-----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, BN2dMqV1VXm7xCpSergmSR5te5rkph+gi9TlCQ3GYjtqwM38tdA3i9ginDE3sMHP ATmJw6hkn67VxL4BTp6ixg== 0000950152-03-006392.txt : 20030626 0000950152-03-006392.hdr.sgml : 20030626 20030626152455 ACCESSION NUMBER: 0000950152-03-006392 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030626 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030626 FILER: 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02788 FILM NUMBER: 03758535 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 8-K 1 l01694ae8vk.txt THE ELDER-BEERMAN STORES CORP. 8-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): June 26, 2003 THE ELDER-BEERMAN STORES CORP. (Exact Name of Registrant as Specified in Its Charter) Ohio 0-02788 31-0271980 (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.) 3155 El-Bee Road Dayton, Ohio 45439 (Address, including Zip Code, of Principal Executive Offices) 937-296-2700 (Registrant's Telephone Number, Including Area Code) N/A (Former Name or Former Address, if Changed Since Last Report) ================================================================================ ITEM 5. OTHER EVENTS AND REQUIRED FD DISCLOSURE. On June 26, 2003, The Elder-Beerman Stores Corp. issued a press release announcing the execution of an Agreement and Plan of Merger with Wright Holdings, Inc. and Wright Sub, Inc. The text of the release is attached as Exhibit 99.1 to this Form 8-K, and is incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. 2.1 Agreement and Plan of Merger, dated June 25, 2003, by and among The Elder-Beerman Stores Corp., Wright Holdings, Inc. and Wright Sub, Inc. 99.1 Press release, dated June 26, 2003. The schedules attached to Exhibit 2.1 have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Copies of these schedules will be provided to the Securities and Exchange Commission upon request. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE ELDER-BEERMAN STORES CORP. Date: June 26, 2003 By: /s/ Edward A. Tomechko --------------------------------------------- Name: Edward A. Tomechko Title: Executive Vice President - Chief Financial Officer, Treasurer and Secretary EXHIBIT INDEX Exhibit Number Exhibit Description - ------ ------------------- 2.1 Agreement and Plan of Merger, dated June 25, 2003, by and among The Elder-Beerman Stores Corp., Wright Holdings, Inc. and Wright Sub, Inc. 99.1 Press release, dated June 26, 2003. EX-2.1 3 l01694aexv2w1.txt EXHIBIT 2.1 Exhibit 2.1 AGREEMENT AND PLAN OF MERGER dated as of June 25, 2003 by and among THE ELDER-BEERMAN STORES CORP., WRIGHT HOLDINGS, INC. and WRIGHT SUB, INC. TABLE OF CONTENTS ARTICLE I................................................................... 1 1.01 The Merger.......................................................... 1 1.02 Closing............................................................. 2 1.03 Effective Time...................................................... 2 1.04 Articles of Incorporation and Code of Regulations of the Surviving Corporation......................................................... 2 1.05 Directors and Officers of the Surviving Corporation................. 2 1.06 Effects of the Merger............................................... 2 1.07 Further Assurances.................................................. 2 ARTICLE II.................................................................. 3 2.01 Conversion of Capital Shares........................................ 3 2.02 Exchange of Certificates............................................ 5 ARTICLE III................................................................. 7 3.01 Organization and Qualification...................................... 7 3.02 Capitalization...................................................... 7 3.03 Authority Relative to this Agreement................................ 8 3.04 Non-Contravention; Approvals and Consents........................... 9 3.05 SEC Reports and Financial Statements................................ 10 3.06 Absence of Certain Changes or Events................................ 11 3.07 Absence of Undisclosed Liabilities.................................. 11 3.08 Legal Proceedings................................................... 11 3.09 Information Supplied................................................ 11 3.10 Permits; Compliance with Laws and Orders............................ 12 3.11 Compliance with Agreements; Certain Agreements...................... 12 3.12 Taxes............................................................... 13 3.13 Employee Benefit Plans; ERISA....................................... 16 3.14 Labor Matters....................................................... 18 3.15 Environmental Matters............................................... 19 3.16 Company Real Property............................................... 20 3.17 Intellectual Property Rights........................................ 21 3.18 Insurance........................................................... 21 3.19 Affiliate Transactions.............................................. 21 3.20 Vote Required....................................................... 22 3.21 Opinion of Financial Advisor........................................ 22 3.22 Company Rights Agreement............................................ 22 3.23 Anti-takeover Statutes Not Applicable............................... 22 ARTICLE IV.................................................................. 22 4.01 Organization and Qualification...................................... 22 4.02 Authority Relative to this Agreement................................ 23 4.03 Non-Contravention; Approvals and Consents........................... 23 4.04 Information Supplied................................................ 24 4.05 Legal Proceedings................................................... 24 4.06 Capitalization of Sub............................................... 24
i ARTICLE V................................................................... 25 5.01 Covenants of the Company............................................ 25 5.02 No Solicitations.................................................... 27 5.03 Financing-Related Cooperation....................................... 29 5.04 SEC Reports......................................................... 30 ARTICLE VI.................................................................. 30 6.01 Access to Information; Confidentiality.............................. 30 6.02 Preparation of Proxy Statement; Schedule 13E........................ 31 6.03 Approval of Shareholders............................................ 31 6.04 Regulatory and Other Approvals...................................... 32 6.05 Employee Matters.................................................... 32 6.06 Indemnification; Directors' and Officers' Insurance................. 33 6.07 Expenses............................................................ 33 6.08 Sub................................................................. 33 6.09 Brokers or Finders.................................................. 34 6.10 Takeover Statutes................................................... 34 6.11 Conveyance Taxes.................................................... 34 6.12 Notice and Cure..................................................... 34 6.13 Fulfillment of Conditions........................................... 34 6.14 Environmental Matters............................................... 35 6.15 Delisting........................................................... 35 ARTICLE VII................................................................. 35 7.01 Conditions to Each Party's Obligation to Effect the Merger.......... 35 7.02 Conditions to Obligation of Parent and Sub to Effect the Merger..... 36 7.03 Conditions to Obligation of the Company to Effect the Merger........ 37 ARTICLE VIII................................................................ 37 8.01 Termination......................................................... 37 8.02 Effect of Termination............................................... 38 8.03 Amendment........................................................... 40 8.04 Waiver.............................................................. 40 ARTICLE IX.................................................................. 40 9.01 Survival of Representations, Warranties, Covenants and Agreements... 40 9.02 Notices............................................................. 41 9.03 Entire Agreement; Incorporation of Exhibits......................... 42 9.04 Public Announcements................................................ 42 9.05 No Third Party Beneficiary.......................................... 42 9.06 No Assignment; Binding Effect....................................... 42 9.07 Headings............................................................ 42 9.08 Invalid Provisions.................................................. 42 9.09 Governing Law....................................................... 43 9.10 Enforcement of Agreement............................................ 43 9.11 Certain Definitions................................................. 43 9.12 Counterparts........................................................ 44
ii INDEX OF DEFINED TERMS
PAGE NO. -------- Affiliate................................................................... 42 Agreement................................................................... 1 Alternative Proposal........................................................ 29 Antitrust Division.......................................................... 31 Beneficially................................................................ 43 Business Day................................................................ 43 Certificate of Merger....................................................... 2 Certificates................................................................ 5 Closing..................................................................... 2 Closing Date................................................................ 2 Code........................................................................ 7 Commitment Letters.......................................................... 25 Company..................................................................... 1 Company Common Shares....................................................... 3 Company Credit Facility..................................................... 21 Company Disclosure Letter................................................... 7 Company Employee Benefit Plan............................................... 17 Company Financial Statements................................................ 10 Company Option Plan......................................................... 4 Company Options............................................................. 4 Company Permits............................................................. 12 Company Preferred Shares.................................................... 8 Company Real Property....................................................... 21 Company Rights Agreement.................................................... 8 Company SEC Reports......................................................... 10 Company Shareholders' Approval.............................................. 31 Company Shareholders' Meeting............................................... 31 Company Store Leases........................................................ 21 Company Warrants............................................................ 5 Confidentiality Agreement................................................... 30 Constituent Corporations.................................................... 2 Contracts................................................................... 9 Control..................................................................... 42 Disinterested Directors..................................................... 28 Dissenting Share............................................................ 3 Effective Time.............................................................. 2 Employee Benefit Plan....................................................... 17 ERISA....................................................................... 17 ERISA Affiliate............................................................. 17 Exchange Act................................................................ 10 Expense Reimbursement....................................................... 39 Financing................................................................... 36
iii FTC......................................................................... 31 Governmental or Regulatory Authority........................................ 9 Group....................................................................... 43 HSR Act..................................................................... 10 Intellectual Property....................................................... 22 Knowledge................................................................... 43 Laws........................................................................ 9 Lien........................................................................ 8 Material.................................................................... 43 Material Adverse Effect..................................................... 43 Materially Adverse.......................................................... 43 Merger...................................................................... 1 Merger Price................................................................ 3 Multiemployer Plan.......................................................... 18 New SEC Reports............................................................. 29 OGCL........................................................................ 1 Option Amount............................................................... 4 Options..................................................................... 8 Orders...................................................................... 9 Parent...................................................................... 1 Parent Disclosure Letter.................................................... 23 Payment Agent............................................................... 5 Payment Fund................................................................ 5 PBGC........................................................................ 18 Permitted Encumbrances...................................................... 21 Person...................................................................... 43 Plan........................................................................ 17 Proxy Statement............................................................. 12 Reportable Event............................................................ 18 Representatives............................................................. 43 Sarbanes-Oxley Act.......................................................... 10 SEC......................................................................... 10 Secretary of State.......................................................... 2 Securities Act.............................................................. 10 Sub......................................................................... 1 Sub Common Shares........................................................... 3 Subsidiary.................................................................. 43 Superior Proposal........................................................... 29 Surviving Corporation....................................................... 2 Surviving Corporation Common Shares......................................... 3 Tax......................................................................... 13 Tax Return.................................................................. 14 Taxes....................................................................... 13 Termination Fee............................................................. 3 Warrant Amount.............................................................. 5
iv AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 25, 2003, is made and entered into by and among The Elder-Beerman Stores CORP., an Ohio corporation (the "Company"), Wright Holdings, Inc., a Delaware corporation ("Parent"), and Wright Sub, Inc., 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 a 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; WHEREAS, Parent, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger; WHEREAS, certain executives of the Company will enter into letter agreements with Parent (the "Management Letters") pursuant to which such persons will agree to execute, immediately prior to the Effective Time, certain agreements which will provide for, among other things, the transfer of Company Common Shares held by such executives for equity in Parent and the assumption by Parent of certain unexercised options to purchase Company Common Shares held by such executives, whereby such executives shall be entitled to acquire, by virtue of the Merger, common stock of Parent upon exercise of such assumed options; 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 MERGER 1.01 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 a wholly owned subsidiary of Parent. Sub and the Company are sometimes referred to herein as the "Constituent 1 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 II. 1.02 Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 8.01, and subject to the satisfaction or waiver (where applicable) of the conditions set forth in Article VII, 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 seventh calendar day following satisfaction of the conditions set forth in Article VII (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) (or, if such day is not a business day, on the next succeeding business day), unless another date, time or place is agreed to by the parties hereto (the "Closing Date"). At the Closing there shall be delivered to Parent, Sub and the Company the certificates and other documents and instruments required to be delivered under Article VII. 1.03 Effective Time. At the Closing, a certificate of merger (the "Certificate of Merger") shall be duly prepared and executed by the Constituent Corporations and thereafter delivered to the Secretary of State of the State of Ohio (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"). 1.04 Articles of Incorporation and Code of Regulations of the Surviving Corporation. At the Effective Time, (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. 1.05 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. 1.06 Effects of the Merger. Subject to the foregoing, the effects of the Merger shall be as provided in the applicable provisions of the OGCL. 1.07 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, 2 properties, privileges, rights, approvals, immunities and franchises of either of the Constituent Corporations or to effect the other purposes of this Agreement. ARTICLE II CONVERSION OF SHARES 2.01 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 as 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 common shares, without par value, of the Company ("Company Common Shares") that are owned by the Company as treasury shares and any Company Common Shares owned by Parent, Sub or any other 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 2.01(b) and other than Dissenting Shares (as defined in Section 2.01(d))) shall be converted into the right to receive $6.00 in cash, without any interest thereon (the "Merger Price"), 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 2.01(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 Merger Price per share, upon the surrender of such certificate in accordance with Section 2.02, 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 Merger Price pursuant to Section 2.01(c), but the holder thereof shall be entitled to 3 receive such payment of the fair cash value of such Company Common Share from the Surviving Corporation as shall be 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 Merger Price, without any interest thereon, pursuant to Section 2.01(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 to jointly participate with the Company in all negotiations and proceedings with respect to demands for payment under Section 1701.85 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. (e) Company Stock Option Plan. (i) Subject to paragraph (ii) below and to the terms of the Management Letters, immediately prior to the Effective Time, each outstanding option to acquire Company Common Shares ("Company Options") granted under The Elder-Beerman Stores Corp. Equity and Performance Incentive Plan (the "Company Option Plan"), whether or not then exercisable, shall be cancelled by the Company, and 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 Merger Price 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 2.01(e). From and after the Effective Time, other than as expressly set forth in this Section 2.01(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 2.01(e). (ii) Except as provided herein or as otherwise agreed 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 reasonable best efforts to ensure that following the Effective Time no current or former employee, officer, director or consultant shall have any option to acquire any Company Common Shares or any other equity interest in the Company under the Company Option Plan or any other plan, program or arrangement maintained by the Company. 4 (iii) 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 2.01(e)(i), subject, if necessary, to obtaining consents of the holders of Company Options to the cancellation thereof in exchange for the consideration set forth in Section 2.01(e)(i). 2.02 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 Merger Price 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 2.02. 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 2.02 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 Merger Price are the property of Parent and shall be 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 which immediately prior to the Effective Time represented outstanding Company Common Shares (the "Certificates") whose shares are converted pursuant to Section 2.01(c) into the right to receive the Merger Price (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 Merger Price. 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 Merger Price 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 II, 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 which is not registered in the transfer records of the Company, the Merger Price 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 2.02(b), each Certificate shall be 5 deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Price per Company Common Share represented thereby as contemplated by this Article II, together with the dividends, if any, which may have been declared by the Company on the Company Common Shares in accordance with the terms of this Agreement and which 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 Merger Price. (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 Merger Consideration due to such Person as provided in Section 2.02(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 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 which may have been declared by the Company on such shares of Company Common Shares in accordance with the terms of this Agreement and which 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 which 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 2.02. (e) Termination of Payment Fund. Any portion of the Payment Fund which 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 II 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 Merger Price per Company Common Share. Neither Parent nor the Surviving Corporation shall be liable to any holder of Company Common Shares for cash representing the Merger Price 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. 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Sub as of the date of this Agreement as follows: 3.01 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 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 3.01 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 3.01 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. 3.02 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 June 12, 2003, 11,581,445 Company Common Shares were issued and outstanding and no shares were held in the treasury of the Company. As of June 12, 2003, the Company had authorized for issuance 2,750,000 Company Common Shares pursuant to the Company Option Plan, and awards relating to 1,746,297 Company Common Shares have been issued of which the number of awards relating to Company Common Shares with an exercise price less than the Merger Price is set forth in Section 3.02 of the Company Disclosure Letter. As of the date hereof, no Company Preferred Shares are issued and outstanding. 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 November 30, 1997 and as amended as of November 11, 1998, by and between the Company and Norwest Bank Minnesota, N.A., as rights 7 agent (the "Company Rights Agreement"), and except as set forth in Section 3.02 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 3.02 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, 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 3.02 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 3.02 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. 3.03 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, 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 adoption of this Agreement by the shareholders of the Company; 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. 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). 8 3.04 Non-Contravention; Approvals and Consents. (a) Except as set forth in Section 3.04 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 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 and the taking of the actions described in paragraph (b) of this Section 3.04, (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 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 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 the Company Store Leases other than those which can not reasonably be expected to have a material adverse impact on one or more Company Store Lease). (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 Proxy Statement with the Securities and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act"), (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, and (iv) as set forth in Section 3.04 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 9 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 (iv) such consents, approvals, actions, filings and notices which the failure to make or obtain, as the 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). 3.05 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 (other than preliminary material) 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 3.05 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. 10 (c) As used in this Section 3.05, 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. 3.06 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 3.06 of the Company Disclosure Letter, since February 2, 2003 (a) there has not been any change, event or development which, 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 and (b) the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course consistent with past practice. 3.07 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 3.07 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) which were incurred in the ordinary course of business consistent with past practice, (ii) which have been disclosed in Section 3.07 of the Company Disclosure Letter, or (iii) 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. 3.08 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 3.08 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 which, 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 which, 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. 3.09 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"), and any other documents to be filed by the Company with the SEC or any other Governmental or Regulatory Authority in connection with the Merger and the other transactions contemplated hereby or (b) information supplied by the Company in writing for inclusion in the Schedule 13E-3 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 11 correct any statement in any earlier communication with respect to any solicitation of proxies for the Company Shareholders' Meeting which 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. The Proxy Statement filed by the Company with the SEC under the Exchange Act relating to the Company Shareholders' Meeting will comply as to form in all material respects with the Exchange Act. 3.10 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 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. 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 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. 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 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. 3.11 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 which, 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 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. 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 3.11 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 12 with any executive officer or other key employee of the Company or any of its Subsidiaries the benefits of which are contingent or vest, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company or any of its Subsidiaries of the nature contemplated by this Agreement, (iv) agreement with respect to any executive officer or other key employee of the Company or any of its Subsidiaries providing any term of employment or compensation guarantee, (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) agreements concerning a partnership or joint venture, (viii) loan agreements, promissory notes, security agreements, deeds of trust and other agreements relating to indebtedness for borrowed money or deferred purchase price of property (other than trade payables arising in the ordinary course of business), (ix) any agreement relating to business acquisitions or dispositions not yet consummated, including any separate Tax or indemnification agreements, and (x) any 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). 3.12 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 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 3.12 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 13 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 which 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 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; (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; (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 3.12(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 14 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 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 3.12 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 which 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 Merger. 15 3.13 Employee Benefit Plans; ERISA. (a) Except as set forth in Section 3.13 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 3.13(a)(1) of the Company Disclosure Letter lists all Company Employee Benefit Plans and all ERISA Affiliates. Except as set forth in Section 3.13(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 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 3.13(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. 16 (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. (d) Except as set forth in Section 3.13(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) which 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 3.13(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 17 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 3.13(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. (i) Except as disclosed in Section 3.13(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 3.13(i) 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. 3.14 Labor Matters. Except as set forth in Section 3.14 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 3.14 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 3.14 of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries has closed any retail store, distribution center or other 18 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. 3.15 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. (b) Without limiting the generality of the foregoing, each of the Company and its Subsidiaries has obtained and is in compliance with, in each case in all material respects, 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 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 3.15 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. 19 (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. (g) For purposes of this Section 3.15, 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 or 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. 3.16 Company Real Property. (a) Section 3.16 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 20 (the "Company Store Leases"), including any modifications and supplements. Except as set forth in Section 3.16 of the Company Disclosure Schedule (i) all of the Company Store Leases are in full force and effect, (ii) the Company and, to the 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. 3.17 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 3.16 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. 3.18 Insurance. Section 3.18 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. 3.19 Affiliate Transactions. Except as set forth in the Company SEC Reports, there are no contracts, commitments, agreements, arrangements or other transactions between the 21 Company or any of its Subsidiaries, on the one hand, and any (i) present officer or director of the 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. 3.20 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. 3.21 Opinion of Financial Advisor. The Company has received the opinion of RBC Dain Rauscher Inc., a member company of RBC Capital Markets, ("RBC Dain Rauscher Inc."), dated the date hereof, to the effect that, as of the date hereof, the consideration to be received in the Merger by the shareholders of the Company is fair from a financial point of view to the shareholders of the Company. 3.22 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 the Company Rights Agreement will not be applicable to this Agreement, the Merger and the other transactions contemplated hereby. 3.23 Anti-takeover Statutes Not Applicable. 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 Merger or other transactions contemplated hereby. ARTICLE IV 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: 4.01 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 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 4.01 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 22 incorporation and code of regulations or bylaws (or other comparable charter documents) of Parent and Sub. 4.02 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). 4.03 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 4.03, (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. (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 and (ii) 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 23 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 which 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. 4.04 Information Supplied. Neither the information supplied or to be supplied in writing by or on behalf of Parent or Sub for inclusion, in the 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 Merger and the other transactions contemplated hereby, including without limitation the Schedule 13E-3 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. 4.05 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 which, 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 which, 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. 4.06 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 Parent free and clear of any and all 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. 4.07 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 Merger and pay the Merger Price as provided in Section 2.01, and to pay related fees and expenses (collectively, the "Commitment Letters"), and 24 will make such funds available to Sub immediately prior to the Closing. 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. 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 V COVENANTS OF THE COMPANY 5.01 Covenants of the Company. At all times from and after the date hereof until the Effective Time, 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): (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 5.01, (i) 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 (ii) the Company shall not, nor shall it permit any of its Subsidiaries to: (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 25 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 Company 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 leaseback, 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; (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 5.01(b)(vii) of the Company Disclosure Letter or to the extent provided for in or contemplated by the Company Budget (i) incur any indebtedness for borrowed money, except pursuant to the Company Credit Facility in the ordinary course of business or (ii) enter into any new credit facility; (viii) except for the vesting of all unvested Options as contemplated by Section 2.01(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 26 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 5.01(b)(J) 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 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. 5.02 No Solicitations. (a) Prior to the Effective Time, the Company agrees (a) that neither it nor any of its Subsidiaries shall, and it shall cause 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 (b) 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 5.02; provided, however, that nothing contained in this Section 5.02 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 27 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) 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 5.02; 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), 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 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 5.021(a)(ii) above), with respect to an Alternative Proposal that is or presents a reasonable likelihood of resulting in a Superior Proposal for three business days 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 three-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 three-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 three-day negotiation period under this Section 5.02, 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 5.02 shall permit the Company to terminate this Agreement except as provided in Article VIII. (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 5.02(a)(ii) above, propose publicly to approve or recommend an 28 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) 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 5.02. (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 the terms and conditions of the Alternative Proposal and this Agreement deemed relevant by such Disinterested Directors): (i) that contains terms that provide greater value to the Company's shareholders than the Merger (and any revised proposal made by Parent); (ii) that is reasonably likely to be completed, taking into account all legal, financial, regulatory and other aspects of the Alternative Proposal; and (iii) 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. 5.03 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 29 Subsidiaries; provided that no call for redemption or prepayment shall be irrevocably made until contemporaneously with or after the Effective Time. 5.04 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 provisions set forth in Section 3.05(a) hereof. ARTICLE VI ADDITIONAL AGREEMENTS 6.01 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 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 6.01 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 6.01 shall be governed by the terms of the Confidentiality Agreement, dated as of March 24, 2003, with the Company, which Parent and Sub hereby adopt as binding on each of them as if each of them were a party to the such agreement (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. 30 6.02 Preparation of Proxy Statement; Schedule 13E. (a) The Company shall prepare and file with the SEC the Proxy Statement as soon as reasonably practicable after the date hereof, 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. (b) Concurrently with the filing of the Proxy Statement, the parties and their respective affiliates (to the extent required by law) shall prepare and file with the SEC a Rule 13E-3 Transaction Statement on Schedule 13E-3 (together with all supplements and amendments thereto, the "Schedule 13E-3") with respect to the transactions contemplated by this Agreement. Each party shall promptly furnish to the other parties all information concerning such party as may reasonably be requested in connection with the preparation of the Schedule 13E-3. The parties shall promptly supplement, update and correct any information provided by them for use in the Schedule 13E-3 if and to the extent that it is or shall have become incomplete, false or misleading. In any such event, Parent and the Company shall take all steps necessary to cause the Schedule 13E-3 as so supplemented, updated or corrected to be filed with the SEC and to be disseminated to the holders of Company Common Shares, in each case, as and to the extent required by applicable federal securities laws. Each party and its counsel shall be given an opportunity to review and comment with respect thereto prior to its being filed with or delivered to the SEC. Each party agrees to provide the other parties and their counsel with any comments that the Company or its counsel may receive from the staff of the SEC promptly after receipt thereof. 6.03 Approval of Shareholders. 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 hereof. Except as permitted by Section 5.02, 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. 31 6.04 Regulatory and Other Approvals. Subject to the terms and conditions of this Agreement and without limiting the provisions of Sections 6.02 and 6.03, 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 Merger and the other transactions contemplated hereby, 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. 6.05 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 Effective Time 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 which 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 Effective Time will (i) credit, for vesting and eligibility purposes only, all service performed for the Company prior to the Effective Time, 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 Effective Time, have not been satisfied under any Company Employee Benefit Plan) and (iii) provide that any covered expenses incurred on or before the Effective Time 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 Effective Time. 32 6.06 Indemnification; Directors' and Officers' Insurance. (a) From and after the Effective Time 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 Effective Time. 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 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 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 6.06. 6.07 Expenses. Except as set forth in Section 8.02, 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. 6.08 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 Merger on the terms and conditions set forth in this Agreement. 33 6.09 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 RBC Dain Rauscher Inc., 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 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. 6.10 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 permitted by Law, to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby and thereby. 6.11 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. 6.12 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 6.12 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. 6.13 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. 34 6.14 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. 6.15 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 Effective Time. ARTICLE VII CONDITIONS 7.01 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. (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) which 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) Governmental and Regulatory and Other Consents and Approvals. Other than the filing of the Certificate of Merger provided for by Section 1.03, 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 Merger and the other matters contemplated hereby, 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 transactions contemplated hereby shall have been obtained, all in form and substance reasonably satisfactory to Parent and the Company. 35 7.02 Conditions to Obligation of Parent and Sub to Effect the Merger. The obligation of Parent and Sub to effect the Merger is further subject to the fulfillment, at or prior to the Closing, of each of the following additional conditions (all or any of which may be waived in whole or in part by Parent and Sub in their sole discretion): (a) Representations and Warranties. The representations and warranties made by the Company in this Agreement shall be true and correct in all material respects, in each case as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date, except as affected by the transactions contemplated by this Agreement, and the Company shall have delivered to Parent a certificate, dated the Closing Date and executed in the name and on behalf of the Company by an officer of the Company to such effect. (b) Performance of Obligations. The Company shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by the Company at or prior to the Closing, and the Company shall have delivered to Parent a certificate, dated the Closing Date and executed in the name and on behalf of the Company by an officer of the Company to such effect. (c) Company Rights Agreement. On or prior to the Closing Date, the Company Rights shall not have become exercisable or transferable apart from the associated Company Common Shares and the Company shall have taken all necessary actions so that the Company Rights Agreement will not be applicable to this Agreement, the Merger and the other transactions contemplated hereby. (d) Dissenting Shares. The aggregate number of Dissenting Shares shall not exceed 7% of the total number of Company Common Shares outstanding on the Closing Date. (e) Company Actions. All actions required to be taken by the Company pursuant to this Agreement in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Parent, and Parent shall 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. (f) Financing. Parent and Sub shall have received the proceeds of the financing contemplated by the Commitment Letters on the terms and conditions set forth therein or such other terms as are reasonably satisfactory to Parent, in the amounts necessary to consummate the Merger and pay all related fees and expenses. (g) No Injunctions or Restraints. No judgment, order, decree, statute, law, ordinance, rule or regulation entered, enacted, promulgated, enforced or issued by any court or other Governmental Authority of competent jurisdiction or other legal restraint or prohibition shall be in effect (i) imposing or seeking to impose material limitations on the ability of Parent to acquire or hold or to exercise full rights of ownership of any securities of the Company; (ii) imposing or seeking to impose material limitations on the ability of Parent or its Affiliates to combine and operate the business and assets of the Company; (iii) imposing or seeking to impose other material sanctions, damages, or liabilities directly arising out of the Merger on Parent or any of 36 its officers or directors; or (iv) requiring or seeking to require divestiture by Parent of any significant portion of the business, assets or property of the Company or of Parent. 7.03 Conditions to Obligation of the Company to Effect the Merger. The obligation of the Company to effect the Merger is further subject to the fulfillment, at or prior to the Closing, of each of the following additional conditions (all or any of which may be waived in whole or in part by the Company in its sole discretion): (a) Representations and Warranties. The representations and warranties made by Parent and Sub in this Agreement shall be true and correct in all material respects, in each case as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date, except as affected by the transactions contemplated by this Agreement, and Parent and Sub shall each have delivered to the Company a certificate, dated the Closing Date and executed in the name and on behalf of Parent by an officer of Parent and in the name and on behalf of Sub by an officer of Sub to such effect. (b) Performance of Obligations. Parent and Sub shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Parent or Sub at or prior to the Closing, and Parent and Sub shall each have delivered to the Company a certificate, dated the Closing Date and executed in the name and on behalf of Parent by an officer of Parent and in the name and on behalf of Sub by an officer of Sub to such effect. (c) Parent and Sub Actions. All actions required to be taken by Parent and Sub pursuant to this Agreement in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company, and the Company shall have received copies of all such documents and other evidences as the Company may reasonably request in order to establish the taking of all such actions. (d) Solvency Opinion. If a solvency opinion is delivered to the lenders pursuant to the terms of the Commitment Letters, the Company shall have received a copy of such opinion. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 8.01 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; (b) By either the Company or Parent upon written notification to the non-terminating party by the terminating party: 37 (i) at any time after October 31, 2003 if the Merger shall not have been consummated on or prior to such date and such failure to consummate the Merger is not caused by a breach of this Agreement by the terminating party; (ii) if the Company Shareholders' Approval shall not be obtained by reason of the failure to obtain the requisite vote upon a vote held at a meeting of such shareholders, or any adjournment thereof, called therefor; (iii) if there has been a material breach of any representation, warranty, covenant or agreement on the part of the non-terminating party set forth in this Agreement, which breach is not curable or, if curable, has not been cured within thirty (30) days following receipt by the non-terminating party of notice of such breach from the terminating party; or (iv) 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 Merger and any such Order shall have become final and non-appealable; (c) By the Company if 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)) 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 5.02; provided that the Company's ability to terminate this Agreement pursuant to this paragraph (c) is conditioned upon the payment by the Company to Parent of any amounts owed by it pursuant to Section 8.02(d); or (d) By Parent if 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 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 and the Merger within ten (10) business days following a reasonable written request for such reconfirmation by Parent. 8.02 Effect of Termination. (a) If this Agreement is validly terminated by either the Company or Parent pursuant to Section 8.01, 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 6.07 and 6.09 and this Section 8.02 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 paragraph (b) below. (b) In the event that this Agreement is terminated: 38 (i) by either Parent or the Company pursuant to Section 8.01(b)(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 Company Shareholders' Meeting; (ii) by either Parent or the Company pursuant to Section 8.01(b)(ii); or (iii) by Parent pursuant to Section 8.01(b)(iii) (other than with respect to a breach of Sections 5.02 or 6.03), 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 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 Company Shareholders' Meeting (with respect to clause (ii)) or prior to the date of termination (with respect to clause (iii)), 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 8.01(b)(iii) due to a breach by the Company of Sections 5.02 or 6.03, 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 8.01(c); or (ii) by Parent pursuant to Section 8.01(d), 39 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 the event of a termination of this Agreement pursuant to which a payment or payments are made in full compliance with Section 8.02(b), 8.02(c) or 8.02(d), 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 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. (f) The Company acknowledges that the agreements contained in Sections 8.02(b),8.02(c) and 8.02(d) 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. 8.03 Amendment. This Agreement may be amended, supplemented or modified by action taken by or on behalf of the respective Boards of Directors of the parties hereto 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. 8.04 Waiver. At any time prior to the Effective Time any party hereto, by action taken by or on behalf of its Board of Directors, 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 IX GENERAL PROVISIONS 9.01 Survival of Representations, Warranties, Covenants and Agreements. The representations, warranties, covenants and agreements contained in this Agreement shall not 40 survive the Merger but shall terminate at the Effective Time; provided, however, that this Section 9.01 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. 9.02 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 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: Wright Holdings, Inc. c/o Goldner Hawn Johnson & Morrison, Inc. 5250 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Facsimile No.: (612) 338-2860 Attn: Michael T. Sweeney with a copy to: Dorsey & Whitney LLP 50 South Sixth Street, Suite 1500 Minneapolis, Minnesota 55402 Facsimile No.: (612) 340-7800 Attn: Robert A. Rosenbaum Matthew J. Knopf If to the Company, to: The Elder-Beerman Stores Corp. 3155 El-Bee Road Dayton, Ohio 45439 Facsimile No.: (937) 296- Attn: Chief Executive Officer 41 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 9.03 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. (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. 9.04 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. 9.05 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 6.06 (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. 9.06 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. 9.07 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. 9.08 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 42 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. 9.09 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. 9.10 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 an injunction or injunctions to prevent breaches of this 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. 9.11 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. 43 (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; and (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. 9.12 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] 44 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 WRIGHT HOLDINGS, INC. By: /s/ Michael T. Sweeney ----------------------------------- Name: Michael T. Sweeney Title: President WRIGHT SUB, INC. By: /s/ Michael T. Sweeney ----------------------------------- Name: Michael T. Sweeney Title: President 45 EX-99.1 4 l01694aexv99w1.txt EXHIBIT 99.1 Exhibit 99.1 ELDER-BEERMAN ANNOUNCES EXECUTION OF MERGER AGREEMENT FOR SALE OF THE COMPANY DAYTON, Ohio - June 26, 2003 - The Elder-Beerman Stores Corp. (Nasdaq:EBSC) announced today that it has 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. The merger agreement provides that the shareholders of Elder-Beerman will receive $6.00 per share in cash for their common shares. The purchase price represents a 104 % premium over the average closing price of the company's common shares for the thirty days prior to May 16, 2003. The company had announced on May 16, 2003 that it was entering into exclusive negotiations relating to the sale of the company. Wright Holdings was formed to carry out the merger and is currently owned solely by Marathon Fund Limited Partnership IV, a private investment fund managed by Goldner Hawn. Wright Holdings has received written commitments from the Marathon Fund and affiliates of Fleet Financial Group to fund the closing of the merger transaction and provide working capital to support operations. Completion of the merger is subject to the receipt by Wright Holdings of the proceeds contemplated by these financing commitments. Elder Beerman's independent directors unanimously approved the merger agreement and the merger, and has agreed to recommend its approval by company shareholders. Nine of the company's ten directors are independent and not employed by the company. RBC Capital Markets served as Elder-Beerman's financial advisor in connection with the proposed merger and has rendered an opinion to the company's board that, subject to the qualifications set forth therein and as of the date the board approved the merger agreement, the cash consideration to be paid Elder-Beerman shareholders was fair, from a financial point of view, to the shareholders. After completion of the proposed merger, Elder-Beerman will continue to be headquartered in Dayton, Ohio, and will operate as a private company. It is expected that the current Elder-Beerman senior management team led by Byron (Bud) Bergren, President and Chief Executive Officer, and Edward Tomechko, Executive Vice President and Chief Financial Officer, will remain in place and will have an opportunity to acquire an equity interest in Wright Holdings. It is anticipated that immediately after the merger, current management of the company will own 10% of Wright Holdings. Steven C. Mason, Chairman of the Company, stated that "We are enthusiastic about the merger. It provides shareholders a liquidity event at prices substantially in excess of prices at which Elder-Beerman has traded during the last two and a half years prior to the announcement that the company was in exclusive negotiations for the sale of the company. The merger price, I believe, reflects the success of current management in its restructuring initiatives, management of assets and execution of a sound strategy and the Board's success in maximizing shareholder value." 1 Bud Bergren commented that "We have been successful in a difficult retail operating environment in reducing debt and building a workable strategy for the future. I am delighted that current shareholders will reap the benefits of our efforts. At the same time, Elder-Beerman's current management welcomes the challenge, in association with the company's new owners, to continue to improve Elder-Beerman for our customers and employees. I am delighted that our headquarters will remain in Dayton and that we can continue to execute our new format store strategy which should provide additional opportunities for our associates." Michael Sweeney, Managing Director of Goldner Hawn said, "It is a pleasure to invest with Bud Bergren and his management team. We look forward to supporting the growth and development of Elder-Beerman. This investment will represent our fourth public-to-private transaction, an area in which we have developed a particular interest." Sweeney is expected to serve as Elder-Beerman's Chairman of the Board following completion of the merger. The transaction is subject to the satisfaction of customary closing conditions, including receipt of the proceeds from the financings and the approval by the holders of at least two-thirds of Elder-Beerman's outstanding common shares. Shareholder approval will be solicited by the Company by means of a proxy statement, which will be mailed to shareholders upon the completion of the required Securities and Exchange Commission filing and review process. Elder-Beerman expects to hold a special meeting of shareholders to vote on the merger agreement in September of 2003. If Elder-Beerman's shareholders approve the merger agreement and all of the other conditions to the merger are satisfied, Elder-Beerman expects that the merger will be completed as soon as possible after the special meeting of shareholders. Elder-Beerman expects to file shortly with the Securities and Exchange Commission a Current Report on Form 8-K containing a copy of the merger agreement. The nation's ninth largest independent department store chain, Elder-Beerman is headquartered in Dayton, Ohio and operates 68 stores in Ohio, West Virginia, Indiana, Michigan, Illinois, Kentucky, Wisconsin and Pennsylvania. In November 2003, Elder-Beerman expects to expand operations to a ninth state with the opening of its Muscatine, Iowa store. For more information about the company, see Elder-Beerman's website located at www.elder-beerman.com. Goldner Hawn Johnson & Morrison Incorporated is a Minneapolis-based private equity investment firm which was founded in 1989. Since its establishment, Goldner Hawn Johnson & Morrison has completed more than 20 acquisitions in a variety of industries with a total transaction value in excess of U.S. $2 billion and currently manages a U.S. $200 million investment fund. ELDER-BEERMAN AND CERTAIN OF ITS DIRECTORS AND OFFICERS MAY BE DEEMED TO BE PARTICIPANTS IN THE SOLICITATION OF PROXIES FOR THE SPECIAL MEETING OF SHAREHOLDERS RELATING TO THE MERGER AGREEMENT. ELDER-BEERMAN WILL FILE WITH THE SECURITIES AND EXCHANGE 2 COMMISSION AND MAIL TO ITS SHAREHOLDERS A PROXY STATEMENT FOR THE SPECIAL MEETING OF SHAREHOLDERS. THE PROXY STATEMENT WILL CONTAIN IMPORTANT INFORMATION REGARDING THE PARTICIPANTS IN THE SOLICITATION AND OTHER IMPORTANT INFORMATION ABOUT THE MERGER AGREEMENT AND THE PROPOSED MERGER. ELDER-BEERMAN WILL ALSO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION A TRANSACTION STATEMENT ON SCHEDULE 13E-3 RELATING TO THE MERGER AGREEMENT AND THE PROPOSED MERGER. SHAREHOLDERS OF ELDER-BEERMAN ARE ADVISED TO READ ELDER-BEERMAN'S PROXY STATEMENT FOR THE SPECIAL MEETING OF SHAREHOLDERS WHEN IT BECOMES AVAILABLE BECAUSE IT CONTAINS IMPORTANT INFORMATION. SHAREHOLDERS OF ELDER-BEERMAN MAY OBTAIN, FREE OF CHARGE, WHEN THEY BECOME AVAILABLE COPIES OF ELDER-BEERMAN'S PROXY STATEMENT AND OTHER DOCUMENTS FILED BY ELDER-BEERMAN WITH THE SECURITIES AND EXCHANGE COMMISSION AT THE INTERNET WEBSITE MAINTAINED BY THE SECURITIES AND EXCHANGE COMMISSION AT WWW.SEC.GOV. THESE DOCUMENTS MAY ALSO BE OBTAINED FREE OF CHARGE BY CALLING INVESTOR RELATIONS AT ELDER-BEERMAN AT 937/296-7339. This press release contains certain statements regarding the proposed transaction between Elder-Beerman and Wright Holdings, which are "forward-looking" statements under the federal securities laws and involve risks and uncertainties relating to the occurrence of future events. Certain factors that could cause actual events not to occur as expressed in the forward-looking statements include, but are not limited to, (i) the failure to receive the necessary shareholder approval or anti-trust clearance and (ii) satisfaction of various closing conditions contained in the definitive merger agreement, including receipt by Wright Holdings of the proceeds contemplated under the financing commitments. The Company assumes no obligation to update the forward-looking information. Other risks and uncertainties concerning the Company's performance are set forth in reports and documents filed by the Company with the Securities and Exchange Commission from time to time. Please use caution in placing reliance on forward-looking statements. CONTACT: The Elder-Beerman Stores Corp. Edward Tomechko, 937/296-2683 Goldner Hawn Johnson & Morrison, Inc. Michael T. Sweeney Tel.: 612-338-5912 3 -----END PRIVACY-ENHANCED MESSAGE-----