the Offer Documents. As soon as practicable after the date the Offer Documents are filed with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer, including an appropriate information statement ("Information Statement") under Rule 14f-1 (such Schedule 14D-9 and Information Statement, as amended from time to time, the "Schedule 14D-9") and shall mail the Schedule 14D-9 to the holders of Company Common Shares. The Schedule 14D-9 shall contain the recommendation described above, unless such recommendation has been withdrawn or modified in accordance with Section 6.02. Parent and its counsel shall be given a reasonable opportunity to review the Schedule 14D-9 prior to its being filed with the SEC. Each of Parent, Sub and the Company shall promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company shall take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and to be disseminated to the Company's shareholders, in each case as and to the extent required by applicable federal securities laws. The Company shall provide Parent and its counsel with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments and any written or oral responses thereto. In connection with the Offer, provided that this Agreement shall not have been terminated in - 3 - accordance with Section 9.01 hereof, the Company will, or will cause its transfer agent to, promptly furnish Sub with mailing labels, security position listings and any available listing or computer file containing the names and addresses of the record holders of the Company Common Shares as of the most recent practicable date, and shall furnish Sub with such additional information (including, but not limited to, updated lists of holders of the Company Common Shares and their addresses, mailing labels and lists of security positions) and assistance as Sub or its agents may reasonably request in communicating the Offer to the shareholders of the Company. Subject to the requirements of law, and except for such steps as are necessary to disseminate the Offer Documents, Parent and Sub shall hold in confidence the information contained in any of such labels and lists and the additional information referred to in the preceding sentence, will use such information only in connection with the Offer and, if this Agreement is terminated, will promptly deliver to the Company all copies of such information (and extracts or summaries thereof) then in their possession. Section 1.03 Board of Directors and Committees; Section 14(f). (a) Subject to the requirements of this Section 1.03 and applicable law, promptly upon the date that Company Common Shares are first accepted for payment pursuant to the Offer (the "Share Acceptance Date"), assuming there are no conditions to payment outstanding, and from time to time thereafter, Sub shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board of Directors of the Company (the "Board") as will give Sub representation on the Board equal to the product of the number of directors on the Board, after giving effect to such representation, and the percentage that the number of Company Common Shares beneficially owned by Parent and its Subsidiaries following such purchase bears to the total number of issued and outstanding Company Common Shares, and the Company shall use its reasonable best efforts to, upon request by Sub, promptly increase the size of the Board (subject to the provisions of the Company's articles of incorporation and code of regulations) and/or secure the resignation of such number of directors as is necessary to enable Sub's designees to be elected to the Board and shall cause Sub's designees to be so elected. At such times the Company will use its reasonable best efforts to cause individuals designated by Sub to constitute the same percentage as is on the Board of (i) each committee of the Board (other than any committee of the Board established to take action under this Agreement or to the extent such appointment would be contrary to applicable law or any exchange on which Company Common Shares are then listed), (ii) each board of directors of each Subsidiary of the Company designated by Sub and (iii) each committee of each such board. Notwithstanding the foregoing, the Company shall use its reasonable best efforts to ensure that the Board and its committees and such boards and committees of the Company's Subsidiaries, shall continue to include members of the Board, as of the date hereof who are not employees of the Company and who are not otherwise affiliated with Sub until the Effective Time (as defined in Section 2.03). All nominees of Parent and Sub shall promptly resign from the Board if the Transaction Consideration for any Company Common Shares accepted for payment pursuant to the Offer is not promptly paid in accordance with the terms of the Offer. (b) The Company's obligations to appoint designees to the Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. - 4 - The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.03, including mailing to its shareholders an Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Parent or Sub will supply to the Company in writing and be solely responsible for any information so supplied with respect to any of them and their nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1 to be included in the Information Statement. (c) The foregoing notwithstanding, at all times following the purchase by Sub of Company Common Shares pursuant to the Offer and prior to the Effective Time, the Company shall be entitled to have four (4) members of the Board consisting of (i) three (3) persons who are directors on the date hereof and who are not employed by the Company and who are not affiliates, associates or employees of Parent or Sub or, in the event of a vacancy, persons designated by such persons (the "Independent Directors") and (ii) one (1) person who is a director on the date hereof and who is the Chief Executive Officer of the Company on the date hereof. Following the purchase by Sub of Company Common Shares pursuant to the Offer and prior to the Effective Time, neither Parent nor Sub will take any action to cause any Independent Director to be removed as members of the Board other than for cause. In addition, following the election or appointment of Sub's designees to the Board pursuant to this Section 1.03 and prior to the Effective Time, any amendment of this Agreement or the articles of incorporation or code of regulations of the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or Sub, waiver of any of the Company's rights hereunder or the authorization of any other action to be taken under or in connection with this Agreement if such action materially and adversely effects the holders of Company Common Shares other than Parent or Sub, will require the concurrence of a majority of the directors of the Company then in office who are neither designated by Sub, employees of the Company or any of its Subsidiaries nor otherwise affiliated with Sub. The Independent Directors shall have the authority to retain such counsel and other advisors at the expense of the Company as reasonably determined appropriate by any of the Independent Directors. In addition, the Independent Directors shall have the authority to institute any action, on behalf of the Company, to enforce performance of this Agreement. ARTICLE II THE MERGER Section 2.01 The Merger. Upon the terms and subject to the conditions of this Agreement, at the Effective Time, Sub shall be merged with and into the Company in accordance with the General Corporation Law of the State of Ohio (the "OGCL"). At the Effective Time, the separate existence of Sub shall cease and the Company shall continue as the surviving corporation in the Merger (the "Surviving Corporation") and an indirect wholly owned subsidiary of Parent. Sub and the Company are sometimes referred to herein as the "Constituent Corporations." As a result of the Merger, the outstanding shares of capital stock and the treasury shares of the Constituent Corporations shall be converted or cancelled in the manner provided in ARTICLE III. - 5 - Section 2.02 Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 9.01, and subject to the satisfaction or waiver (where applicable) of the conditions set forth in ARTICLE VIII, the closing of the Merger (the "Closing") will take place at the offices of Thompson Hine LLP, 2000 Courthouse Plaza, N.E., Dayton, Ohio 45402 at 10:00 a.m., local time, on the third business day following satisfaction of the conditions set forth in ARTICLE VIII (other than those conditions that, by their nature, are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), unless another date, time or place is agreed to by the parties hereto (the "Closing Date"). Section 2.03 Effective Time. At the Closing, a certificate of merger (the "Certificate of Merger") shall be duly prepared and executed by the Constituent Corporations on the forms prescribed by the Secretary of State of the State of Ohio (the "Secretary of State") and thereafter delivered to the Secretary of State for filing, as provided in Section 1701.81 of the OGCL, on the Closing Date. The Merger shall become effective at the time of the filing of the Certificate of Merger with the Secretary of State (the date and time of such filing being referred to herein as the "Effective Time"). Section 2.04 Articles of Incorporation and Code of Regulations of the Surviving Corporation. At the Effective Time and subject to the provisions of Section 7.07, (i) the articles of incorporation of Sub as in effect immediately prior to the Effective Time shall be amended so that the name of Sub shall be changed to The Elder-Beerman Stores Corp. and, as so amended, such articles of incorporation shall be the articles of incorporation of the Surviving Corporation until thereafter amended as provided by law and such articles of incorporation, and (ii) the code of regulations of Sub as in effect immediately prior to the Effective Time shall be the code of regulations of the Surviving Corporation until thereafter amended as provided by law, the articles of incorporation of the Surviving Corporation and such code of regulations. Section 2.05 Directors and Officers of the Surviving Corporation. The directors and officers of Sub immediately prior to the Effective Time shall, from and after the Effective Time, be the directors and officers, respectively, of the Surviving Corporation until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's articles of incorporation and code of regulations. Section 2.06 Effects of the Merger. Subject to the foregoing, the effects of the Merger shall be as provided in the applicable provisions of the OGCL. Section 2.07 Further Assurances. Each party hereto will, either prior to or after the Effective Time, execute such further documents, instruments, deeds, bills of sale, assignments and assurances and take such further actions as may reasonably be requested by one or more of the others to consummate the Merger, to vest the Surviving Corporation with full title to all assets, properties, privileges, rights, approvals, immunities and franchises of either of the Constituent Corporations or to effect the other purposes of this Agreement. - 6 - ARTICLE III CONVERSION OF SHARES Section 3.01 Conversion of Capital Shares. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof: (a) Conversion of Sub Common Shares. Each issued and outstanding common share, without par value, of Sub ("Sub Common Shares"), shall be converted into and become one fully paid and non-assessable common share, without par value, of the Surviving Corporation ("Surviving Corporation Common Shares"). Each certificate representing outstanding Sub Common Shares shall at the Effective Time represent an equal number of Surviving Corporation Common Shares. (b) Cancellation of Treasury Shares and Shares Owned by Parent and Subsidiaries. All Company Common Shares that are owned by the Company as treasury shares and any Company Common Shares owned by Parent, Sub or any other direct or indirect wholly owned Subsidiary of Parent shall be cancelled and retired and shall cease to exist and no stock of Parent or other consideration shall be delivered in exchange therefor. (c) Conversion Ratio for Company Common Shares. (i) Each issued and outstanding Company Common Share (other than shares to be cancelled in accordance with Section 3.01(b) and other than Dissenting Shares (as defined in Section 3.01(d))) shall be converted into the right to receive the Transaction Consideration, without any interest thereon, subject to appropriate adjustment for any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange with respect to the Company Common Shares occurring before the Effective Time. (ii) All Company Common Shares converted in accordance with paragraph (i) of this Section 3.01(c) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the Transaction Consideration per share, upon the surrender of such certificate in accordance with Section 3.02, without any interest thereon, subject to any applicable withholding tax. (d) Dissenting Shares. (i) Notwithstanding anything in this Agreement to the contrary, each outstanding Company Common Share that is held of record by a holder who has properly exercised dissenters' rights with respect thereto under Section 1701.85 of the OGCL (a "Dissenting Share"), shall not be converted into or represent the right to receive the Transaction Consideration pursuant to Section 3.01(c), but the holder thereof shall be entitled to receive such payment of the fair cash value of such Company Common Share from the Surviving Corporation as shall be - 7 - determined pursuant to Section 1701.85 of the OGCL; provided, however, that if any such holder shall have failed to perfect or shall withdraw or lose such holder's rights under Section 1701.85 of the OGCL, each such holder's Company Common Shares shall thereupon be deemed to have been converted as of the Effective Time into the right to receive the Transaction Consideration, without any interest thereon, pursuant to Section 3.01(c). (ii) The Company shall give Parent (x) prompt notice of any written demands for payment of the fair cash value of shares, withdrawals of such demands and any other instruments delivered pursuant to Section 1701.85 of the OGCL and (y) the opportunity jointly to participate with the Company in all negotiations and proceedings with respect to demands for payment under Section 1701.85 of the OGCL. The Company will not voluntarily make any payment with respect to any demands delivered to the Company pursuant to Section 1701.85 of the OGCL and will not, except with the prior written consent of Parent, settle or offer to settle any such demands or waive any failure to comply with Section 1701.85 of the OGCL by any holder of Company Common Shares. (e) Company Stock Option Plan. (i) Subject to paragraph (iii) below, immediately prior to the Effective Time, each outstanding option to acquire Company Common Shares, whether or not vested or exercisable ("Company Options") granted under The Elder-Beerman Stores Corp. Equity and Performance Incentive Plan, as amended and restated as of September 21, 2000 (the "Company Option Plan"), shall be cancelled by the Company. In consideration of such cancellation, the holder thereof shall be entitled to receive from the Company at the Effective Time an amount in respect thereof equal to the product of (A) the excess, if any, of the Transaction Consideration per share over the per share exercise price thereof and (B) the number of Company Common Shares subject thereto (the "Option Amount") (such payment to be net of applicable withholding taxes). Prior to the Effective Time, the Company shall deposit in a bank account an amount of cash equal to the Option Amount for each Company Option then outstanding (subject to any applicable withholding tax), together with instructions that such cash be promptly distributed following the Effective Time to the holders of such Company Options in accordance with this Section 3.01(e). From and after the Effective Time, other than as expressly set forth in this Section 3.01(e), no holder of an Option shall have any other rights in respect thereof other than to receive payment, if any, for his or her Options as set forth in this Section 3.01(e). (ii) Subject to paragraph (iii) below, immediately prior to the Effective Time, each outstanding Deferred Share (as such term is defined in the Company Option Plan), whether or not subject to deferral limitations under the Company Option Plan, granted under the Company Option Plan shall be cancelled by the Company. In consideration of such cancellation, the holder thereof shall be entitled to receive from the Company at the Effective Time an amount in respect thereof equal to the Transaction Consideration (such payment to be net of - 8 - applicable withholding taxes). Prior to the Effective Time, the Company shall deposit in a bank account an amount of cash equal to the Transaction Consideration for each Deferred Share then outstanding (subject to any applicable withholding tax), together with instructions that such cash be promptly distributed following the Effective Time to the holders of such Deferred Shares in accordance with this Section 3.01(e). From and after the Effective Time, other than as expressly set forth in this Section 3.01(e), no holder of a Deferred Share shall have any other rights in respect thereof other than to receive payment for his or her Deferred Shares as set forth in this Section 3.01(e). (iii) Except as provided herein or as otherwise agreed in writing by the parties, the Company shall take all actions prior to or as of the Closing Date to the effect that the Company Option Plan and any other plan, program or arrangement with any current or former employee, officer, director or consultant providing for the issuance or grant of any interest in respect of the capital stock of the Company shall terminate as of the Effective Time. The Company shall exercise its reasonable best efforts to ensure that as of the Effective Time no Person, other than Parent, Sub or their Affiliates shall have any option, warrant or other right to acquire any Company Common Shares or any other equity interest in the Company under the Company Option Plan or any other plan, program, arrangement or agreement maintained by the Company or to which the Company is a party. (iv) Prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, any committee administering the Company Option Plan) shall adopt such resolutions or take such actions as are necessary to carry out the terms of Section 3.01(e)(i) and (ii), subject, if necessary, to obtaining consents of the holders of Company Options and/or Deferred Shares to the cancellation thereof in exchange for the consideration set forth in Section 3.01(e)(i) and (ii). Section 3.02 Exchange of Certificates. (a) Payment Agent. At the Closing, Parent shall deposit with a bank or trust company designated before the Closing Date by Parent and reasonably acceptable to the Company (the "Payment Agent"), a cash amount equal to the aggregate Transaction Consideration to which holders of Company Common Shares shall be entitled upon consummation of the Merger, to be held for the benefit of and distributed to such holders in accordance with this Section 3.02. The Payment Agent shall agree to hold such funds (such funds, together with earnings thereon, being referred to herein as the "Payment Fund") for delivery as contemplated by this Section 3.02 and upon such additional terms as may be agreed upon by the Payment Agent, the Company and Parent. If for any reason (including losses) the Payment Fund is inadequate to pay the cash amounts to which holders of Company Common Shares shall be entitled, Parent and the Surviving Corporation shall in any event remain liable, and shall make available to the Payment Agent additional funds, for the payment thereof. All earnings in the Payment Fund in excess of the aggregate Transaction Consideration are the property of Parent and shall be - 9 - disbursed to Parent promptly upon termination of the Payment Fund. The Payment Fund shall not be used for any purpose except as expressly provided in this Agreement. (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall cause the Payment Agent to mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time represented outstanding Company Common Shares (the "Certificates") whose shares are converted pursuant to Section 3.01(c) into the right to receive the Transaction Consideration (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Payment Agent and shall be in such form and have such other provisions as the Surviving Corporation may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Transaction Consideration. Upon surrender of a Certificate for cancellation to the Payment Agent, together with such letter of transmittal duly executed and completed in accordance with its terms, the holder of such Certificate shall be entitled to receive in exchange therefor a check representing the Transaction Consideration per Company Common Share represented thereby, subject to any applicable withholding tax, which such holder has the right to receive pursuant to the provisions of this ARTICLE III, and the Certificate so surrendered shall forthwith be cancelled. In no event shall the holder of any Certificate be entitled to receive interest on any funds to be received in the Merger, including any interest accrued in respect of the Payment Fund. In the event of a transfer of ownership of Company Common Shares that is not registered in the transfer records of the Company, the Transaction Consideration may be issued to a transferee if the Certificate representing such Company Common Shares is presented to the Payment Agent accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 3.02(b), each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Transaction Consideration per Company Common Share represented thereby as contemplated by this ARTICLE III, together with the dividends, if any, that may have been declared by the Company on the Company Common Shares in accordance with the terms of this Agreement and that remain unpaid at the Effective Time. Parent and the Surviving Corporation shall pay all fees and expenses of the Payment Agent in connection with the distribution of the Transaction Consideration. (c) Lost Certificates. If any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent shall issue in exchange for such lost, stolen or destroyed Certificate, the Transaction Consideration due to such Person as provided in Section 3.02(b). (d) No Further Ownership Rights in Company Common Shares. All cash paid upon the surrender for exchange of Certificates in accordance with the terms hereof shall - 10 - be deemed to have been paid in full satisfaction of all rights pertaining to the Company Common Shares represented thereby, subject, however, to the Surviving Corporation's obligation to pay any dividends that may have been declared by the Company on such shares of Company Common Shares in accordance with the terms of this Agreement and that remained unpaid at the Effective Time. Unless otherwise required by Section 1701.85 of the OGCL, from and after the Effective Time, the share transfer books of the Company shall be closed and there shall be no further registration of transfers on the share transfer books of the Surviving Corporation of the Company Common Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates (other than Certificates representing Dissenting Shares) are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Section 3.02. (e) Termination of Payment Fund. Any portion of the Payment Fund that remains undistributed to the shareholders of the Company for six (6) months after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any shareholders of the Company who have not theretofore complied with this ARTICLE III shall thereafter look only to the Surviving Corporation (subject to abandoned property, escheat and other similar laws) as general creditors for payment of their claim for the Transaction Consideration per Company Common Share. Neither Parent nor the Surviving Corporation shall be liable to any holder of Company Common Shares for cash representing the Transaction Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (f) Withholding Rights. Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Company Common Shares such amounts as Parent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any applicable provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Company Common Shares in respect of which such deduction and withholding was made by Parent. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Sub as follows: Section 4.01 Organization and Qualification. Each of the Company and its Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to conduct its business as and to the extent now conducted and to own, use and lease its assets and properties. Each of the Company and its Subsidiaries is duly qualified, licensed or admitted to do business and is in good standing in each jurisdiction in which the ownership, use or leasing of its assets and properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so qualified, licensed or admitted and in good - 11 - standing which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. Section 4.01 of the letter dated the date hereof and delivered to Parent and Sub by the Company concurrently with the execution and delivery of this Agreement (the "Company Disclosure Letter") sets forth (i) the name and jurisdiction of incorporation of each Subsidiary of the Company, (ii) the authorized capital shares of each such Subsidiary, (iii) the number of issued and outstanding capital shares of each such Subsidiary, and (iv) the record owners of all such shares. Except for interests in the Subsidiaries of the Company as set forth in Section 4.01 of the Company Disclosure Letter, the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, limited liability company, joint venture or other business association or entity. The Company has previously delivered or made available to Parent complete and correct copies of the certificates or articles of incorporation and code of regulations or bylaws (or other comparable charter documents) of the Company and its Subsidiaries. Section 4.02 Capitalization. (a) The authorized capital shares of the Company consists solely of 25,000,000 Company Common Shares and 5,000,000 preferred shares, without par value ("Company Preferred Shares"). As of September 15, 2003, 11,585,457 Company Common Shares were issued and outstanding and no shares were held in the treasury of the Company. As of September 15, 2003, the Company had authorized for issuance 2,750,000 Company Common Shares pursuant to the Company Option Plan, and awards relating to 1,722,097 Company Common Shares have been issued of which the number of awards relating to Company Common Shares with an exercise price less than the Transaction Consideration is set forth in Section 4.02 of the Company Disclosure Letter. As of the date hereof, no Company Preferred Shares are issued and outstanding. As of the date hereof, The Elder-Beerman Stores Corp. Employee Stock Purchase Plan is terminated and no Options are issued and outstanding thereunder. All of the issued and outstanding Company Common Shares are, and all shares reserved for issuance pursuant to the Company Option Plan will be upon issuance in accordance with the terms specified in the Company Option Plan and the agreements pursuant to which they are issuable, duly authorized, validly issued, fully paid and non-assessable. Except pursuant to this Agreement and the Rights Agreement, dated as of December 30, 1997, as amended as of November 11, 1998, as further amended as of June 25, 2003 and as further amended as of the date hereof, by and between the Company and Norwest Bank Minnesota, N.A., as rights agent (the "Company Rights Agreement"), and except as set forth in Section 4.02 of the Company Disclosure Letter, there are no outstanding subscriptions, options, warrants, rights (including "phantom" stock rights), preemptive rights or other contracts, commitments, understandings or arrangements, including any right of conversion or exchange under any outstanding security, instrument or agreement (together, "Options"), obligating the Company or any of its Subsidiaries to issue or sell any capital shares of the Company or to grant, extend or enter into any Option with respect thereto. (b) Except as set forth in Section 4.02 of the Company Disclosure Letter, all of the outstanding capital shares of each Subsidiary of the Company are duly authorized, validly issued, fully paid and non-assessable and are owned, beneficially and of record, - 12 - by the Company or a Subsidiary wholly owned, directly or indirectly, by the Company, free and clear of any liens, claims, mortgages, encumbrances, pledges, security interests, equities and charges of any kind (each a "Lien"). Except as set forth in Section 4.02 of the Company Disclosure Letter, there are no (i) outstanding Options obligating the Company or any of its Subsidiaries to issue or sell any capital shares of any Subsidiary of the Company or agreements to grant, extend or enter into any such Option or (ii) voting trusts, proxies or other commitments, understandings, restrictions or arrangements in favor of any Person other than the Company or a Subsidiary wholly owned, directly or indirectly, by the Company with respect to the voting of or the right to participate in dividends or other earnings on any capital shares of any Subsidiary of the Company. (c) Except as set forth in Section 4.02 of the Company Disclosure Letter, there are no outstanding contractual obligations of the Company or any Subsidiary of the Company to repurchase, redeem or otherwise acquire any Company Common Shares or any capital shares of any Subsidiary of the Company or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any Subsidiary of the Company or any other Person. Section 4.03 Authority Relative to this Agreement. The Company has the requisite corporate power and authority to enter into this Agreement and, subject to obtaining the Company Shareholders' Approval (as defined in Section 7.03), if required by law, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of the Company; the Board of Directors of the Company has recommended that the shareholders of the Company accept the Offer, tender their shares pursuant to the Offer and vote to adopt this Agreement; and no other corporate proceedings on the part of the Company or its shareholders are necessary to authorize the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, other than obtaining the Company Shareholders' Approval, if required by law. This Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 4.04 Non-Contravention; Approvals and Consents. (a) Except as set forth in Section 4.04 of the Company Disclosure Letter, the execution and delivery of this Agreement by the Company do not, and the performance by the Company of its obligations hereunder and the consummation of the transactions contemplated hereby will not, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, loss of a material benefit under or result in the creation or imposition of any Lien upon any of the assets or properties of the Company or any of its Subsidiaries - 13 - under, any of the terms, conditions or provisions of (i) the certificates or articles of incorporation or code of regulations or bylaws (or other comparable charter documents) of the Company or any of its Subsidiaries, or (ii) subject to the obtaining of the Company Shareholders' Approval, if required by law, and the taking of the actions described in paragraph (b) of this Section 4.04, (x) any statute, law, rule, regulation or - ordinance (together, "Laws"), or any judgment, decree, order, writ, permit or license (together, "Orders"), of any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision (a "Governmental or Regulatory Authority") applicable to the Company or any of its Subsidiaries or any of their respective assets or properties, or (y) any note, bond, - mortgage, security agreement, indenture, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind (together, "Contracts") to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective assets or properties is bound, excluding from the foregoing clauses (x) and (y) conflicts, - - violations, breaches, defaults, rights of payment or reimbursement, terminations, cancellations, modifications, accelerations and creations and impositions of Liens that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole or on the ability of the Company to consummate the transactions contemplated by this Agreement (but not excluding any conflicts, violations, breaches, defaults, rights of payment or reimbursement, terminations, cancellations, modifications, accelerations and creations or impositions of Liens under (i) the Company Store Leases (as defined in Section 4.16(b)) other than those that can not reasonably be expected to have a material adverse impact on one or more Company Store Lease or (ii) the Wright Holdings Merger Agreement (as defined in Section 10.11(i))). (b) Except (i) for the filing of a pre-merger notification report by the Company under, and any other actions required under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"), (ii) for the filing of the Schedule 14D-9 with the SEC pursuant to the Exchange Act and the actions required under Section 14(f) and Rule 14f-1 under the Exchange Act as provided in Section 1.03(b), (iii) for the filing of the Proxy Statement (as defined in Section 4.09) with the SEC pursuant to the Exchange Act, (iv) for the filing of the Certificate of Merger and other appropriate merger documents required by the OGCL with the Secretary of State and appropriate documents with the relevant authorities of other states in which the Constituent Corporations are qualified to do business, and (v) as set forth in Section 4.04 of the Company Disclosure Letter, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other public or private third party is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective assets or properties is bound for the execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder or the consummation by the Company of the transactions contemplated hereby, excluding from the foregoing such consents, approvals, actions, filings and notices that the failure to make or obtain, as the - 14 - case may be, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole or on the ability of the Company to consummate the transactions contemplated by this Agreement (but not excluding any consents, approvals, actions, filings or notices under the Company Store Leases or the Wright Holdings Merger Agreement). Section 4.05 SEC Reports and Financial Statements. (a) As of their respective dates, each form, report, schedule, registration statement, definitive proxy statement and other document (together with all amendments thereof and supplements thereto) filed by the Company or any of its Subsidiaries with the SEC since February 4, 2000 (as such documents have since the time of their filing been amended or supplemented, the "Company SEC Reports"), which are all of the documents that the Company and its Subsidiaries were required to file with the SEC since such date: (i) complied as to form in all material respects with the requirements of the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act"), or the Exchange Act, as the case may be, and if applicable, the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder (the "Sarbanes-Oxley Act"), and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim consolidated financial statements (including, in each case, the notes, if any, thereto) included in the Company SEC Reports (the "Company Financial Statements") complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC, including, without limitation, the Sarbanes-Oxley Act, applicable thereto, were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments) the consolidated financial position of the Company and its consolidated Subsidiaries as at the respective dates thereof and the consolidated results of their operations and cash flows for the respective periods then ended. Except as set forth in Section 4.05 of the Company Disclosure Letter, each Subsidiary of the Company is treated as a consolidated Subsidiary of the Company in the Company Financial Statements for all periods covered thereby. (b) The Company maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act; such controls and procedures are effective to ensure that all material information concerning the Company and its Subsidiaries is made known on a timely basis to the individuals responsible for the preparation of the Company's filings with the SEC and other public disclosure documents. (c) As used in this Section 4.05, the term "file" shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC. - 15 - Section 4.06 Absence of Certain Changes or Events. Except as set forth in the Company SEC Reports filed prior to the date of this Agreement or as set forth in Section 4.06 of the Company Disclosure Letter, since February 2, 2003 (a) there has not been any change, event or development that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole other than any change, event or development resulting from the announcement of the Company's receipt of a proposal from Parent or the execution of this Agreement and (b) the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course consistent with past practice. Section 4.07 Absence of Undisclosed Liabilities. Except for matters reflected or reserved against in the most recent balance sheet included in the Company Financial Statements or as set forth in Section 4.07 of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries had at such date, or has incurred since that date, any liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due) of any nature, except liabilities (i) that were incurred in the ordinary course of business consistent with past practice, (ii) that have been disclosed in Section 4.07 of the Company Disclosure Letter, or (iii) that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. Section 4.08 Legal Proceedings. Except as specifically identified in the Company SEC Reports filed prior to the date of this Agreement or as set forth in Section 4.08 of the Company Disclosure Letter, (i) there are no actions, suits, arbitrations or proceedings pending or, to the knowledge of the Company, threatened against, relating to or affecting, nor to the knowledge of the Company are there any Governmental or Regulatory Authority investigations or audits pending or threatened against, relating to or affecting, the Company or any of its Subsidiaries or any of their respective assets and properties that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole or on the ability of the Company to consummate the transactions contemplated by this Agreement, and (ii) neither the Company nor any of its Subsidiaries is subject to any order of any Governmental or Regulatory Authority that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole or on the ability of the Company to consummate the transactions contemplated by this Agreement. Section 4.09 Information Supplied. None of (a) the proxy statement relating to the Company Shareholders' Meeting, as amended or supplemented from time to time (as so amended and supplemented, the "Proxy Statement"), the Schedule 14D-9, and any other documents to be filed by the Company with the SEC or any other Governmental or Regulatory Authority in connection with the Offer, the Merger and the other transactions contemplated hereby or (b) information supplied by the Company in writing for inclusion in the Schedule TO or the other Offer Documents will, on the date of its filing or, in the case of the Proxy Statement, at the date it is mailed to shareholders of the Company and at the time of the Company Shareholders' Meeting, 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 or necessary to correct any statement in any earlier communication with respect to any solicitation of proxies for the - 16 - Company Shareholders' Meeting that shall have become false or misleading, except that no representation is made by the Company with respect to information supplied in writing by or on behalf of Parent or Sub expressly for inclusion therein and information incorporated by reference therein from documents filed by Parent or any of its Subsidiaries with the SEC. Each of the Schedule 14D-9 and the Proxy Statement filed by the Company with the SEC under the Exchange Act will comply as to form in all material respects with the Exchange Act. Section 4.10 Permits; Compliance with Laws and Orders. The Company and its Subsidiaries hold all permits, licenses, variances, exemptions, orders and approvals of all Governmental and Regulatory Authorities necessary for the lawful conduct of their respective businesses (the "Company Permits"), except for failures to hold such permits, licenses, variances, exemptions, orders and approvals that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. The Company, its Subsidiaries, the Owned Real Property and the Company Store Leases are in compliance with the terms of the Company Permits, except for failures so to comply that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. Except as disclosed in the Company SEC Reports filed prior to the date of this Agreement, the Company and its Subsidiaries are not in violation of or default under any Law or Order of any Governmental or Regulatory Authority, except for such violations or defaults that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. Section 4.11 Compliance with Agreements; Certain Agreements. (a) Neither the Company nor any of its Subsidiaries nor, to the knowledge of the Company, any other party thereto is in breach or violation of, or in default in the performance or observance of any term or provision of, and no event has occurred that, with notice or lapse of time or both, would reasonably be expected to result in a default under, (i) the certificates or articles of incorporation or code of regulations or bylaws (or other comparable charter documents) of the Company or any of its Subsidiaries or (ii) any Contract to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective assets or properties is bound, except with respect to (ii) for breaches, violations and defaults that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. All such Contracts are in full force and effect, except to the extent they have previously expired in accordance with their terms, or except where such invalidity or unenforceability would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries, taken as a whole. (b) Except as set forth in Section 4.11 of the Company Disclosure Letter or in the Company SEC Reports filed prior to the date of this Agreement or as provided for in this Agreement, neither the Company nor any of its Subsidiaries is a party to any oral or written (i) consulting agreement providing for annual payments by the Company or any of its Subsidiaries in excess of $50,000, (ii) union or collective bargaining agreement, (iii) agreement with any executive officer or other key employee of the Company or any - 17 - of its Subsidiaries the benefits of which are contingent or vest, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company or any of its Subsidiaries of the nature contemplated by this Agreement, (iv) agreement with respect to any executive officer or other key employee of the Company or any of its Subsidiaries providing any term of employment or compensation guarantee, (v) agreement or plan, including any stock option, stock appreciation right, restricted stock or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, (vi) agreement that would restrict the Company's or any Subsidiary's ability to compete in any business in any location, (vii) agreement concerning a partnership or joint venture, (viii) loan agreement, promissory note, security agreement, deed of trust and other agreement relating to indebtedness for borrowed money or deferred purchase price of property (other than trade payables arising in the ordinary course of business), (ix) agreement relating to business acquisitions or dispositions not yet consummated, including any separate Tax or indemnification agreements, and (x) other agreement that would be required to be filed as an exhibit to an Annual Report on Form 10-K of the Company if the Company were to file such a report on the date of this Agreement (assuming for this purpose that the fiscal year covered thereby ended on the date of this Agreement). (c) The Wright Holdings Merger Agreement has been terminated in accordance with its terms. In full satisfaction of the obligations of the Company thereunder, the Company, within two business days after the execution and delivery of this Agreement, will pay to Wright Holdings, Inc. an aggregate amount of no more than four million dollars ($4,000,000.00) and the Company will have no further obligations or liabilities under such agreement. Each of Wright Holdings, Inc. and its affiliates and subsidiaries remains bound by the terms and conditions of the Confidentiality Agreement, dated as of March 24, 2003, with the Company (the "WH Confidentiality Agreement"). A true and correct copy of such WH Confidentiality Agreement, as amended to date, has been delivered to Parent. To the knowledge of the Company, neither Wright Holdings, Inc. nor any of its affiliates, or subsidiaries or any other Person that is bound by such agreement is, in any material respect, in breach, violation or default under the terms thereof. Promptly following the execution of this Agreement, the Company shall request from Wright Holdings, Inc. that all non-public information made available to Wright Holdings, Inc., its affiliates, subsidiaries and representatives that is subject to such WH Confidentiality Agreement be returned to the Company or destroyed in accordance with the terms thereof. Section 4.12 Taxes. For purposes of this Agreement, "Taxes" (including, with correlative meaning, the word "Tax") shall include any and all federal, state, county, local, foreign or other taxes, charges, imposts, rates, fees, levies or other assessments imposed by any Governmental or Regulatory Authority, including, without limitation, all net income, alternative minimum, gross income, sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, license, estimated, stamp, custom duties, severance, withholding - 18 - or other taxes, fees, assessments or other similar charges of any kind whatsoever, together with any interest and penalties (civil or criminal) on or additions to any such taxes. "Tax Returns" (including, with correlative meaning, "Tax Return") shall mean federal, state, local and foreign returns, estimates, information statements, designations, forms, schedules, reports and documents of every nature whatsoever required to be filed with any Governmental or Regulatory Authority relating to Taxes. Except as set forth in Section 4.12 of the Company Disclosure Letter: (a) Each of the Company and its Subsidiaries has filed all material Tax Returns required to be filed by it, or requests for extensions to file such Tax Returns have been timely filed or granted and have not expired, and all such Tax Returns are complete and accurate in all material respects; (b) The Company and each of its Subsidiaries has timely paid (or, in the case of a Subsidiary, the Company has timely paid on its behalf) all Taxes shown as due on such Tax Returns; (c) The Company and each of its Subsidiaries has withheld and timely paid to the applicable Governmental or Regulatory Authority with respect to its employees all federal and state income Taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant to the Federal Unemployment Tax Act and other Taxes required to be withheld, except to the extent that failures to withhold and pay would not be reasonably expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole; (d) Neither the Company nor any of its Subsidiaries has been delinquent in the payment of any material Tax nor is there any material Tax deficiency outstanding, proposed or assessed against the Company or any of its Subsidiaries; (e) Neither the Company nor any of its Subsidiaries has any liability for any material unpaid Taxes that has not adequately been accrued for, or reserved on, the most recent financial statements contained in the Company SEC Reports, other than any liability for unpaid Taxes that may have accrued since the date of the Company SEC Reports in connection with the operation of the business of the Company and its Subsidiaries in the ordinary course, and except for inadequately accrued or reserved Taxes that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole; (f) No deficiencies for any Taxes have been proposed, asserted or assessed against the Company or any of its Subsidiaries that are not adequately reserved for, except for inadequately reserved deficiencies which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole; (g) No requests for waivers of the time to assess any Taxes against the Company or any of its Subsidiaries have been granted or are pending; - 19 - (h) No audits or other proceedings by any Governmental or Regulatory Authority are presently pending or, to the knowledge of the Company, threatened with regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries; (i) Each power of attorney currently in force that has been granted by the Company or any of its Subsidiaries concerning any Tax matter is set forth in Section 4.12(f) of the Company Disclosure Letter; (j) The Company has made available to Parent complete and accurate copies of (i) all material Tax Returns for all years for which the applicable statute of limitations has not expired, and any amendments thereto, filed by or on behalf of the Company or any of its Subsidiaries, (ii) all audit reports or written proposed adjustments (whether formal or informal) received from any Governmental or Regulatory Authority relating to any Tax Return filed by or on behalf of the Company or any of its Subsidiaries and (iii) any Tax ruling or request for a Tax ruling applicable to the Company or any of its Subsidiaries and closing agreements entered into by the Company or any of its Subsidiaries; (k) Neither the Company nor any of its Subsidiaries (i) is a party to, is bound by, or has any obligation under, any agreement relating to the allocation or sharing of Taxes or has any material liability for the Taxes of any Person other than the Company or its Subsidiaries, as a transferee, or successor or otherwise (including, without limitation, any liability under Treasury Regulations Section 1.1502-6 or any similar provision of state, local or foreign law), (ii) has made any, or is obligated to make any, material payments, or is a party to any agreement that under certain circumstances could obligate it to make any material payments that under Code Section 280G will not be deductible, (iii) has ever been a member of an affiliated group of corporations (within the meaning of Code Section 1504(a)) filing consolidated federal Tax Returns (or any other consolidated, combined or unitary income Tax Return), other than the affiliated group of which the Company is the common parent, (iv) has made an election under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company or by any of its subsidiaries; or (v) have been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the past five years; (l) Each of the Company and its Subsidiaries has disclosed on its federal income Tax Returns each position taken therein that could give rise to a substantial understatement of United States federal income Tax within the meaning of Code Section 6662; (m) There are no material Liens for Taxes upon the assets of the Company or of any of its Subsidiaries, other than Liens for current Taxes not yet due and payable and Liens for Taxes that are being contested in good faith by appropriate proceedings; (n) There is no contract, agreement, plan or arrangement to which the Company or any of its Subsidiaries is a party as of the date of this Agreement, including - 20 - but not limited to, the provisions of this Agreement, covering any employee or former employee of the Company or any of its Subsidiaries that, individually or in the aggregate, would reasonably be expected to give rise to the payment of any amount as a result of the Merger that would not be deductible pursuant to Section 404 or 162(m) of the Code; (o) Neither the Company nor any Affiliate has participated in any reportable or listed transaction as defined under Treasury Regulations Section 1.6011-4. If the Company or any Affiliate has participated in a reportable or listed transaction, such entity has properly disclosed such transaction in accordance with applicable Treasury Regulations; (p) Section 4.12 of the Company Disclosure Letter sets forth the states in which the Company and its Subsidiaries currently file income Tax Returns or corporate franchise Tax Returns. No claim has ever been made by a Governmental or Regulatory Authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that the Company or such Subsidiary is or may be subject to taxation by such jurisdiction; (q) None of the assets of the Company or of any of its Subsidiaries are tax exempt use property within the meaning of Section 168(h) of the Code; and (r) Neither the Company nor any of its Subsidiaries has constituted a "distributing corporation" or a "controlled corporation" in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (1) in the two years prior to the date of this Agreement or (2) in a distribution that could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) that includes the Offer and the Merger. Section 4.13 Employee Benefit Plans; ERISA. (a) Except as set forth in Section 4.13 of the Company Disclosure Letter or as would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole, (i) all Company Employee Benefit Plans (as defined below) are and have been maintained in compliance with all applicable requirements of Law, including without limitation ERISA (as defined below) and the Code, and (ii) neither the Company nor any of its Subsidiaries has any liabilities or obligations with respect to any such Company Employee Benefit Plans, whether accrued, contingent or otherwise, nor to the knowledge of the Company are any such liabilities or obligations expected to be incurred other than contribution obligations and payment of benefits arising in the normal course under any Company Employee Benefit Plan. Section 4.13(a)(1) of the Company Disclosure Letter lists all Company Employee Benefit Plans and all ERISA Affiliates. Except as set forth in Section 4.13(a)(2) of the Company Disclosure Letter, the execution of, and performance of the transactions contemplated in, this Agreement by the Company will not constitute an event under any Company Employee Benefit Plan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any current or former employee or - 21 - beneficiary thereof. The only severance agreements or severance policies applicable to the Company or any of its Subsidiaries are the agreements and policies set forth in Section 4.13(a)(3) of the Company Disclosure Letter. Each Company Employee Benefit Plan and related trust intended to be qualified under Section 401(a) or 501(c)(9) of the Code is so qualified, has received a favorable determination letter from the IRS, and nothing has occurred that could adversely affect such determination. (b) As used herein: (i) "Company Employee Benefit Plan" means any Plan entered into, established, maintained, sponsored, contributed to or required to be contributed to by the Company or any of its Subsidiaries or any ERISA Affiliate for the benefit of the current or former employees or directors of the Company or any of its Subsidiaries or any ERISA Affiliate and existing on the date of this Agreement or at any time subsequent thereto and on or prior to the Effective Time and, in the case of a Plan which is subject to Part 3 of Title I of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder ("ERISA"), Section 412 of the Code or Title IV of ERISA, at any time during the five-year period immediately preceding the date of this Agreement. (ii) "Plan" means any employment, bonus, incentive compensation, deferred compensation, long term incentive, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, medical, accident, disability, workers' compensation or other insurance, severance, separation, termination, change of control or other benefit plan, agreement, practice, policy, program, scheme or other arrangement, whether written or oral, including, but not limited to any "employee benefit plan" within the meaning of Section 3(3) of ERISA. (iii) "ERISA Affiliate" means any Person, who on or before the Effective Time, is under common control with the Company within the meaning of Section 414 of the Code. (c) Complete and correct copies of the following documents have been made available to Parent: (i) all Company Employee Benefit Plans and any related trust agreements or insurance contracts, (ii) the most current summary plan descriptions of each Company Employee Benefit Plan subject to the requirement to give a summary plan description under ERISA, (iii) the most recent Form 5500 and schedules thereto for each Company Employee Benefit Plan subject to such reporting, (iv) the most recent determination of the Internal Revenue Service with respect to the qualified status of each Company Employee Benefit Plan or related trust that is intended to qualify under Section 401(a) or 501(c)(9) of the Code, (v) the most recent accountings with respect to each Company Employee Benefit Plan funded through a trust and (vi) the most recent actuarial report of the actuary of each Company Employee Benefit Plan with respect to which actuarial valuations are conducted. - 22 - (d) Except as set forth in Section 4.13(d) of the Company Disclosure Letter, neither the Company nor any Subsidiary nor any ERISA Affiliate maintains or is obligated to provide benefits under any life, medical or health Plan (other than as an incidental benefit under a Plan qualified under Section 401(a) of the Code) that provides benefits to retirees or other terminated employees other than benefit continuation rights under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (e) Except as set forth in Section 4.13(e) of the Company Disclosure Letter, each Company Employee Benefit Plan covers only employees who are employed by the Company or a Subsidiary (or former employees or beneficiaries with respect to service with the Company or a Subsidiary) or directors of the Company. The transactions contemplated by this Agreement will require no spin-off of assets and liabilities or other division or transfer of rights with respect to any such plan. (f) Neither the Company, any Subsidiary of the Company, any ERISA Affiliate nor any other corporation or organization controlled by or under common control with any of the foregoing within the meaning of Section 4001 of ERISA has at any time contributed to any "multiemployer plan," as that term is defined in Section 4001 of ERISA or to any "multiple employer plan" as described in Section 413(c) of the Code. (g) No event has occurred, and there exists no condition or set of circumstances in connection with any Company Employee Benefit Plan or any Plan sponsored by an ERISA Affiliate, under which the Company or any Subsidiary, directly or indirectly (through any indemnification agreement or otherwise), would reasonably be expected to be subject to any risk of material liability on the Company and its Subsidiaries under Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975 of the Code. (h) No transaction contemplated by this Agreement will result in liability to the Pension Benefit Guaranty Corporation ("PBGC") under Section 302(c)(11), 4062, 4063, 4064 or 4069 of ERISA, or otherwise, with respect to the Company or any of its Subsidiaries or any corporation or organization controlled by or under common control with any of the foregoing within the meaning of Section 4001 of ERISA, and, to the knowledge of the Company, no event or condition exists or has existed which would reasonably be expected to result in any material liability to the PBGC with respect to the Company, any of its Subsidiaries or any other of such entities. Except as set forth in Section 4.13(h) of the Company Disclosure Schedule, no "reportable event" within the meaning of Section 4043 of ERISA has occurred with respect to any Company Employee Benefit Plan that is a defined benefit plan under Section 3(35) of ERISA. With respect to each plan that is subject to Section 301 et seq. of ERISA or Section 412 of the Code, the Company and its Subsidiaries are not liable for any accumulated funding deficiency as that term is defined in Section 412 of the Code and the benefit obligations of all such plans as most currently determined by the plan's actuary on a plan-termination basis do not exceed the assets of such plans as of the date of this Agreement by more than $4,500,000. - 23 - (i) Except as disclosed in Section 4.13(i) of the Company Disclosure Letter, no condition, agreement or Plan provision limits the right of the Company or its affiliates to amend, cut back or terminate any Plan (except to the extent such limitation arises under ERISA) without further liability to the Company or its Subsidiaries. (j) Except as set forth in Section 4.13(j) of the Company Disclosure Letter, no employer securities, employer real property or other employer property is included in the assets of any Company Employee Benefit Plan. (k) The Company has not violated Section 306 or 402 of the Sarbanes-Oxley Act. Section 4.14 Labor Matters. Except as set forth in Section 4.14 of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement with any labor union, confederation or association and there are no discussions, negotiations, demands or proposals that are pending or, to the knowledge of the Company, threatened, or have been conducted or made with or by any labor union, confederation or association regarding organizational activities since February 4, 2000. Except as disclosed in the Company SEC Reports filed prior to the date of this Agreement or as set forth in Section 4.14 of the Company Disclosure Letter, there are no material controversies pending or, to the knowledge of the Company, threatened between the Company or any of its Subsidiaries and any representatives of its employees and, to the knowledge of the Company, there are no material organizational efforts presently being made involving any of the now unorganized employees of the Company or any of its Subsidiaries. Since February 4, 2000, there has been no work stoppage, strike, material dispute or other concerted action by employees of the Company or any of its Subsidiaries. During that period, the Company and its Subsidiaries have complied in all material respects with all applicable Laws relating to the employment of labor, including, without limitation, those relating to wages, hours and collective bargaining. There is no pending or, to the knowledge of the Company, threatened action, complaint, arbitration, proceeding or investigation against the Company or any of its Subsidiaries by or before (or, in the case of any threatened matter, that could be brought before) any court, governmental agency, administrative agency, board, commission or arbitrator brought by or on behalf of any prospective, current or former employees of the Company or any of its Subsidiaries which would reasonably be expected to have a material adverse effect on the Company and its Subsidiaries, taken as a whole. Except as set forth in Section 4.14 of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries has closed any retail store, distribution center or other facility, or effectuated any layoffs of employees or implemented any early retirement, separation or similar program in connection with any retail store closing since January 1, 2002, nor has the Company or any of its Subsidiaries planned or announced any such action or program for the future. Section 4.15 Environmental Matters. (a) Each of the Company and its Subsidiaries is and has been in compliance, in all material respects, with all applicable Environmental, Health, and Safety Requirements. - 24 - (b) Without limiting the generality of the foregoing, each of the Company and its Subsidiaries has obtained and is in compliance with all permits, licenses and other authorizations that are required pursuant to Environmental, Health, and Safety Requirements in connection with the use or operations on any real property or with respect to the business of each of the Company and its Subsidiaries except for such permits, licenses or other authorizations the failure of which to obtain and be in compliance with would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. (c) Neither the Company or its Subsidiaries has received any written or oral notice, report or other information regarding any actual or alleged material violation of Environmental, Health, and Safety Requirements, or any material liabilities or potential liabilities to any governmental authorities or third parties under any Environmental, Health, and Safety Requirements. None of the Company or its Subsidiaries is subject to any order, decree, injunction or lien by any governmental authority or any claim, indemnity or other agreement with any third party relating to liability under any Environmental, Health, and Safety Requirements. (d) The properties currently owned, leased or operated by the Company and its Subsidiaries (including soils, groundwater, surface water, buildings or other structures) are not contaminated with any Hazardous Material in such a manner or concentration that the Company would be required under any Environmental, Health and Safety Requirements to remedy the existence of such Hazardous Material. The properties formerly owned, leased or operated by the Company or any of its Subsidiaries were not contaminated with Hazardous Material during the period of ownership or operation by the Company or any of its Subsidiaries in such a manner or concentration that the Company would be required under any Environmental, Health and Safety Requirements to remedy the existence of such Hazardous Material. Neither the Company nor any of its Subsidiaries are or, to the knowledge of the Company, are alleged to be, subject to liability for any Release of Hazardous Material on the property of any third party. (e) Except as set forth on Section 4.15 of the Company Disclosure Letter, none of the following exists at any real property or facility owned or operated by the Company or its Subsidiaries: (1) underground storage tanks, (2) asbestos-containing material, (3) materials or equipment containing polychlorinated biphenyls, or (4) lead-based paint, mold, fungi, bacteria or other biological material or organisms for which remediation, abatement or removal is necessary for the health, safety or welfare of persons in or about the real property or for which remediation is required under applicable Laws. (f) None of Company or its Subsidiaries has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or Released any Hazardous Materials in a manner that has given or would give rise to liabilities under applicable Environmental, Health, and Safety Requirements, including, but not limited to, any material liability for response costs, corrective action costs, personal injury, property damage, natural resources damage or attorney or consultant fees under Environmental, Health, and Safety Requirements. - 25 - (g) For purposes of this Section 4.15, the following terms shall have the following meanings: (i) "Environmental, Health, and Safety Requirements" means all federal, state, local and foreign statutes, laws (including principles of common law), regulations, ordinances, licenses, permits, approvals or restrictions concerning public health and safety, worker health and safety, natural resources and pollution or protection of the environment, including without limitation, all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any Hazardous Material, as such requirements are enacted and in effect on or prior to the Effective Time. (ii) "Hazardous Material" means all pollutants, contaminants, hazardous substances, hazardous waste, toxic substances, solid or special waste and materials, petroleum and petroleum constituents, PCBs, asbestos, radon, radioactive materials and any other compound, element, material or substance in any form whatsoever regulated or restricted by or under Environmental Health and Safety Requirements. (iii) "Release" means the spilling, leaking, disposing, discharging, emitting, depositing, ejecting, leaching, escaping or any other release or threatened release, however defined, whether intentional or unintentional, of any Hazardous Material. Section 4.16 Company Real Property. (a) Section 4.16 of the Company Disclosure Schedule identifies each parcel of real property owned or leased by the Company or one of its Subsidiaries (the "Company Real Property"). The Company and its Subsidiaries have good and marketable fee simple title to each property identified as owned by it, free and clear of all Liens other than (i) Liens that do not, individually or in the aggregate, materially impair the conduct by the Company of its business thereon or materially detract from the value thereof, (ii) Liens for Taxes accrued but not yet payable, and (iii) Liens that secure obligations of the Company under the Amended and Restated Credit Agreement, dated as of July 9, 2002, by and among the Company, Citibank, N.A., as issuer, Citicorp USA, Inc., as agent, Swing Loan Bank and the other lenders named therein (the "Company Credit Facility") (each of (i), (ii) and (iii) being "Permitted Encumbrances"). The Company holds a valid leasehold interest under a lease or sublease covering each property identified as leased by it free and clear of all Liens other than Permitted Encumbrances. (b) The Company has made available to Parent a complete, correct and current copy of the store leases and distribution center lease relating to each property identified as leased by it (the "Company Store Leases"), including any modifications and supplements. Except as set forth in Section 4.16 of the Company Disclosure Schedule (i) all of the Company Store Leases are in full force and effect, (ii) the Company and, to the - 26 - knowledge of Company, all other parties to the Company Store Leases have, in all material respects, duly and timely performed their obligations and are not in default under the Company Store Leases, (iii) the Company has not given or received any notice of a material default under any of the Company Store Leases, (iv) no event has occurred or condition exists that, with the giving of notice, the passage of time, or both, would constitute a material default by the Company or, to the knowledge of the Company, any other party under any of the Company Store Leases, and (v) to the knowledge of the Company, none of the Company Store Leases is subject to any impending cancellation. (c) The use of the Company Real Property by the Company and its Subsidiaries in their businesses as presently and ordinarily conducted conforms with applicable zoning laws, regulations and permits, except where the failure to conform would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries is obligated under or bound by any agreement, option, right of first refusal, purchase contract or other contractual right to sell, lease or dispose of any Owned Real Property or any portions thereof. Section 4.17 Intellectual Property Rights. The Company and its Subsidiaries have all right, title and interest in, or a valid and binding license to use, all Intellectual Property (as defined below) free and clear of all liens, security interests or other encumbrances which is material to the conduct of the businesses of the Company and its Subsidiaries taken as a whole. Except as set forth in Section 4.17 of the Company Disclosure Letter, neither the Company nor any Subsidiary of the Company is in default (or with the giving of notice or lapse of time or both, would be in default) under any license to use such Intellectual Property, and, to the Company's knowledge, such Intellectual Property is not being infringed by any third party and neither the Company nor any Subsidiary of the Company is infringing any Intellectual Property of any third party, except for such defaults and infringements which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole. No material claim has been asserted and is pending by any Person challenging the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property. For purposes of this Agreement, "Intellectual Property" means patents and patent rights, trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, copyrights and copyright rights, trade secrets, Internet domain names and other proprietary intellectual property rights and all pending applications for and registrations of any of the foregoing. Section 4.18 Insurance. Section 4.18 of the Company Disclosure Letter contains a list of all material insurance policies which are owned by the Company and any of its Subsidiaries and which name the Company or any of its Subsidiaries as an insured, including without limitation, self-insurance programs and those which pertain to the Company's assets, employees or operations. All such insurance policies are in full force and effect and the Company has not received notice of cancellation of any such insurance policies. Section 4.19 Affiliate Transactions. Except as set forth in the Company SEC Reports, there are no contracts, commitments, agreements, arrangements or other transactions between the Company or any of its Subsidiaries, on the one hand, and any (i) present officer or director of the - 27 - Company or any of its Subsidiaries or any of their immediate family members (including their spouses) or (ii) affiliate of any such officer, director, family member or beneficial owner, on the other hand, required to disclosed pursuant to Item 404 of Regulation S-K of the SEC. Section 4.20 Vote Required. The affirmative vote of the holders of record of at least two-thirds of the outstanding Company Common Shares with respect to the adoption of this Agreement is the only vote of the holders of any class or series of the capital shares of the Company required to adopt this Agreement and approve the Merger and the other transactions contemplated hereby. Section 4.21 Opinion of Financial Advisor. The Company has received the opinion of RBC, dated the date hereof, to the effect that, as of the date hereof, the Transaction Consideration to be received in the Offer and the Merger by the shareholders of the Company is fair from a financial point of view to the shareholders of the Company and the Company has delivered a true and complete copy of such fairness opinion to Parent. Section 4.22 Company Rights Agreement. Each right issued under the Company Rights Agreement is represented by the certificate representing the associated Company Common Shares and is not exercisable or transferable apart from the associated Company Common Shares, and the Company has taken all necessary actions so that (a) the Company Rights Agreement will not be applicable to this Agreement, the Offer, the Merger and the other transactions contemplated hereby and (b)(i) none of Parent, Sub or their Affiliates is an Acquiring Person (as defined in the Company Rights Agreement) pursuant to the Company Rights Agreement and (ii) a Distribution Date, a Triggering Event or a Share Acquisition Date (as such terms are defined in the Company Rights Agreement) does not occur, in the case of clauses (i) and (ii), by reason of the execution of this Agreement and the consummation of the Offer, the Merger and the other transactions contemplated hereby. Section 4.23 Anti-takeover Statutes Not Applicable. Except for Section 1707.01 et seq. of the Ohio Revised Code, no "fair price," "merger moratorium," "control share acquisition" or other similar anti-takeover statute or regulation existing under, or adopted in connection with, the laws of the State of Ohio will apply to this Agreement, the Offer, the Merger or the other transactions contemplated hereby. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub represent and warrant to the Company as of the date of this Agreement as follows: Section 5.01 Organization and Qualification. Each of Parent and Sub is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to conduct its business as and to the extent now conducted and to own, use and lease its assets and properties, except for such failures to be so incorporated, existing and in good standing or to have such power and authority which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on Parent and its Subsidiaries taken as a whole. Sub was formed solely for the purpose of - 28 - engaging in the transactions contemplated by this Agreement, has engaged in no other business activities, has conducted its operations only as contemplated hereby and has no material liabilities. In Schedule 5.01 to the letter dated the date hereof and delivered to Company by Parent and Sub concurrently with the execution and delivery of this Agreement (the "Parent Disclosure Letter") there is included complete and correct copies of the certificates or articles of incorporation and code of regulations or bylaws (or other comparable charter documents) of Parent and Sub. Section 5.02 Authority Relative to this Agreement. Each of Parent and Sub has the requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by each of Parent and Sub and the consummation by each of Parent and Sub of the transactions contemplated hereby have been duly and validly approved by their respective Boards of Directors and by Parent in its capacity as the sole shareholder of Sub, and no other corporate proceedings on the part of either of Parent or Sub or their respective shareholders are necessary to authorize the execution, delivery and performance of this Agreement by Parent and Sub and the consummation by Parent and Sub of the Merger and the other transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each of Parent and Sub and constitutes a legal, valid and binding obligation of each of Parent and Sub enforceable against each of Parent and Sub in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 5.03 Non-Contravention; Approvals and Consents. (a) The execution and delivery of this Agreement by each of Parent and Sub do not, and the performance by each of Parent and Sub of its obligations hereunder and the consummation of the transactions contemplated hereby will not, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, loss of a material benefit under or result in the creation or imposition of any Lien upon any of the assets or properties of Parent or any of its Subsidiaries under, any of the terms, conditions or provisions of (i) the certificates or articles of incorporation or code of regulations or bylaws (or other comparable charter documents) of Parent or any of its Subsidiaries, or (ii) subject to the taking of the actions described in paragraph (b) of this Section 5.03, (x) any Laws or Orders of any Governmental or Regulatory Authority applicable to Parent or any of its Subsidiaries or any of their respective assets or properties, or (y) any Contracts to which Parent or any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries or any of their respective assets or properties is bound, excluding from the foregoing clauses (x) and (y) conflicts, violations, breaches, defaults, rights of payment or reimbursement, terminations, cancellations, modifications, accelerations and creations and impositions of Liens which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on Parent and its Subsidiaries taken as a whole or the ability of Parent and Sub to consummate the transactions contemplated by this Agreement. - 29 - (b) Except (i) for the filing of a pre-merger notification report by Parent and Sub under, and any other actions required under, the HSR Act, (ii) for the filing of the Schedule TO with the SEC pursuant to the Exchange Act and the filing of certain information relating to the Offer under Section 1707.041 of the Ohio Revised Code and (iii) for the filing of the Certificate of Merger and other appropriate merger documents required by the OGCL with the Secretary of State and appropriate documents with the relevant authorities of other states in which the Constituent Corporations are qualified to do business, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other public or private third party is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which Parent or any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries or any of their respective assets or properties is bound for the execution and delivery of this Agreement by each of Parent and Sub, the performance by each of Parent and Sub of its obligations hereunder or the consummation of the transactions contemplated hereby, other than such consents, approvals, actions, filings and notices that the failure to make or obtain, as the case may be, individually or in the aggregate, would not be reasonably expected to have a material adverse effect on Parent and its Subsidiaries taken as a whole or the ability of Parent and Sub to consummate the transactions contemplated by this Agreement. Section 5.04 Information Supplied. Neither the information supplied or to be supplied in writing by or on behalf of Parent or Sub for inclusion, in the Schedule 14D-9 or the Proxy Statement or any other documents to be filed by Parent, Sub or the Company with the SEC or any other Governmental or Regulatory Authority in connection with the Offer or the Merger and the other transactions contemplated hereby, including without limitation, the Schedule TO and the other Offer Documents will, on the date of its filing or, in the case of the Proxy Statement, at the date it is mailed to shareholders of the Company and at the time of the Company Shareholders' Meeting, 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. Section 5.05 Legal Proceedings. There are no actions, suits, arbitrations or proceedings pending or, to the knowledge of Parent or Sub, threatened against, relating to or affecting, nor to the knowledge of Parent or Sub are there any Governmental or Regulatory Authority investigations or audits pending or threatened against, relating to or affecting, Parent or any of its Subsidiaries or any of their respective assets and properties that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on Parent and its Subsidiaries taken as a whole or the ability of Parent and Sub to consummate the transactions contemplated by this Agreement, and neither Parent nor any of its Subsidiaries is subject to any order of any Governmental or Regulatory Authority that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on Parent and its Subsidiaries taken as a whole or the ability of Parent and Sub to consummate the transactions contemplated by this Agreement. Section 5.06 Capitalization of Sub. The authorized capital stock of Sub consists of 1,000 common shares, without par value, all of which shares are validly issued and outstanding, fully paid and nonassessable and are owned by The Bon-Ton Department Stores, Inc., a Pennsylvania corporation and a wholly owned subsidiary of Parent, free and clear of any and all - 30 - Liens. On the date hereof Sub has, and at all times through the Effective Time, Sub will continue to have, no obligations or liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due) of any nature except for nominal liabilities associated with Sub's organization and liabilities arising under or in connection with this Agreement. Section 5.07 Financing. Parent has, or has received binding (subject to the terms and conditions thereof) written commitments from financially responsible financial institutions to obtain, the funds necessary to consummate the Offer and the Merger and pay the Transaction Consideration as provided in Section 3.01, and to refinance all debt of the Company and Parent that is or could be required to be repurchased or becomes, or could be declared, due and payable as a result of the Offer or the Merger or the financing thereof and to pay related fees and expenses (collectively, the "Commitment Letters"), and, in addition to satisfying any obligations under Section 7.17, will make such funds necessary to pay the Transaction Consideration available to Sub immediately prior to the expiration of the Offer. Parent has provided the Company with true and complete copies of all commitments and agreements from third parties to provide such financing to Parent or Sub. As of the date of this Agreement, Parent is not aware of any condition in such Commitment Letters which, subject to the Company's compliance with Section 6.03, is not capable of being satisfied on or prior to October 31, 2003. Parent shall keep the Company informed with respect to material activity concerning the status of such financing, and shall give the Company prompt notice of any material adverse change with respect to such financing. ARTICLE VI COVENANTS OF THE COMPANY Section 6.01 Covenants of the Company. At all times from and after the date hereof until the Share Acceptance Date, the Company covenants and agrees as to itself and its Subsidiaries that (except as expressly contemplated or permitted by this Agreement, or to the extent that Parent shall otherwise consent in writing (which consent shall not be unreasonably withheld or delayed)): (a) The Company and each of its Subsidiaries shall conduct their respective businesses only in, and neither the Company nor any such Subsidiary shall take any action except in, the ordinary course consistent with past practice. (b) Without limiting the generality of paragraph (a) of this Section 6.01, (x) the Company and its Subsidiaries shall use - commercially reasonable efforts to preserve intact in all material respects their present business organizations and reputation, to keep available the services of their key officers and employees, to maintain their assets and properties in good working order and condition, ordinary wear and tear excepted, to maintain insurance on their tangible assets and businesses in such amounts and against such risks and losses as are currently in effect, to preserve their relationships with customers and suppliers and others having significant business dealings with them and to comply in all material respects with all Laws and Orders of all Governmental or Regulatory Authorities applicable to them, and (y) the Company - shall not, nor shall it permit any of its Subsidiaries to: - 31 - (i) amend or propose to amend its certificate or articles of incorporation or code of regulations or bylaws (or other comparable charter documents); (ii) (A) declare, set aside or pay any dividends on or make other distributions in respect of any of its capital shares, except for the declaration and payment of dividends by a wholly-owned Subsidiary solely to its parent corporation, (B) split, combine, reclassify or take similar action with respect to any of its capital shares or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for its capital shares, (C) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or other reorganization, or (D) directly or indirectly redeem, repurchase or otherwise acquire any capital shares or any Option with respect thereto, except for repurchases in connection with the Company Option Plan that result from a participant's use of Company Common Shares to exercise options or pay withholding taxes in connection with such exercise; (iii) issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any of its capital shares or any securities convertible into or exercisable for any of its capital shares or any Option, warrants or rights with respect thereto, other than (A) the issuance of Company Common Shares or share appreciation or similar rights, as the case may be, pursuant to Options outstanding on the date of this Agreement and in accordance with their present terms, (B) the issuance by a wholly owned Subsidiary of its capital shares to its parent corporation, or (C) the issuance of rights pursuant to the Company Rights Agreement in accordance with the terms thereof, or modify or amend any right of any holder of outstanding capital shares or Options with respect thereto except as contemplated by this Agreement; (iv) except for transactions provided for in or contemplated by the Company's 2003 Budget approved by the Board and furnished to Parent (the "Company Budget"), a copy of which is attached to the Company Disclosure Letter, acquire (by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner) any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets other than inventory and other assets to be sold or used in the ordinary course of business consistent with past practice; (v) sell, lease, sell and lease back, pledge, grant any security interest in or otherwise dispose of or encumber any of its assets or properties, other than (i) sales of inventory in the ordinary course of business consistent with past practice, (ii) to the extent provided for in the Company Budget or disclosed in the Company Disclosure Letter, and (iii) sales of assets, in the aggregate between the date hereof and Closing, of up to $250,000; - 32 - (vi) except to the extent required by applicable Law or Order make any tax election or settle or compromise any material income tax liability with any Governmental or Regulatory Authority; (vii) except as set forth in Section 6.01(b)(vii) of the Company Disclosure Letter or to the extent provided for in or contemplated by the Company Budget (x) incur any indebtedness for borrowed money, except pursuant to the Company Credit Facility in the ordinary course of business or (y) enter into any new credit facility; (viii) except for the vesting of all unvested Options as contemplated by Section 3.01(e), enter into, adopt, amend in any material respect (except as may be required by applicable Law) or terminate any Company Employee Benefit Plan or other agreement, arrangement, plan or policy between the Company or one of its Subsidiaries and one or more of its directors, officers or employees, pay any benefit not required by any plan or arrangement in effect as of the date hereof, increase in any manner the compensation or fringe benefits of any officer or director of the Company or its Subsidiaries or, except for normal increases in the ordinary course of business consistent with past practice, increase in any manner the compensation or fringe benefits of any non-officer employee; (ix) enter into any Contract or amend or modify any existing Contract, or engage in any new transaction outside the ordinary course of business consistent with past practice or not on an arm's length basis, with any Affiliate of the Company or any of its Subsidiaries; (x) make any capital expenditures or commitments for capital expenditures for the opening of any new stores or the expansion or remodeling of any existing stores or any other material capital projects, except as set forth in Section 6.01(b)(x) of the Company Disclosure Letter; (xi) settle or compromise any litigation (whether or not commenced prior to the date of this Agreement), other than settlements involving payments that are not in excess of $100,000 in the aggregate over amounts fully recoverable from insurance; (xii) make any change in the lines of business in which it participates or is engaged; or (xiii) enter into any Contract, commitment or arrangement to do or engage in any of the foregoing. (c) The Company shall confer on a regular basis with Parent with respect to its business and operations and other matters relevant to the Merger, and shall promptly advise Parent of any change or event, including, without limitation, any complaint, investigation or hearing by any Governmental or Regulatory Authority (or communication indicating the same may be contemplated) or the institution or threat of litigation, known to the Company, which would reasonably be expected to have a - 33 - material adverse effect on the Company and its Subsidiaries taken as a whole or on the ability of the Company to consummate the transactions contemplated hereby. Section 6.02 No Solicitation. (a) Prior to the Effective Time, the Company agrees (1) that neither it nor any of its Subsidiaries shall, and it shall cause its and their respective Representatives not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer to its shareholders) with respect to an Alternative Proposal, or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any Person or group relating to an Alternative Proposal (excluding the transactions contemplated by this Agreement) or grant any waiver or release under any confidentiality, standstill or similar agreement with respect to any class of equity securities of the Company or any Subsidiary; and (2) that it will immediately - cease and cause to be terminated any existing activities, discussions or negotiations with any parties with respect to any of the foregoing, and it will take the necessary steps to inform such parties of its obligations under this Section 6.02; provided, however, that nothing contained in this Section 6.02 shall prohibit the Board of Directors of the Company from (i) furnishing information to (but only pursuant to a confidentiality agreement in customary form and having terms and conditions no less favorable to the Company than the Confidentiality Agreement; provided, however, that any such confidentiality agreement shall not restrict the parties thereto from making an Alternative Proposal) or entering into discussions or negotiations with any Person or group that makes an unsolicited bona fide Alternative Proposal, if a majority of the Board of Directors of the Company, without including directors who may be considered Affiliates (as defined in Rule 405 under the Securities Act) of any person making an Alternative Proposal ("Disinterested Directors"), determines in good faith (after receipt of advice from reputable outside legal counsel experienced in such matters (including without limitation Thompson Hine LLP) that there is a reasonable basis to conclude that the failure to take any action that would otherwise be prohibited by any such restriction would result in a breach of the Board of Directors' fiduciary duties under applicable Law) that the Alternative Proposal is or presents a reasonable likelihood of resulting in a Superior Proposal and was not solicited by it after the date hereof and did not otherwise result from a breach of this Section 6.02; and (ii) to the extent required, taking and disclosing to the Company's shareholders a position contemplated by Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act with regard to an Alternative Proposal, or making any other disclosure to the Company's shareholders if, in the good faith judgment of a majority of the Disinterested Directors, after being advised by reputable outside counsel experienced in such matters (including without limitation, Thompson Hine LLP), there is a reasonable basis to conclude that disclosure is required under applicable Law. The Company will promptly notify Parent after receipt of a proposal relating to any Alternative Proposal or any request for information relating to the Company or for access to the properties, books or records of the Company by any Person that has made a proposal relating to an Alternative Proposal or any Person who the Company believes in its reasonable judgment may be considering making, or has made, a proposal relating to an Alternative Proposal, or any request for nonpublic information from any Person, and - 34 - will keep Parent fully informed on a current basis (and in any event within 24 hours after receipt of an indication, request or a proposal relating to an Alternative Proposal, or any revision of such proposal) of the status and details of any such Alternative Proposal, indication or request. The Company will not enter into any agreement or arrangement (other than a confidentiality agreement as described above), or make any recommendation (except as contemplated by Section 6.02(a)(ii) above), with respect to an Alternative Proposal that is or presents a reasonable likelihood of resulting in a Superior Proposal for one business day after delivery of such a notice to Parent indicating the Company's intention to enter into such an agreement or arrangement, or to make such a recommendation, with respect to such Alternative Proposal, which notice shall include all material terms of such proposal, and the Company will negotiate exclusively in good faith with Parent for such one-business day period to make such adjustments in the terms and conditions of this Agreement as would enable the Company to proceed with the transactions contemplated herein on such adjusted terms; provided, however, that any such proposed adjustments shall be at the discretion of the parties hereto at the time and that no more than one one business day negotiation period shall apply to any particular Alternative Proposal, it being understood that any material change to an Alternative Proposal will give rise to a new one business day negotiation period under this Section 6.02, unless the Company shall have notified Parent in writing that the Company does not intend to enter into any agreement or arrangement (other than a confidentiality agreement as described above), or make a recommendation, with respect to such Alternative Proposal as modified by such material change. Nothing in this Section 6.02 shall permit the Company to terminate this Agreement except as provided in ARTICLE IX. (b) Neither the Company nor the Board of Directors of the Company nor any committee thereof shall withdraw or modify, or propose to withdraw or modify, in any manner adverse to Parent, the approval or recommendation of this Agreement or the Merger, or, except as contemplated by Section 6.02(a)(ii) above, propose publicly to approve or recommend an Alternative Proposal unless a majority of the Disinterested Directors determines, in its good faith judgment (after receipt of advice from reputable outside legal counsel experienced in such matters, including without limitation Thompson Hine LLP) that there is a reasonable basis to conclude that the failure to take such action would result in a breach of the Board of Directors' fiduciary duties under applicable Law and the Company has otherwise complied with its obligations under this Section 6.02. (c) For purposes of this Agreement, "Alternative Proposal" means any merger, consolidation or other business combination including the Company or any of its Subsidiaries or any acquisition or similar transaction (including, without limitation, a tender or exchange offer) involving the purchase of (i) all or any significant portion of the assets of the Company and its Subsidiaries taken as a whole, (ii) 20% or more of the outstanding Company Common Shares, or (iii) any of the outstanding capital shares of any Subsidiary of the Company. For purposes of this Agreement, "Superior Proposal" means any bona fide written Alternative Proposal (with the percentages included in the definition of Alternative Proposal replaced with 50% for purposes of this definition) that a majority of the Disinterested Directors determines, in its good faith judgment (after consultation with the Company's legal and financial advisors and taking into account all - 35 - the terms and conditions of the Alternative Proposal and this Agreement deemed relevant by such Disinterested Directors): (1) that contains terms that - provide greater value to the Company's shareholders than the Offer and the Merger (and any revised proposal made by Parent); (2) that is reasonably likely to be completed, taking into account all legal, financial, regulatory and other aspects of the - Alternative Proposal; and (3) for which financing, to the extent required, is, as of the date of the determination by the - Disinterested Directors, committed at least to the same extent as Parent's financing is committed as of the date hereof. Section 6.03 Financing-Related Cooperation. The Company agrees to provide, and will cause its Subsidiaries and its and their respective directors, officers, employees and advisors to provide, all cooperation reasonably necessary in connection with the arrangement of any financing to be consummated in respect of the transactions contemplated by this Agreement, including participation in meetings, due diligence sessions, the execution and delivery of any commitment letters, underwriting or placement agreements, pledge and security documents, other definitive financing documents or other requested certificates or documents as may be reasonably required by Parent and taking such other actions as are reasonably required to by taken by the Company; provided that all such agreements, letters, and instruments executed by the Company are unilaterally revocable by the Company as to the Company prior to the Effective Time without notice or penalty of any kind and do not obligate the Company to pay any fees or expenses to such financing sources prior to the Effective Time; provided further that Parent shall use commercially reasonable efforts to ensure that the disclosures made by Parent in response to representations and warranties contained in any financing agreements executed by Parent in respect of the transactions contemplated by this Agreement are not materially inconsistent with the corresponding disclosures contained in the Company Disclosure Letter with respect to the same or similar matters; and provided further, that Parent shall use reasonable efforts not to materially interfere with the duties of such officers, employees and advisors such that the Company's business and results of operations would be materially adversely affected thereby. In addition, in conjunction with the obtaining of any such financing, the Company agrees, at the reasonable request of Parent, to call for prepayment or redemption, or to prepay, redeem and/or renegotiate, as the case may be, any then existing indebtedness of the Company and its Subsidiaries; provided that no call for redemption or prepayment shall be irrevocably made until contemporaneously with or after the Effective Time. Section 6.04 SEC Reports. The Company shall cause the forms, reports, schedules, statements and other documents required to be filed with the SEC by the Company between the date of this Agreement and the Effective Time (the "New SEC Reports") to be prepared in all material respects in accordance with the requirements set forth in Section 4.05(a) hereof. ARTICLE VII ADDITIONAL AGREEMENTS Section 7.01 Access to Information; Confidentiality. The Company shall, and shall cause each of its Subsidiaries to, throughout the period from the date hereof to the Effective Time, (i) provide Parent and its Representatives with full access, upon reasonable prior notice and during normal business hours, to all officers, employees, agents and accountants of the Company and its Subsidiaries and their respective assets, properties, books and records, but only - 36 - to the extent that such access does not unreasonably interfere with the business and operations of the Company and its Subsidiaries, and (ii) furnish promptly to Parent (x) a copy of each report, statement, schedule and other document filed or received by the Company or any of its Subsidiaries pursuant to the requirements of federal or state securities laws and each material report, statement, schedule and other document filed with any other Governmental or Regulatory Authority, and (y) all other information and data (including, without limitation, copies of Contracts, Company Employee Benefit Plans and other books and records) concerning the business and operations of the Company and its Subsidiaries as Parent or any of such other Persons shall reasonably request. No investigation pursuant to this Section 7.01 or otherwise shall affect any representation or warranty contained in this Agreement or any condition to the obligations of the parties hereto. Any such information or material obtained pursuant to this Section 7.01 shall be governed by the terms of the Confidentiality Agreement, dated as of July 30, 2003, between the Company and Parent (the "Confidentiality Agreement"). Notwithstanding anything to the contrary contained herein or in the Confidentiality Agreement, the obligations of confidentiality contained herein or in the Confidentiality Agreement shall not apply, and any party hereto or its employees, representatives and other agents may disclose to any and all persons, without limitation of any kind, (a) the "tax treatment" and "tax structure" of the "transactions" contemplated by this Agreement (as these terms are defined in Treasury Regulations Section 1.6011-4(b) and (c)) and (b) all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment or tax structure; provided, however, that such disclosure may not be made (to persons other than tax advisors) (i) until the earlier of (A) the date of the public announcement of the discussions relating to such transactions, (B) the date of the public announcement of such transactions or (C) the date of the execution of this Agreement and (ii) to the extent required to be kept confidential to comply with any applicable federal or state securities Laws. Section 7.02 Preparation of Proxy Statement. If a Company Shareholders' Meeting is required by applicable law in order to consummate the Merger, the Company shall prepare and file with the SEC the Proxy Statement as soon as reasonably practicable after Sub accepts for purchase Company Common Shares pursuant to the Offer, and shall use its reasonable best efforts to have the Proxy Statement cleared by the SEC. If at any time prior to the Effective Time any event shall occur that should be set forth in an amendment of or a supplement to the Proxy Statement, the Company shall prepare and file with the SEC such amendment or supplement as soon thereafter as is reasonably practicable. Parent, Sub and the Company shall cooperate with each other in the preparation of the Proxy Statement, and the Company shall notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement thereto or for additional information, and shall provide to Parent promptly copies of all correspondence between the Company or any Representative of the Company and the SEC with respect to the Proxy Statement. The Company shall give Parent and its counsel the opportunity to review the Proxy Statement and all responses to requests for additional information by and replies to comments of the SEC before their being filed with, or sent to, the SEC. Each of the Company, Parent and Sub agrees to use its reasonable best efforts, after consultation with the other parties hereto, to respond promptly to all such comments of and requests by the SEC and to cause the Proxy Statement to be mailed to the holders of Company Common Shares entitled to vote at the Company Shareholders' Meeting at the earliest practicable time. - 37 - Section 7.03 Approval of Shareholders. If required by applicable law in order to consummate the Merger, the Company shall, through its Board of Directors, duly call, give notice of, convene and hold a meeting of its shareholders (the "Company Shareholders' Meeting") for the purpose of voting on the adoption of this Agreement and obtaining approval of adoption of this Agreement by the holders of at least two-thirds of the Company Common Shares entitled to vote thereon (the "Company Shareholders' Approval") as soon as reasonably practicable after the date that Sub accepts for purchase Company Common Shares pursuant to the Offer. Except as permitted by Section 6.02, the Company shall, through its Board of Directors, include in the Proxy Statement the recommendation of the Board of Directors of the Company that the shareholders of the Company adopt this Agreement and shall use its reasonable best efforts to obtain such adoption. Section 7.04 Merger Without Meeting of Shareholders. Notwithstanding the foregoing, in the event that Parent, Sub, or any their Affiliates shall acquire at least ninety percent (90%) of the outstanding Company Common Shares, the parties hereto agree to take all necessary and appropriate action to cause the Merger to become effective, as soon as practicable after the expiration of the Offer, without a meeting of shareholders of the Company, in accordance with Section 1701.801 of the OGCL. Section 7.05 Regulatory and Other Approvals. Subject to the terms and conditions of this Agreement and without limiting the provisions of Section 7.02, Section 7.03 and Section 7.04, each of the Company and Parent will use reasonable best efforts to, as promptly as practicable, (a) obtain all consents, approvals or actions of, make all filings with and give all notices to Governmental or Regulatory Authorities or any other public or private third parties required of Parent, the Company or any of their Subsidiaries to consummate the Offer and the Merger and the other transactions contemplated hereby, including, without limitation, the filing by Parent and Sub of Information Pertaining to a Control Bid on Form 041 pursuant to Section 1707.01 et seq. of the Ohio Revised Code, and (b) provide such other information and communications to such Governmental or Regulatory Authorities or other public or private third parties as the other party or such Governmental or Regulatory Authorities or other public or private third parties may reasonably request in connection therewith. In addition to and not in limitation of the foregoing, each of the parties will (x) take promptly all actions necessary to make the filings required of Parent and the Company or their Affiliates under the HSR Act, (y) comply at the earliest practicable date with any request for additional information received by such party or its Affiliates from the Federal Trade Commission (the "FTC") or the Antitrust Division of the Department of Justice (the "Antitrust Division") pursuant to the HSR Act, and (z) cooperate with the other party in connection with such party's filings under the HSR Act and in connection with resolving any investigation or other inquiry concerning the Merger or the other transactions contemplated by this Agreement commenced by any of the FTC, the Antitrust Division or any state or state attorney general. Notwithstanding the foregoing, the Company shall not, without Parent's prior written consent, commit to any divestiture transaction, and Parent shall not be required to divest or hold separate or otherwise take or commit to take any action that limits its freedom of action with respect to, or its ability to retain the Company, any of its Subsidiaries or any of the material businesses or assets of the Company or its Subsidiaries. Notwithstanding the foregoing, the parties hereto acknowledge and agree that the failure to obtain any or all of the consents identified by an asterisk (*) in Section 4.04 of the Company - 38 - Disclosure Letter shall not result in the failure to satisfy the condition set forth in clause (b) of Annex A. Section 7.06 Employee Matters. (a) Except for employees covered by any collective bargaining contract, and except as otherwise expressly provided in this Agreement, during the period commencing at the Share Acceptance Date and ending December 31, 2003, Parent will (i) cause the Company Employee Benefit Plans (other than the Company Option Plan and other Plans providing equity or equity-based awards) in effect on the date of this Agreement to remain in effect; provided, however, this covenant shall not prohibit changes in benefit plans in the ordinary course of business or as may be required by applicable Laws or (ii) to the extent that such Company Employee Benefit Plans are not so continued, cause the Company to maintain until such date benefit plans that are substantially comparable, in the aggregate, to the Company Employee Benefit Plans (other than the Company Option Plan and other Plans providing equity or equity-based awards) in effect on the date of this Agreement. (b) The Plans in which the Company's employees participate following the Share Acceptance Date will (i) credit, for vesting and eligibility purposes only, all service performed for the Company prior to the Share Acceptance Date, but not for benefit accrual (including eligibility for any subsidized early retirement pension amount), (ii) waive any pre-existing condition exclusions (other than pre-existing conditions that, as of the Share Acceptance Date, have not been satisfied under any Company Employee Benefit Plan) and (iii) provide that any covered expenses incurred on or before the Share Acceptance Date during the plan year of the applicable Company Employee Benefit Plan will be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Share Acceptance Date. (c) Following the Share Acceptance Date and prior to January 1, 2005, Parent shall cause the Company to maintain the Employment Termination Pay Plan (as defined in Section 4.13(a)(1) of the Company Disclosure Letter) on terms no less favorable to any person employed by the Company on the Share Acceptance Date than the terms of such plan on the date of this Agreement. Parent shall cause the Company to pay to any person employed by the Company on the Share Acceptance Date who becomes eligible to receive a severance payment under the Employment Termination Pay Plan at any time after the Share Acceptance Date and prior to January 1, 2005 an amount equal to the greater of (i) the severance amount payable to such employee under the Employment Termination Pay Plan and (ii) the severance amount that would be payable to a comparable employee of Parent under Parent's severance program then in effect. (d) As promptly as practicable after the date hereof, the Board shall take all actions necessary or desirable to amend the Company Option Plan to provide that following the Share Acceptance Date (i) Section 5.5 of the Company Option Plan shall be deleted in its entirety and no Participant (as - 39 - defined in the Company Option Plan) shall be entitled to defer any portion of an Annual Incentive Award (as defined in the Company Option Plan) and (ii) Section 5.7 shall be amended to provide that a Participant (as defined in the Company Option Plan) employed by the Company on the Share Acceptance Date shall be entitled to receive an Annual Incentive Award for the 2003 fiscal year of the Company under the Company Option Plan determined in accordance with the provisions of the Plan, but in no event would a Participant's Annual Incentive Award be less than such Participant's annualized award for the fiscal year of the Company ending February 2, 2003 provided that (i) the "Net Operating Profit" (as defined in the Performance Incentive Plan for the 2003 fiscal year of the Company which Plan is set forth in Section 7.06 of the Company Disclosure Letter) exceeds $18,700,000 and (ii) either (x) the Participant was --- - continuously employed by the Company from the Share Acquisition Date to April 15, 2004 or (y) the Participant's employment - was terminated (1) by the Company other than for cause or (2) by the Participant provided that there was a material decrease in the Participant's annual compensation after the Share Acceptance Date and on or prior to April 15, 2004. Parent shall cause the Company to pay all Annual Incentive Awards earned by employees of the Company pursuant to such amended Plan no later than April 15, 2004 (or if April 15, 2004 is not a business day, the first business day thereafter). Section 7.07 Indemnification; Directors' and Officers' Insurance. (a) From and after the Share Acceptance Date until the sixth anniversary of the Effective Time, Parent shall indemnify, advance expenses to, and hold harmless the present and former officers and directors of the Company and its Subsidiaries, in each case to the fullest extent permitted by law, in respect of acts or omissions occurring prior to or after the Share Acceptance Date. From and after the Effective Time, Parent shall cause the articles of incorporation and code of regulations of the Surviving Corporation to contain provisions substantially similar in terms of the rights granted in the provisions with respect to indemnification and insurance set forth in the Company's articles of incorporation and code of regulations in effect on the date hereof, which provisions shall not be amended in any manner prior to the sixth anniversary of the Effective Time that would adversely affect the rights thereunder of the Company's employees, agents, directors or officers for acts or omissions occurring on or prior to the Effective Time, except if such amendment is required by applicable Law. Any determination required to be made with respect to whether an officer's or director's conduct complies with the standards set forth in the Company's articles of incorporation or code of regulations shall be made by independent counsel selected by Parent and reasonably acceptable to such officer or director. Parent shall pay such counsel's fees and expenses so long as such officer or director does not challenge any such determination by such independent counsel. With respect to acts or omissions occurring on or prior to the Share Acceptance Date or, with respect to directors or officers who continue to serve until the Effective Time, the Effective Time, Parent and the Surviving Corporation shall, until the sixth anniversary of the Effective Time and for so long thereafter as any claim for insurance coverage asserted on or prior to such date has not been fully adjudicated, cause to be maintained in effect, at no cost to the beneficiaries thereof, to the extent available, the policies of directors' and officers' liability insurance maintained by the Company and its Subsidiaries as of the date hereof to the extent that such insurance coverage can be maintained at an annual cost to the Surviving Corporation of not greater than 200% of the annual premium for the Company's current insurance policies and, if such insurance - 40 - coverage cannot be so purchased or maintained at such cost, providing as much of such insurance as can be so purchased or maintained at such cost. (b) In the event the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each such case, proper provisions shall be made so that the successors and assigns of the Surviving Corporation shall assume its obligations set forth in this Section 7.07. Section 7.08 Expenses. Except as set forth in Section 9.02, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. Parent shall pay the filing fee in connection with the filings required under the HSR Act. Promptly after the execution of this Agreement, Parent shall pay to the Company by wire transfer to an account designated by the Company the amount paid by the Company to Wright Holdings, Inc. pursuant to Section 8.02 of the Wright Holdings Merger Agreement; provided, however, that in no event shall Parent be obligated to pay to the Company more than three million dollars ($3,000,000.00) pursuant to this Section 7.08. Section 7.09 Sub. Prior to the Effective Time, Sub shall not conduct any business or make any investments other than as specifically contemplated by this Agreement and will not have any assets (other than a de minimis amount of cash paid to Sub for the issuance of its stock to Parent) or any material liabilities. Parent will take all action necessary to cause Sub to perform its obligations under this Agreement and to consummate the Offer and the Merger on the terms and conditions set forth in this Agreement. Section 7.10 Brokers or Finders. Each of Parent and the Company represents, as to itself and its Subsidiaries and Affiliates, that no agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement except (a) RBC, whose fees and expenses will be paid by the Company in accordance with the Company's agreement with such firm (a complete and correct copy of which has been delivered by the Company to Parent) and (b) Lazard Freres & Co. LLC, whose fees and expenses will be paid by Parent in accordance with Parent's agreement with such firm. Each of Parent and the Company shall indemnify and hold the other harmless from and against any and all claims, liabilities or obligations with respect to any other such fee or commission or expenses related thereto asserted by any Person on the basis of any act or statement alleged to have been made by such party or its Affiliate. Section 7.11 Takeover Statutes. If any "fair price," "merger moratorium," "control share acquisition" or other form of anti-takeover statute or regulation shall become applicable to the transactions contemplated hereby, the Company and the members of the Board of Directors of the Company shall, to the extent permitted by law, grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act, to the extent - 41 - permitted by Law, to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby and thereby. Section 7.12 Conveyance Taxes. The Company and Parent shall cooperate in the preparation, execution and filing of all returns, questionnaires, applications or other documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes which become payable in connection with the transactions contemplated by this Agreement that are required or permitted to be filed on or before the Effective Time. Section 7.13 Notice and Cure. Each of Parent and the Company will notify the other of, and will use commercially reasonable efforts to cure before the Closing, any event, transaction or circumstance, as soon as practicable after it becomes known to such party, that causes or will cause any covenant or agreement of Parent or the Company under this Agreement to be breached or that renders or will render untrue any representation or warranty of Parent or the Company contained in this Agreement. Each of Parent and the Company also will notify the other in writing of, and will use commercially reasonable efforts to cure before the Closing, any violation or breach, as soon as practicable after it becomes known to such party, of any representation, warranty, covenant or agreement made by Parent or the Company in this Agreement. No notice given pursuant to this Section 7.13 shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein. Section 7.14 Fulfillment of Conditions. Subject to the terms and conditions of this Agreement, each of Parent and the Company will take or cause to be taken commercially reasonable steps necessary or desirable to satisfy each condition to the other's obligations contained in this Agreement and to consummate and make effective the transactions contemplated by this Agreement, and neither Parent nor the Company will, nor will it permit any of its Subsidiaries to, take or fail to take any action that could be reasonably expected to result in the non-fulfillment of any such condition. Section 7.15 Environmental Matters. The Company shall make available to Parent and Sub all investigations, reports, assessments and other materials in its possession relating to the compliance of the Real Property with applicable federal and state laws relating to the protection of the environment or the existence of any obligations or liabilities arising thereunder. The Company shall cooperate with Parent and Sub in making any environmental investigations of the Real Property that parent or Sub deems appropriate; provided that (i) Parent and Sub shall obtain the Company's written consent prior to entering any Real Property and prior to conducting any assessment or testing with respect thereto and (ii) the Company shall have entered into an agreement reasonably satisfactory to it with each contractor of Parent or Sub who will perform such testing. Section 7.16 Delisting. Each of the parties agrees to cooperate with each other in taking, or causing to be taken, all actions necessary to delist the Company Common Shares from Nasdaq and terminate registration under the Exchange Act, provided that such delisting and termination shall not be effective until after the expiration of the Offer or the Effective Time, as appropriate. - 42 - Section 7.17 Existing Credit Facilities. Following the execution of this Agreement, if requested by Parent in writing, the Company shall use its reasonable best efforts to obtain any waivers under its existing credit and other financing facilities that may be required so that such facilities would not become due and payable until the Effective Time. In the event that any such extensions are not obtained, Parent will make available to the Company as of the Share Acceptance Date sufficient funds to repay all amounts that may become due and owing as of the Share Acceptance Date under such facilities. ARTICLE VIII CONDITIONS Section 8.01 Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger is subject to the fulfillment, at or prior to the Closing, of each of the following conditions: (a) Shareholder Approval. This Agreement shall have been adopted by the requisite vote of the shareholders of the Company under the OGCL and the Company's articles of incorporation, if such vote is required by applicable law. (b) HSR Act. Any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. (c) No Injunctions or Restraints. No Governmental or Regulatory Authority having proper jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law or Order (whether temporary, preliminary or permanent) that is then in effect and has the effect of making illegal or otherwise restricting, preventing or prohibiting consummation of the Merger or the other transactions contemplated by this Agreement. (d) The Offer. Sub shall have purchased Company Common Shares validly tendered and not withdrawn pursuant to the Offer. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER Section 9.01 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time prior to the Effective Time, whether prior to or after the Company Shareholders' Approval: (a) By mutual written agreement of the parties hereto duly authorized by action taken by or on behalf of their respective Boards of Directors (with, in the case of the Company following the Share Acceptance Date, the concurrence of a majority of the Independent Directors); (b) by Parent upon written notice to the Company if an occurrence or circumstance (except where Parent's or Sub's failure to fulfill any of their respective obligations under this Agreement is the cause of or resulted in such occurrence or circumstance or except where there has been a material breach of any representation, - 43 - warranty, covenant or agreement on the part of Parent or Sub that has not been cured) has rendered the conditions set forth in Annex A hereto incapable of being satisfied, and (i) Sub shall have failed to commence the Offer after the date of this Agreement in accordance with the terms of this Agreement or (ii) the Offer shall have been terminated or shall have expired, in either instance in accordance with the terms of this Agreement, without Sub having purchased any Company Common Shares pursuant to the Offer; (c) by either Parent or the Company upon written notification to the non-terminating party by the terminating party if any court of competent jurisdiction or other competent Governmental or Regulatory Authority shall have issued a Law or Order making illegal or otherwise restricting, preventing or prohibiting the Offer or the Merger and any such Order shall have become final and non-appealable; (d) by Parent upon written notification to the Company, prior to the Share Acceptance Date, if (i) Parent or Sub shall discover that there has been a material breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement, which breach is not curable or, if curable, has not been cured within the earlier of thirty (30) days following receipt by the Company of notice of such breach from Parent or the Final Date, (ii) the Board of Directors of the Company shall have withdrawn or modified or qualified in a manner adverse to Parent its approval or recommendation of this Agreement, the Offer or the Merger or shall have approved, recommended or entered into any agreement with respect to any other Alternative Proposal or failed to reconfirm its recommendation of this Agreement, the Offer and the Merger within ten (10) business days following a reasonable written request for such reconfirmation by Parent or (iii) there shall not have been validly tendered and not withdrawn prior to the expiration of the Offer at least two-thirds of the Company Common Shares, on a fully diluted basis, and after the date hereof and on or prior to the Final Date a person shall have made or modified a written Alternative Proposal to the Company and not withdrawn such proposal; (e) by the Company upon written notification to Parent, prior to the Share Acceptance Date if (i) the Company shall discover that there has been a material breach of any representation, warranty, covenant or agreement on the part of Parent or Sub set forth in this Agreement, which breach is not curable or, if curable, has not been cured within the earlier of thirty (30) days following receipt by Parent of notice of such breach from the Company or the Final Date or (ii) after the date hereof the Board of Directors of the Company shall receive an unsolicited bona fide Alternative Proposal and the Board of Directors determines in good faith (after receiving advice from reputable outside legal counsel experienced in such matters (including without limitation, Thomson Hine LLP)) that the Alternative Proposal is or presents a reasonable likelihood of resulting in a Superior Proposal and was not solicited by it after the date hereof and did not otherwise result from a breach of Section 6.02; provided that the Company's ability to terminate this Agreement pursuant to this paragraph (e)(ii) is conditioned upon the payment by the Company to Parent of any amounts owed by it pursuant to Section 9.02(d) and Section 9.02(e); or - 44 - (f) by the Company if there shall not have been a material breach of any representation, warranty, covenant or agreement on the part of the Company that has not been cured and (i) Sub shall have failed to commence the Offer within the time required by Section 1.01(a) hereof, (ii) the Offer shall have been terminated or shall have expired without Sub having purchased any Company Common Shares pursuant to the Offer or (iii) Sub shall have failed to pay for Company Common Shares pursuant to the Offer prior to the Final Date. Section 9.02 Effect of Termination. (a) If this Agreement is validly terminated by either the Company or Parent pursuant to Section 9.01, this Agreement will forthwith become null and void and there will be no liability or obligation on the part of either the Company or Parent (or any of their respective Representatives or Affiliates), except (i) that the provisions of Section 7.08 and Section 7.10 and this Section 9.02 will continue to apply following any such termination, (ii) that nothing contained herein shall relieve any party hereto from liability for willful breach of its representations, warranties, covenants or agreements contained in this Agreement and (iii) as provided in paragraphs (b) (c), (d) and (f) below. (b) In the event that this Agreement is terminated: (i) by Parent pursuant to Section 9.01(b)(i) or Section 9.01(d)(iii) or by the Company pursuant to Section 9.01(f)(i) and an Alternative Proposal is publicly disclosed or publicly proposed to the Company or its shareholders at any time after the date hereof and prior to the date of termination; (ii) by Parent pursuant to Section 9.01(b)(ii) or the Company pursuant to Section 9.01(f)(ii) or (iii) (assuming Parent and Sub were not then in material breach of any representation, warranty, covenant or agreement on the part of Parent or Sub that had not been cured); or (iii) by Parent pursuant to Section 9.01(d)(i) (other than with respect to a breach of Section 1.02 or Section 6.02), then the Company shall pay to Parent by wire transfer of same day funds within two (2) business days of the date of such termination an amount of up to One Million Dollars ($1,000,000) to reimburse Parent and Sub for all reasonable documented out-of-pocket expenses and fees incurred by them in connection with this Agreement and the transactions contemplated hereby (including without limitation, fees and expenses payable to all banks, investment banking firms and other financial institutions and Persons and their respective agents and counsel for acting as Parent's financial advisor with respect to, or arranging or committing to provide or providing any financing for, the Merger) (collectively, the "Expense Reimbursement"). If, with respect to the event described in clause (i) above, concurrently or within 12 months of the date of termination pursuant to such clause (i), the Company does not, in the case of an Alternative Proposal in the form of a tender offer, recommend against acceptance of the tender offer, or - 45 - enters into a definitive agreement or arrangement with respect to, an Alternative Proposal, then the Company shall pay to Parent, by wire transfer of same day funds within two (2) business days of such occurrence, a termination fee of Two Million Dollars ($2,000,000) (the "Termination Fee"). If, with respect to the events described in clauses (ii) and (iii), above, an Alternative Proposal has been publicly disclosed or publicly proposed to the Company or its shareholders at any time after the date hereof and prior to the date of termination, and concurrently or within 12 months of the date of termination as provided in such clauses (ii) and (iii), respectively, the Company does not, in the case of an Alternative Proposal in the form of a tender offer, recommend against acceptance of the tender offer, or enters into a definitive agreement or arrangement with respect to, an Alternative Proposal, then the Company shall pay to Parent, by wire transfer of same day funds within two (2) business days of such occurrence, the Termination Fee. (c) In the event that this Agreement is terminated by Parent pursuant to Section 9.01(d)(i) due to a breach by the Company of Section 1.02 or Section 6.02, then the Company shall pay to Parent, by wire transfer of same day funds within two (2) business days of the date of such termination, the Expense Reimbursement and, if concurrently or within 12 months of the date of such termination, the Company announces or enters into an Alternative Proposal, the Termination Fee. (d) In the event that this Agreement is terminated (i) by the Company pursuant to Section 9.01(e)(ii) or (ii) by Parent pursuant to Section 9.01(d)(ii), then the Company shall pay to Parent, by wire transfer of same day funds within two (2) business days of the date of such termination, the Expense Reimbursement and the Termination Fee. (e) In addition to, and not in limitation of, any payment or payments that are due to Parent pursuant to Section 9.02(b), Section 9.02(c) or Section 9.02(d), in the event of a termination of this Agreement for any reason whatsoever other than if this Agreement is terminated (x) by the Company pursuant to Section 9.01(e)(i), (y) by Parent pursuant to Section - - 9.01(b)(ii) or Section 9.01(d)(iii) or (z) by the Company pursuant to Section 9.01(f)(ii) or (iii), in the case of clauses - (y) and (z), solely by reason of the failure to satisfy the Financing Condition (as defined in Annex A) at the time that the - Offer shall have been terminated or shall have expired or such other conditions set forth in Annex A that shall not have been satisfied at such time primarily or exclusively because of the failure to satisfy the Financing Condition, then the Company shall pay to Parent, by wire transfer of same day funds within two (2) business days of the date of such termination an amount equal to the amount paid by Parent to the Company pursuant to Section 7.08. (f) In the event of a termination of this Agreement pursuant to which a payment or payments are made in full compliance with Section 9.02(b), Section 9.02(c), Section 9.02(d) or Section 9.02(e), the receipt of such payment shall serve as liquidated damages with respect to any breach of this Agreement by the party who has made such payment giving rise to such termination, and the receipt of any such payment shall be the sole and exclusive remedy (at law or in equity) with respect to any such breach. In the event any action, suit, proceeding or claim is commenced or asserted by a party against - 46 - another party and/or any director or officer of such other party relating, directly or indirectly, to this Agreement, it is expressly agreed that no party shall be entitled to obtain any punitive, exemplary, treble, or consequential damages of any type under any circumstances in connection with such action, suit, proceeding or claim, regardless of whether such damages may be available under law, the parties hereby waiving their rights, if any, to recover any such damages in connection with any such action, suit, proceeding or claim. (g) The Company acknowledges that the agreements contained in Section 9.02(b), Section 9.02(c), Section 9.02(d) and Section 9.02(e) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Parent and Sub would not enter into this Agreement. Section 9.03 Amendment. This Agreement may be amended, supplemented or modified by action taken by or on behalf of the respective Boards of Directors of the Company (in accordance with the provisions of Section 1.03(c) of this Agreement), Parent and Sub at any time prior to the Effective Time, whether prior to or after the Company Shareholders' Approval shall have been obtained, but after such adoption and approval only to the extent permitted by applicable Law. No such amendment, supplement or modification shall be effective unless set forth in a written instrument duly executed by or on behalf of each party hereto. Section 9.04 Waiver. At any time prior to the Effective Time any party hereto, by action taken by or on behalf of the respective Board of Directors of the Company (in accordance with the provisions of Section 1.03(c) of this Agreement), Parent and Sub, may to the extent permitted by applicable Law (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties of the other parties hereto contained herein or in any document delivered pursuant hereto, or (iii) waive compliance with any of the covenants, agreements or conditions of the other parties hereto contained herein. No such extension or waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party extending the time of performance or waiving any such inaccuracy or non-compliance. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. ARTICLE X GENERAL PROVISIONS Section 10.01 Survival of Representations, Warranties, Covenants and Agreements. The representations, warranties, covenants and agreements contained in this Agreement shall not survive the Merger but shall terminate at the Effective Time; provided, however, that this Section 10.01 shall not limit any covenant or agreement of the parties hereto, which by its terms contemplates performance after the Effective Time or the termination of this Agreement. Section 10.02 Notices. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given (i) when delivered if personally delivered by hand (with written - 47 - confirmation of receipt), (ii) when received if sent by a nationally recognized overnight courier service (receipt requested), (iii) five business days after being mailed, if sent by first class mail, return receipt requested, or (iv) when receipt is acknowledged by an affirmative act of the party receiving notice, if sent by facsimile, telecopy or other electronic transmission device (provided that such an acknowledgement does not include an acknowledgment generated automatically by a facsimile or telecopy machine or other electronic transmission device). Notices, demands and communications to the parties will, unless another address is specified in writing, be sent to the address indicated below: If to Parent or Sub, to: The Bon-Ton Stores, Inc. 2801 East Market Street York, Pennsylvania 17405 Facsimile No.: (717) 751-3015 Attn: Tim Grumbacher with a copy to: Wolf, Block, Schorr and Solis-Cohen LLP 1650 Arch Street Philadelphia, Pennsylvania 19103 Facsimile No.: (215) 977-2334 Attn: Jay Coogan If to the Company, to: The Elder-Beerman Stores Corp. 3155 El-Bee Road Dayton, Ohio 45439 Facsimile No.: (937) 296-4625 Attn: Steven C. Mason with a copy to: Thompson Hine LLP 2000 Courthouse Plaza, N.E. P.O. Box 8801 Dayton, Ohio 45401 Facsimile No.: (937) 443-6637 Attn: Joseph M. Rigot Section 10.03 Entire Agreement; Incorporation of Exhibits. (a) This Agreement supersedes all prior discussions and agreements among the parties hereto with respect to the subject matter hereof and contains, together with the Confidentiality Agreement, the sole and entire agreement among the parties hereto with respect to the subject matter hereof. - 48 - (b) The Company Disclosure Letter and any exhibit or schedule attached to this Agreement and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. Section 10.04 Public Announcements. Except as otherwise required by Law or the rules of any applicable securities exchange or national market system, so long as this Agreement is in effect, Parent and the Company will not, and will not permit any of their respective Representatives to, issue or cause the publication of any press release or make any other public announcement with respect to the transactions contemplated by this Agreement without the consent of the other party, which consent shall not be unreasonably withheld. Parent and the Company will cooperate with each other in the development and distribution of all press releases and other public announcements with respect to this Agreement and the transactions contemplated hereby, and will furnish the other with drafts of any such releases and announcements as far in advance as practicable. Section 10.05 No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and except as provided in Section 7.07 (which is intended to be for the benefit of the Persons entitled to therein, and may be enforced by any of such Persons), it is not the intention of the parties to confer third-party beneficiary rights upon any other Person. Section 10.06 No Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other parties hereto and any attempt to do so will be void. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. Section 10.07 Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define, modify or limit the provisions hereof. Section 10.08 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law or Order, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Section 10.09 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio applicable to a contract executed and performed in such State, notwithstanding any conflict of law provisions to the contrary. Section 10.10 Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specified terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this - 49 - Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. Section 10.11 Certain Definitions. As used in this Agreement: (a) the term "Affiliate," as applied to any Person, shall mean any other Person directly or indirectly controlling, controlled by, or under common control with, that Person; for purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise; (b) a Person will be deemed to "beneficially" own securities if such Person would be the beneficial owner of such securities under Rule 13d-3 under the Exchange Act, including securities which such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time); (c) the term "business day" means a day other than Saturday, Sunday or any day on which banks located in the State of Ohio are authorized or obligated to close; (d) any reference to any event, change or effect being "material" or "materially adverse" or having a "material adverse effect" on or with respect to an entity (or group of entities taken as a whole) means such event, change or effect is material or materially adverse, as the case may be, to the business, properties, assets, liabilities, prospects, condition (financial or otherwise) or results of operations of such entity (or of such group of entities taken as a whole); (e) the term "knowledge" or any similar formulation of "knowledge" shall mean, with respect to the Company, the actual knowledge of each of the Company's directors and the actual knowledge, after due inquiry, of each of the Company's executive officers. (f) the term "Person" shall include individuals, corporations, partnerships, trusts, other entities and groups (which term shall include a "group" as such term is defined in Section 13(d)(3) of the Exchange Act); (g) the "Representatives" of any entity means such entity's directors, officers, employees, legal, investment banking and financial advisors, accountants and any other agents and representatives; (h) the term "Subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which more than fifty percent (50%) of either the equity interests in, or the voting control of, such corporation or other organization is, directly or indirectly through Subsidiaries or otherwise, beneficially owned by such party; and - 50 - (i) the term "Wright Holdings Merger Agreement" means that certain Agreement and Plan of Merger, dated as of June 25, 2003, as amended by Amendment No. 1 dated September 9, 2003 and Amendment No. 2 dated September 12, 2003, by and among the Company, Wright Holdings, Inc. and Wright Sub, Inc. Section 10.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS ON THE NEXT PAGE] - 51 - IN WITNESS WHEREOF, each party hereto has caused this Agreement to be signed by its officer thereunto duly authorized as of the date first above written. THE ELDER-BEERMAN STORES CORP. By: /s/ Steven C. Mason -------------------------------- Name: Steven C. Mason Title: Chairman of the Board THE BON-TON STORES, INC. By: /s/ Tim Grumbacher -------------------------------- Name: Tim Grumbacher Title: Chairman of the Board and Chief Executive Officer ELDER ACQUISITION CORP. By: /s/ Tim Grumbacher -------------------------------- Name: Tim Grumbacher Title: Chairman of the Board and Chief Executive Officer - 52 - ANNEX A TO AGREEMENT AND PLAN OF MERGER THE CAPITALIZED TERMS USED IN THIS ANNEX A HAVE THE MEANINGS SET FORTH IN THE ATTACHED AGREEMENT AND PLAN OF MERGER. Notwithstanding any other provisions of the Offer, Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to a bidder's obligation to pay for or return tendered securities promptly after termination or expiration of such bidder's offer), to pay for any Company Common Shares tendered pursuant to the Offer, and, except as set forth in this Agreement, may extend, terminate or amend the Offer, unless (i) there are validly tendered and not withdrawn immediately prior to the expiration date of the Offer a number of Company Common Shares, that, when added to the Company Common Shares then beneficially owned by Parent, represent at least two-thirds of the total number of Company Common Shares outstanding on a "fully diluted basis" (on a "fully diluted basis" meaning the number of Company Common Shares then issued and outstanding plus the number of Company Common Shares that the Company may be required to issue as of such date pursuant to options, warrants, rights, convertible or exchangeable securities or similar obligations then outstanding, whether or not then vested or exercisable, including without limitation, Company Common Shares that the Company may be required to issue pursuant to Company Options, whether or not vested or exercisable, and the number of Deferred Shares then outstanding, whether or not then subject to any deferral limitations) (the "Minimum Tender Condition"), (ii) Parent shall have available to it the proceeds of the financings contemplated by the Commitment Letters or such other financings that are sufficient, together with cash on hand, to consummate the Offer and the Merger and to refinance all debt of the Company and Parent that is or could be required to be repurchased or becomes, or could be declared, due and payable as a result of the Offer or the Merger or the financing thereof and to pay all related fees and expenses (the "Financing Condition"), (iii) the period of time during which the Ohio Division of Securities may suspend the Offer pursuant Sections 1707.01, 1707.041 and 1707.042 of the Ohio Revised Code, (the "Ohio Control Bid Law"), without the occurrence of any such suspension (or if a suspension shall have occurred, it shall no longer be continuing), shall have expired or Parent being satisfied, in its reasonable discretion, that the Ohio Control Bid Law is invalid or inapplicable to the acquisition of the Company Common Shares in the Offer (the "Control Bid Condition") and (iv) the waiting period under the HSR Act applicable to the purchase of the Company Common Shares pursuant to the Offer shall have expired or been terminated (the "HSR Condition"). In addition, notwithstanding any other provisions of the Offer, Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to a bidder's obligation to pay for or return tendered securities promptly after termination or expiration of such bidder's offer), to pay for any Company Common Shares tendered pursuant to the Offer, and, except as set forth in this Agreement, may extend, terminate or amend the Offer if at any time on or after the date that the Offer is commenced, and prior to the time of payment for Company Common Shares pursuant to the Offer (whether or not any - A-1 - Company Common Shares have theretofore been accepted for payment pursuant to the Offer), any of the following conditions exist: (a) there shall be a judgment, order, decree, statute, law, ordinance, rule or regulation entered, enacted, promulgated, enforced or issued by any court or other Governmental Authority or Regulatory Authority of competent jurisdiction, which remains in effect, (i) restraining or prohibiting or seeking to restrain or prohibit the making or consummation of the Offer or the Merger or (ii) restraining or prohibiting or seeking to restrain or prohibit the performance of the Merger Agreement; (iii) imposing or seeking to impose any material limitations on the ability of Parent or its Affiliates to combine and operate the business and assets of the Company and its subsidiaries, or requiring or seeking to require divestiture by Parent of any significant portion of the business, assets or property of the Company or of Parent; (iv) imposing or seeking to impose any material limitations on the ability of Parent or any Affiliate of Parent to acquire or hold or to exercise full rights of ownership of any securities of the Company, including, without limitation, the right to vote any Company Common Shares acquired by Sub pursuant to the Offer or otherwise on all matters properly presented to the Company's shareholders; or (v) imposing or seeking to impose other material sanctions, damages, or liabilities directly arising out of the Offer or the Merger on Parent or any of its officers or directors; or (b) all consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority or any other public or private third parties required of Parent, the Company or any of their Subsidiaries to consummate the Offer and the Merger, the failure of which to be obtained or taken would reasonably be expected to have a material adverse effect on Parent and its Subsidiaries or the Surviving Corporation and its Subsidiaries, in each case taken as a whole, or on the ability of Parent or the Company to consummate the Offer and the Merger, shall not have been obtained or taken, all in form and substance reasonably satisfactory to Parent; or (c) the representations and warranties made by the Company in this Agreement are not true and correct in all material respects as of the date of consummation of the Offer or, in the case of representations and warranties made as of a specified date earlier than such date, on and as of such earlier dated, except as affected by the transactions contemplated by this Agreement; or (d) the Company shall have failed to perform and comply, in all material respects, with each agreement, covenant and obligation required by this Agreement to be so performed or complied with by the Company on or prior to the consummation of the Offer; or (e) this Agreement shall have been terminated in accordance with its terms; or (f) any actions required to be taken by the Company pursuant to this Agreement prior to consummation of the Offer in connection with the Offer or the Merger or any documents incident thereto shall fail to be reasonably satisfactory in form and substance to Parent, or Parent shall not have received copies of all such documents - A-2 - and other evidences as Parent may reasonably request in order to establish the taking of all such actions; or (g) the rights issued pursuant to the Company Rights Agreement shall have become exercisable or transferable apart from the associated Company Common Shares or the Company shall not have taken all necessary actions so that (1) the Company Rights Agreement will not be applicable to the Offer, the Merger and this Agreement and (2) a Distribution Date, a Triggering Event or a Share Acquisition Date (as such terms are defined in the Company Rights Agreement) does not occur, in the case of clauses (1) and (2), by reason of the execution of this Agreement and the consummation of the Offer, the Merger and the other transactions contemplated hereby; or (h) the Company's Board of Directors or any committee thereof shall have withdrawn or modified (including by amendment of the Schedule 14D-9) in a manner adverse to Parent or Sub its approval or recommendation of the Offer, this Agreement or the Merger, or shall have recommended to the Company's shareholders any Alternative Proposal or shall have adopted any resolution to effect any of the foregoing that, in the sole judgment of Sub in any such case, and regardless of the circumstances (including any action or omission by Sub) giving rise to any such condition, makes it inadvisable to proceed with such acceptance or payment. The foregoing conditions are for the sole benefit of Parent, Sub and their Affiliates and may be asserted by Parent or Sub in its reasonable discretion in whole or in part at any time or from time to time before the expiration of the Offer or, with respect to the HSR Condition, before payment for any Company Common Shares pursuant to the Offer. Subject to the provisions of this Agreement, Parent and Sub expressly reserve the right to waive any of the conditions to the Offer and to make any change in the terms of or conditions to the Offer. Any failure by Parent or Sub at any time to exercise its rights under any of the foregoing conditions shall not be deemed a waiver of any such right. The waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances. Each such right shall be deemed an ongoing right that may be asserted at any time or from time to time. - A-3 - -----END PRIVACY-ENHANCED MESSAGE-----