-----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, JF/dQQqodJf8w2WaMHcfh/cQIqT5QfW1IY4MmM3CJCnMxFdLTfcWmsDIadnRFaxy UI13Ijw/WGnmMIxel2ug6w== 0001047469-98-023449.txt : 19980610 0001047469-98-023449.hdr.sgml : 19980610 ACCESSION NUMBER: 0001047469-98-023449 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19980609 SROS: NYSE GROUP MEMBERS: DILLARD DEPARTMENT STORES INC GROUP MEMBERS: MSC ACQUISITIONS,INC. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE STORES CO INC CENTRAL INDEX KEY: 0000064923 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 510032941 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-10123 FILM NUMBER: 98644739 BUSINESS ADDRESS: STREET 1: 9450 SEWARD ROAD CITY: FAIRFIELD STATE: OH ZIP: 45014-2230 BUSINESS PHONE: 5138818000 MAIL ADDRESS: STREET 1: 9450 SEWARD ROAD CITY: FAIRFIELD STATE: OH ZIP: 45014 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DILLARD DEPARTMENT STORES INC CENTRAL INDEX KEY: 0000028917 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 710388071 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1600 CANTRELL RD CITY: LITTLE ROCK STATE: AR ZIP: 72201 BUSINESS PHONE: 5013765200 SC 13D 1 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 MERCANTILE STORES COMPANY, INC. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK, PAR VALUE $.14 2/3 PER SHARE - -------------------------------------------------------------------------------- (Title of Class of Securities) 587533100 ----------------------------------------------- (CUSIP Number) PAUL J. SCHROEDER, ESQ. VICE PRESIDENT, SECRETARY & GENERAL COUNSEL DILLARD'S, INC. 1600 CANTRELL ROAD LITTLE ROCK, ARKANSAS 72201 TELEPHONE: (501) 376-5200 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) COPY TO: ALAN G. SCHWARTZ SIMPSON THACHER & BARTLETT 425 LEXINGTON AVENUE NEW YORK, NEW YORK 10017 TELEPHONE: (212) 455-2000 MAY 16, 1998 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box / / Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - -------------------- ----------------- CUSIP NO. 587533100 Page 2 of 8 Pages - -------------------- ----------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Dillard's, Inc. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / / (b) / / - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC, BK - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / / - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER None NUMBER OF ------------------------------------------------------------ SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 14,709,343 EACH ------------------------------------------------------------ REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH None ------------------------------------------------------------ 10 SHARED DISPOSITIVE POWER None - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 14,709,343 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 40.0% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D - -------------------- ----------------- CUSIP NO. 587533100 Page 3 of 8 Pages - -------------------- ----------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON MSC Acquisitions, Inc. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / / (b) / / - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / / - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER None NUMBER OF ------------------------------------------------------------ SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 14,709,343 EACH ------------------------------------------------------------ REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH None ------------------------------------------------------------ 10 SHARED DISPOSITIVE POWER None - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 14,709,343 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 40.0% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 4 of 8 Pages This Statement on Schedule 13D (the "Schedule 13D") relates to the tender offer by MSC Acquisitions, Inc. (the "Purchaser"), a Delaware corporation and a wholly owned subsidiary of Dillard's, Inc. (the "Parent"), a Delaware corporation, to purchase all of the outstanding shares of Common Stock, par value $.14 2/3 per share (the "Shares"), of Mercantile Stores Company, Inc. (the "Issuer" or the "Company"), at $80.00 per Share, net to the seller in cash and without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 21, 1998 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit 7.1, and in the related Letter of Transmittal, a copy of which is attached hereto as Exhibit 7.2. ITEM 1. SECURITY AND ISSUER. This Schedule 13D relates to the Common Stock, par value $.14 2/3 per Share, of Mercantile Stores Company, Inc., a Delaware corporation. The Issuer's principal executive office is located at 9450 Seward Road, Fairfield, Ohio 45016. ITEM 2. IDENTITY AND BACKGROUND. (a)-(c), (f) This Schedule 13D is filed by the Purchaser and Parent. The information set forth in the Introduction, Section 8 ("Certain Information Concerning the Purchaser and the Parent") and Schedule I to the Offer to Purchase is incorporated herein by reference. (d)-(e) During the last five years, neither the Purchaser nor the Parent nor, to the best knowledge of the Purchaser or the Parent, any of the persons listed in Schedule I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgement, decree or final order enjoining future violations or, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. Page 5 of 8 Pages ITEM 3. SOURCE AND AMOUNT OF FUNDS. The information set forth in Section 9 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. ITEM 4. PURPOSE OF THE TRANSACTION. (a)-(g), (j) The information set forth in the Introduction, Section 10 ("Background of the Offer; Contacts with the Company"), Section 11 ("The Merger Agreement"), Section 12 ("Purpose of the Offer; the Merger; Plans for the Company") and Section 13 ("Dividends and Distributions") of the Offer to Purchase is incorporated herein by reference. (h)-(i) The information set forth in Section 14 ("Effect of the Offer on the Market for the Shares, Stock Exchange Listing and Exchange Act Registration") of the Offer to Purchase is incorporated herein by reference. ITEM 5. INTEREST IN THE SECURITIES OF THE ISSUER. (a), (c) The information set forth in the Introduction, Section 11 ("The Merger Agreement") of the Offer to Purchase and Schedule I to the Offer to Purchase is incorporated herein by reference. Pursuant to the irrevocable proxy granted to Purchaser pursuant to a Stockholders' Agreement (the "Stockholders' Agreement"), dated as of May 16, 1998, by and between Parent and each of the persons listed on the signature page thereon, a copy of which is attached hereto as Exhibit 7.15, Purchaser and Parent may be deemed beneficial owners of 14,709,343 Shares (constituting 40.0% of the outstanding Shares of the Issuer). (b) Each of the Parent and the Purchaser may be deemed to have sole voting power with respect to none of the Shares; has shared voting power with respect to 14,709,343 of the Shares; has sole dispositive power with respect to none of the Shares; and has shared dispositive power with respect to none of the Shares. Page 6 of 8 Pages (d) Except as set forth in this Schedule 13D, the Parent and the Purchaser do not know of any other person who has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the Shares beneficially owned by the Parent or the Purchaser. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. The information set forth in the Introduction, Section 8 ("Certain Information Concerning the Purchaser and the Parent"), Section 10 ("Background to the Offer; Contacts with the Company"), Section 11 ("The Merger Agreement") and Section 12 ("Purpose of the Offer; the Merger; Plans for the Company") of the Offer to Purchase is incorporated herein by reference. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. The Index of Exhibits to this Schedule 13D is hereby incorporated herein by reference. Page 7 of 8 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. DILLARD'S, INC. By: /s/ JAMES I. FREEMAN ----------------------------------- Name: James I. Freeman Title: Senior Vice President and Chief Financial Officer MSC ACQUISITIONS, INC. By: /s/ JAMES I. FREEMAN ----------------------------------- Name: James I. Freeman Title: Senior Vice President and Chief Financial Officer Dated: June 8, 1998 Page 8 of 8 Pages EXHIBIT INDEX Exhibit Page No. Description No. 7.1 Offer to Purchase dated May 21, 1998 7.2 Letter of Transmittal 7.3 Notice of Guaranteed Delivery 7.4 Letter from the Dealer Manager to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees 7.5 Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees 7.6 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 7.7 Summary Advertisement as published on May 21, 1998 7.8 Press Release issued by the Parent on May 21, 1998 7.9 Press Release issued by the Parent on June 4, 1998 7.10 Agreement and Plan of Merger, dated as of May 16, 1998, among Dillard's, Inc., MSC Acquisitions, Inc. and Mercantile Stores Company, Inc. 7.11 Agreement and Plan of Merger, dated as of May 16, 1998, among Dillard's, Inc., WMI Acquisition, Inc. and Woodbank Mills, Inc. 7.12 Agreement and Plan of Merger, dated as of May 16, 1998, among Dillard's, Inc., MMC Acquisition, Inc. and Minot Mercantile Corporation. 7.13 Proxy and Indemnification Agreement, dated as of May 16, 1998, among Dillard's, Inc. and each of the stockholders of Woodbank Mills, Inc. that are signatories to the Agreement 7.14 Proxy and Indemnification Agreement, dated as of May 16, 1998, among Dillard's, Inc. and each of the stockholders of Minot Mercantile Corporation that are signatories to the Agreement 7.15 Stockholders' Agreement, dated as of May 16, 1998, between Dillard's, Inc. and each of the parties listed on the signature page of the Agreement EX-7.1 2 OFFER TO PURCHASE Exhibit 7.1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF MERCANTILE STORES COMPANY, INC. AT $80 NET PER SHARE BY MSC ACQUISITIONS, INC. A WHOLLY OWNED SUBSIDIARY OF DILLARD'S, INC. ---------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 19, 1998, UNLESS THE OFFER IS EXTENDED. ------------------------ THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES OF COMMON STOCK WHICH, TOGETHER WITH ANY SHARES OWNED, DIRECTLY OR INDIRECTLY, BY DILLARD'S, INC. (THE "PARENT") OR MSC ACQUISITIONS, INC. (THE "PURCHASER"), CONSTITUTES MORE THAN 50% OF THE VOTING POWER (DETERMINED ON A FULLY-DILUTED BASIS), OF ALL SECURITIES OF MERCANTILE STORES COMPANY, INC. (THE "COMPANY") ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS OR IN A MERGER AND (II) THE EXPIRATION OR TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE THE INTRODUCTION AND SECTIONS 1 AND 15. -------------------------- THE BOARD OF DIRECTORS OF MERCANTILE STORES COMPANY, INC. HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER, ARE ADVISABLE AND ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF MERCANTILE STORES COMPANY, INC. AND RECOMMENDS THAT HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES TO THE PURCHASER. -------------------------- IMPORTANT ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S SHARES (AS DEFINED HEREIN) OF MERCANTILE STORES COMPANY, INC. SHOULD EITHER (1) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF TRANSMITTAL, MAIL OR DELIVER THE LETTER OF TRANSMITTAL (OR SUCH FACSIMILE) AND ANY OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY (AS DEFINED HEREIN), AND EITHER DELIVER THE CERTIFICATES REPRESENTING THE TENDERED SHARES AND ANY OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY OR TENDER SUCH SHARES PURSUANT TO THE PROCEDURE FOR BOOK-ENTRY TRANSFER SET FORTH IN SECTION 3 OR (2) REQUEST SUCH STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR SUCH STOCKHOLDER. STOCKHOLDERS HAVING SHARES REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT SUCH BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF THEY DESIRE TO TENDER SHARES SO REGISTERED. A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES REPRESENTING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY WITH THE PROCEDURE FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH SHARES BY FOLLOWING THE PROCEDURES FOR GUARANTEED DELIVERY SET FORTH IN SECTION 3. QUESTIONS AND REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO MORGAN STANLEY & CO. INCORPORATED (THE "DEALER MANAGER") OR TO D.F. KING & CO., INC. (THE "INFORMATION AGENT") AT THEIR RESPECTIVE ADDRESSES AND TELEPHONE NUMBERS SET FORTH ON THE BACK COVER OF THIS OFFER TO PURCHASE. ADDITIONAL COPIES OF THIS OFFER TO PURCHASE, THE LETTER OF TRANSMITTAL AND THE NOTICE OF GUARANTEED DELIVERY MAY ALSO BE OBTAINED FROM THE INFORMATION AGENT OR THE DEALER MANAGER, OR FROM BROKERS, DEALERS, COMMERCIAL BANKS OR TRUST COMPANIES. -------------------------- THE DEALER MANAGER FOR THE OFFER IS: MORGAN STANLEY DEAN WITTER MAY 21, 1998 TABLE OF CONTENTS
PAGE ----- INTRODUCTION............................................................................................... 1 THE TENDER OFFER........................................................................................... 3 1. Term of the Offer, Expiration Date.................................................................. 3 2. Acceptance for Payment and Payment for Shares....................................................... 4 3. Procedure for Tendering Shares...................................................................... 5 4. Withdrawal Rights................................................................................... 8 5. Certain Federal Income Tax Consequences............................................................. 8 6. Price Range of Shares; Dividends.................................................................... 9 7. Certain Information Concerning the Company.......................................................... 10 8. Certain Information Concerning the Purchaser and the Parent......................................... 11 9. Source and Amount of Funds.......................................................................... 13 10. Background of the Offer; Contacts with the Company................................................. 13 11. The Merger Agreement............................................................................... 14 12. Purpose of the Offer; the Merger; Plans for the Company............................................ 24 13. Dividends and Distributions........................................................................ 26 14. Effect of the Offer on the Market for the Shares, Stock Exchange Listing and Exchange Act Registration.......................................................................... 27 15. Certain Conditions of the Offer.................................................................... 28 16. Certain Legal Matters and Regulatory Approvals..................................................... 29 17. Fees and Expenses.................................................................................. 31 18. Miscellaneous...................................................................................... 32 SCHEDULE I Certain Information Regarding the Directors and Executive Officers of the Purchaser and Parent I-1
i To the Stockholders of Mercantile Stores Company, Inc.: INTRODUCTION MSC Acquisitions, Inc., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Dillard's, Inc., a Delaware corporation (the "Parent"), hereby offers to purchase all of the outstanding shares of Common Stock, par value $.14 2/3 per share (the "Shares"), of Mercantile Stores Company, Inc., a Delaware corporation (the "Company"), at a purchase price of $80 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer and sale of Shares pursuant to the Offer. The Purchaser will pay all fees and expenses of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), which is acting as Dealer Manager for the Offer (in such capacity, the "Dealer Manager"), Harris Trust Company of New York, which is acting as the Depositary (in such capacity, the "Depositary") and D.F. King & Co., Inc. (in such capacity, the "Information Agent") incurred in connection with the Offer. See Section 17. The Board of Directors of the Company has unanimously determined that the Merger Agreement (as defined below) and the transactions contemplated thereby, including each of the Offer and the Merger (as defined below), are advisable and are fair to and in the best interests of the stockholders of the Company and recommends that the holders of the Shares accept the Offer and tender their Shares to the Purchaser. The Board of Directors of the Company has received the written opinion of Goldman, Sachs & Co., financial adivsor to the Company ("Goldman Sachs"), that the $80 per Share in cash to be received by the holders of Shares in the Offer and the Merger is fair from a financial point of view to such holders. A copy of the opinion of Goldman Sachs is attached to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") which is being distributed to the stockholders of the Company, and stockholders are urged to read the opinion in its entirety. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION 1) A NUMBER OF SHARES WHICH, TOGETHER WITH ANY SHARES OWNED, DIRECTLY OR INDIRECTLY, BY THE PARENT OR THE PURCHASER, CONSTITUTES MORE THAN 50% OF THE VOTING POWER (DETERMINED ON A FULLY-DILUTED BASIS), OF ALL SECURITIES OF THE COMPANY ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS OR IN A MERGER (THE "MINIMUM CONDITION") AND (II) THE EXPIRATION OR TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"). SEE SECTIONS 1 AND 15. IF THE PURCHASER PURCHASES NOT LESS THAN THAT NUMBER OF SHARES NEEDED TO SATISFY THE MINIMUM CONDITION, IT WILL BE ABLE TO EFFECT THE MERGER WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER OF THE COMPANY. SEE SECTION 12. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of May 16, 1998 (the "Merger Agreement"), among the Parent, the Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by the Purchaser, and further provides that, following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement and in accordance with the Delaware General Corporation Law (the "DGCL"), the Purchaser will be merged with and into the Company (the "Merger"). Following the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and become a wholly owned subsidiary of the Parent, and the separate corporate existence of the Purchaser will cease. Stockholders of the Company representing approximately 40% of the issued and outstanding Shares of the Company (the "Locked-up Stockholders") have contractually agreed, among other things, to tender their Shares in the Offer, provide Parent with an irrevocable proxy, grant an option at the $80 Offer price 1 and otherwise support the transaction with Parent. See Section 11 for a discussion of the arrangements with the Locked-up Stockholders. Pursuant to the Merger Agreement, the Company agrees, if and to the extent permitted by law, at the request of the Purchaser and subject to the terms of the Merger Agreement, to take all necessary and appropriate actions to cause the Merger to become effective as soon as reasonably practicable after the purchase of the Shares pursuant to the Offer, without a meeting of the Company's stockholders in accordance with the DGCL. See Section 11. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company and each Share, if any, owned by the Parent, the Purchaser or any other direct or indirect subsidiary of the Parent or of the Purchaser, which shall be cancelled, and other than Shares, if any (collectively, "Dissenting Shares"), held by stockholders who have not voted in favor of the Merger Agreement or consented thereto and who have delivered to the Company a written demand for appraisal and payment in the time and manner provided in Section 262 of the DGCL) will be cancelled, extinguished and converted into the right to receive $80 in cash, or any higher price that may be paid pursuant to the Offer (the "Merger Consideration"), payable, without interest, to the holder thereof, upon the surrender of the certificate formerly representing such Share, less any required withholding taxes. The Company has represented to the Parent that (i) as of May 16, 1998, there were 36,748,550 Shares issued and outstanding and 95,500 Shares reserved for issuance upon the exercise of outstanding stock options. Based upon the foregoing, the Purchaser believes that approximately 18,422,026 Shares constitute a majority of the outstanding Shares on a fully-diluted basis. The Company has advised the Purchaser that, to the knowledge of the Company, all the directors of the Company intend to tender their Shares pursuant to the Offer. The Merger Agreement is more fully described in Section 11. Certain federal income tax consequences of the sale of the Shares pursuant to the Offer and the exchange of Shares for the Merger Consideration pursuant to the Merger are described in Section 5. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 2 THE TENDER OFFER 1. TERM OF THE OFFER, EXPIRATION DATE. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), the Purchaser will accept for payment and pay for all Shares validly tendered on or prior to the Expiration Date and not properly withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, June, 19, 1998, unless and until the Purchaser, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), shall have extended the period during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OF THE MINIMUM CONDITION, THE EXPIRATION OR TERMINATION OF ALL WAITING PERIODS IMPOSED BY THE HSR ACT AND CERTAIN OTHER CONDITIONS. SEE SECTION 15, WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT AND THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE PURCHASER RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO WAIVE ANY OR ALL CONDITIONS TO THE OFFER (OTHER THAN THE MINIMUM CONDITION) AND TO MAKE ANY OTHER CHANGES IN THE TERMS AND CONDITIONS OF THE OFFER. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT, INCLUDING THE PROVISIONS OF THE MERGER AGREEMENT SET FORTH IN THE NEXT PARAGRAPH, AND THE APPLICABLE RULES AND REGULATIONS OF THE COMMISSION, IF BY THE EXPIRATION DATE ANY OR ALL OF SUCH CONDITIONS TO THE OFFER HAVE NOT BEEN SATISFIED, THE PURCHASER RESERVES THE RIGHT (BUT SHALL NOT BE OBLIGATED) TO (I) TERMINATE THE OFFER AND RETURN ALL TENDERED SHARES TO TENDERING STOCKHOLDERS, (II) WAIVE SUCH UNSATISFIED CONDITIONS AND PURCHASE ALL SHARES VALIDLY TENDERED OR (III) EXTEND THE OFFER AND, SUBJECT TO THE TERMS OF THE OFFER (INCLUDING THE RIGHTS OF STOCKHOLDERS TO WITHDRAW THEIR SHARES), RETAIN THE SHARES WHICH HAVE BEEN TENDERED, UNTIL THE TERMINATION OF THE OFFER, AS EXTENDED. Subject to the applicable rules and regulations of the Commission and the terms of the Merger Agreement, the Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the events set forth in Section 15 shall have occurred or shall have been determined by the Purchaser to have occurred, to (i) extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and the payment for, any Shares, by giving oral or written notice of such extension to the Depositary and (ii) amend the Offer in any respect by giving oral or written notice of such amendment to the Depositary. Under the terms of the Merger Agreement, however, without the written consent of the Company, the Purchaser will not change the Minimum Condition, decrease the price per Share payable in the Offer, change the form of consideration payable in the Offer (other than by adding consideration), reduce the maximum number of Shares to be purchased in the Offer, modify or amend the conditions to the Offer or otherwise amend the Offer in a manner adverse to holders of the Shares. The Purchaser shall have no obligation to pay interest on the purchase price of tendered Shares, including in the event the Purchaser exercises its right to extend the period of time during which the Offer is open. The rights reserved by the Purchaser in this paragraph are in addition to the Purchaser's rights to terminate the Offer pursuant to Section 15. Purchaser has agreed that, so long as the Merger Agreement is in effect and all of the Offer conditions are satisfied other than the conditions to the Offer set forth in clause (h) in Section 15 and the Minimum Condition, at the request of the Company, the Purchaser, at its option, shall extend the Offer until the earlier of (1) such time as such conditions are satisfied or waived, and (2) the date chosen by the Company which shall not be later than (x) the Outside Date (as defined herein) and (y) the earliest date on which the Company reasonably believes such conditions will be satisfied; PROVIDED, that the Company may request further extensions up until the Outside Date if the Offer conditions set forth in such clause (h) and the Minimum Condition are still the only Offer conditions not satisfied unless the Merger Agreement has been terminated in accordance with its terms. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, and such announcement in the case of an extension will be made in accordance with Rule 14e-1(d) under the Securities Exchange Act of 1934, as amended (the "Exchange 3 Act"), no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Purchaser may choose to make any public announcement, except as provided by applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that material changes be promptly disseminated to holders of Shares), the Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. If the Purchaser makes a material change in the terms of the Offer or if it waives a material condition of the Offer, the Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances, including the materiality, of the changes. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought, a minimum ten business day period from the day of such change is generally required to allow for adequate dissemination to stockholders. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday, or a federal holiday and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York City time. The Company has provided the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares and furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment and will pay for all Shares validly tendered and not properly withdrawn on or prior to the Expiration Date as soon as practicable after the later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the conditions of the Offer set forth in Section 15, including without limitation the expiration or termination of the waiting period applicable to the acquisition of Shares pursuant to the Offer under the HSR Act. In addition, subject to applicable rules of the Commission, the Purchaser expressly reserves the right to delay acceptance for payment of or payment for Shares pending receipt of any other regulatory approvals specified in Section 16. Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act. For information with respect to approvals required to be obtained prior to the consummation of the Offer, including the HSR Act, see Section 16. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) Certificates for such Shares ("Share Certificates") or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry transfer, and (iii) any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to and received by the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the 4 terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against such participant. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from the Purchaser and transmitting such payments to stockholders whose Shares have been accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If for any reason whatsoever acceptance for payment of or payment for any Shares tendered pursuant to the Offer is delayed or the Purchaser is unable to accept for payment or pay for Shares tendered pursuant to the Offer, then without prejudice to the Purchaser's rights set forth herein, the Depositary may nevertheless, on behalf of the Purchaser and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Shares and such Shares may not be withdrawn except to the extent that the tendering stockholder is entitled to and duly exercises withdrawal rights as described in Section 4. If any tendered Shares are not accepted for payment for any reason or if Share Certificates are submitted for more Shares than are tendered, Share Certificates evidencing unpurchased or untendered Shares will be returned without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable following the expiration, termination or withdrawal of the Offer. The Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3. PROCEDURE FOR TENDERING SHARES. VALID TENDERS. Except as set forth below, in order for Shares to be validly tendered pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry delivery of Shares, and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date and either (i) Share Certificates evidencing tendered Shares must be received by the Depositary at such address or such Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case on or prior to the Expiration Date, or (ii) the guaranteed delivery procedures described below must be complied with. BOOK-ENTRY TRANSFER. The Depositary will make a request to establish an account with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by the 5 Letter of Transmittal, must in any case be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, or the guaranteed delivery procedures described below must be complied with. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. SIGNATURE GUARANTEES. Signatures on Letters of Transmittal must be guaranteed by a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program (each of the foregoing being referred to as an "Eligible Institution"), except in cases where Shares are tendered (i) by a registered holder of Shares who has not completed either the box labeled "Special Payment Instructions" or the box labeled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the Share Certificates are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or Share Certificates not accepted for payment or not tendered are to be returned, to a person other than the registered holder, the Share Certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name of the registered holder appears on such certificates, with the signatures on such certificates or stock powers guaranteed as aforesaid. See Instructions 1 and 5 of the Letter of Transmittal. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) must accompany each such delivery. GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's Share Certificates are not immediately available, or such stockholder cannot deliver the Share Certificates and all other required documents to reach the Depositary on or prior to the Expiration Date, or such stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered, provided that all of the following conditions are satisfied: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form made available by the Purchaser is received by the Depositary as provided below on or prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation), representing all tendered Shares in proper form for transfer, together with the Letter of Transmittal (or a facsimile thereof) properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal are received by the Depositary within three New York Stock Exchange (the "NYSE") trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution and a representation that the stockholder owns the Shares tendered within the meaning of, and that the tender of the Shares effected thereby complies with, Rule 14e-4 under the Exchange Act, each in the form set forth in such Notice of Guaranteed Delivery. 6 Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of Share Certificates for, or of Book-Entry Confirmation with respect to, such Shares, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal. Accordingly, payment might not be made to all tendering stockholders at the same time and will depend upon when Share Certificates or Book-Entry Confirmations of such Shares are received into the Depositary's account at the Book-Entry Transfer Facility. APPOINTMENT AS PROXY. By executing the Letter of Transmittal, a tendering stockholder irrevocably appoints designees of the Purchaser and each of them as such stockholder's attorneys-in-fact and proxies, with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser (and with respect to any and all other Shares, other securities or rights issued or issuable in respect of such Shares on or after the date hereof). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, the Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares (and such other Shares and securities) will be revoked without further action, and no subsequent powers of attorney and proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of the Purchaser will, with respect to the Shares (and such other Shares and securities) for which such appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's payment for such Shares, the Purchaser must be able to exercise full voting rights with respect to such Shares and other securities, including voting at any meeting of stockholders. DETERMINATION OF VALIDITY. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Purchaser in its sole discretion, which determination shall be final and binding on all parties. The Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may in the opinion of its counsel be unlawful. The Purchaser also reserves the absolute right to waive any of the conditions of the Offer or any defect or irregularity in any tender of Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of the Purchaser, the Parent, any of their affiliates or assigns, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the "backup withholding" provisions of federal income tax law, the Depositary may be required to withhold 31% of the amount of any payments of cash pursuant to the Offer. In order to avoid backup withholding, each stockholder surrendering Shares in the Offer must, unless an exemption applies, provide the payor of such cash with such stockholder's correct taxpayer identification number ("TIN") on a substitute Form W-9 and certify, under penalties of perjury, that such TIN is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certifications described above, the Internal Revenue Service ("IRS") may impose a penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. 7 All stockholders surrendering Shares pursuant to the Offer should complete and sign the substitute Form W-9 included in the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to the Depositary). Certain stockholders (including among others all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign stockholders should complete and sign a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 of the Letter of Transmittal. OTHER REQUIREMENTS. The Purchaser's acceptance for payment of Shares tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer, including the tendering stockholder's representation and warranty that the stockholder is the holder of the Shares within the meaning of, and that the tender of the Shares complies with, Rule 14e-4 under the Exchange Act. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after July 19, 1998. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to purchase Shares validly tendered pursuant to the Offer for any reason, then without prejudice to the Purchaser's rights under the Offer, the Depositary may nevertheless, on behalf of the Purchaser, retain tendered Shares and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described in this Section 4. Any such delay in acceptance for payment will be accompanied by an extension of the Offer to the extent required by law. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If Share Certificates to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in the first sentence of this paragraph. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding. None of the Purchaser, the Parent, any of their affiliates or assigns, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3. 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The summary of tax consequences set forth below is for general information only and is based on the law as currently in effect. The tax treatment of each stockholder will depend in part upon such stockholder's particular situation. Special tax consequences not 8 described herein may be applicable to particular classes of taxpayers, such as financial institutions, broker-dealers, persons who are not citizens or residents of the United States, stockholders who acquired their Shares through the exercise of an employee stock option or otherwise as compensation, and persons who received payments in respect of options to acquire Shares. ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS AND CHANGES IN SUCH TAX LAWS. The receipt of cash pursuant to the Offer or the Merger will be a taxable transaction for Federal income tax purposes under the Internal Revenue Code of 1986, as amended, and may also be a taxable transaction under applicable state, local, foreign income or other tax laws. Generally, for Federal income tax purposes, a stockholder will recognize gain or loss in an amount equal to the difference between the cash received by the stockholder pursuant to the Offer or the Merger and the stockholder's adjusted tax basis in the Shares purchased pursuant to the Offer or converted into cash in the Merger. For Federal income tax purposes, such gain or loss will be a capital gain or loss if the Shares are a capital asset in the hands of the stockholder, and a long-term capital gain or loss if the stockholder's holding period is more than one year as of the date the Purchaser accepts such Shares for payment pursuant to the Offer or the effective date of the Merger, as the case may be. In the case of a non-corporate stockholder, capital gain is eligible for a maximum federal income tax rate of 28% if the Shares were held for more than one year but not more than 18 months or 20% if the Shares were held for more than 18 months. There are limitations on the deductibility of capital losses. 6. PRICE RANGE OF SHARES; DIVIDENDS. According to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998 (the "1997 Annual Report"), the Shares are listed and traded principally on the NYSE. The following table sets forth, for the quarters indicated, the high and low sales prices per Share on the NYSE as reported in the 1997 Annual Report with respect to periods occurring in 1996 and 1997 and as reported by the Dow Jones News Service thereafter, and the amount of cash dividends paid or declared per share for each quarter based on publicly available sources.
DIVIDENDS DIVIDENDS HIGH LOW DECLARED PAID --------- --------- ----------- ----------- Year Ended February 1, 1997: First Quarter........................................... $ 625/8 $ 441/4 $ .55 $ .261/2 Second Quarter.......................................... 67 571/8 -- .281/2 Third Quarter........................................... 593/8 47 .57 .281/2 Fourth Quarter.......................................... 54 477/8 -- .281/2 Year Ended January 31, 1998: First Quarter........................................... $ 501/4 $ 463/8 $ .581/2 $ .281/2 Second Quarter.......................................... 68 /16 493/4 -- .30 Third Quarter........................................... 66 /16 571/4 .60 .30 Fourth Quarter.......................................... 65 /16 581/4 -- .30 Year Ended January 30, 1999: First Quarter........................................... $ 73 /16 $ 591/2 $ .611/2 $ .30 Second Quarter (through May 18, 1998)................... 787/8 713/4 -- --
On May 15, 1998, the last full trading day prior to announcement of the Offer, the closing sale price per Share reported on the NYSE Composite Transactions Tape as reported by THE WALL STREET JOURNAL was $73 5/16 . On May 20, 1998, the last full trading day before commencement of the Offer, the closing sale price per Share reported on the NYSE Composite Transactions Tape as reported by THE WALL STREET JOURNAL was $78 3/4. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. 9 7. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning the Company contained in this Offer to Purchase, including financial information, has been taken from or based upon publicly available documents and records on file with the Commission and other public sources. The summary information concerning the Company in this Section 7 and elsewhere in this Offer to Purchase is derived from the 1997 Annual Report and other publicly available information. The summary information set forth below is qualified in its entirety by reference to such reports (which may be obtained and inspected as described below) and should be considered in conjunction with the more comprehensive financial and other information in such reports and other publicly available reports and documents filed by the Company with the Commission and other publicly available information. Although the Purchaser and the Parent do not have any knowledge that would indicate that any statements contained herein based upon such reports are untrue, neither the Purchaser nor the Parent assumes any responsibility for the accuracy or completeness of the information contained therein, or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but which are unknown to the Purchaser and the Parent. GENERAL. The Company was incorporated under the laws of the State of Delaware on January 10, 1919. The Company is listed on the NYSE (NYSE designation of "MST") and is engaged in general merchandise department store retailing. The Company's retailing strategy is to cater to middle and upper income customers by carrying wide assortments of national brand items and goods sold under the Company's private labels, with emphasis on apparel, accessories and fashion home products. The Company regularly employs, on a full or part-time basis, an average of approximately 34,200 associates, of which approximately 19,500 are considered full-time associates. The Company's principal executive offices are located at 9450 Seward Road, Fairfield, Ohio 45014. The telephone number of the Company at such offices is (513) 881-8000. FINANCIAL INFORMATION. Set forth below are certain selected consolidated financial data for the Company's last three fiscal years which were derived from the 1997 Annual Report. More comprehensive financial information is included in the reports (including management's discussion and analysis of financial condition and results of operations) and other documents filed by the Company with the Commission, and the following financial data is qualified in its entirety by reference to such reports and other documents including the financial information and related notes contained therein. Such reports and other documents may be examined and copies thereof may be obtained from the offices of the Commission and the NYSE in the manner set forth below. 10 MERCANTILE STORES COMPANY, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED, ------------------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 --------------- --------------- --------------- Net sales.................................................... $ 3,143,765 $ 3,030,822 $ 2,944,324 Cost and expenses............................................ 2,207,618 2,113,022 2,059,753 Earnings before income taxes................................. 213,362 201,552 204,580 Income taxes................................................. 83,656 80,087 81,332 Net earnings................................................. 129,706 121,465 123,248 Net earnings per common share................................ 3.53 3.30 3.35 Weighted average number of common shares outstanding......... 36,770,797 36,844,050 36,844,050 BALANCE SHEET (AT PERIOD END) Total Assets................................................. $ 2,177,791 $ 2,142,503 $ 2,074,724 Total Liabilities............................................ 530,945 577,190 589,611 Total Stockholders' Equity................................... $ 1,646,846 $ 1,565,313 $ 1,485,113
The Shares are registered under the Exchange Act. Accordingly, the Company is subject to the informational filing requirements of the Exchange Act and in accordance therewith is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be disclosed in such proxy statements and distributed to the Company's stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at prescribed rates at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Such reports, proxy statements and other information may also be obtained at the Web site that the Commission maintains at http://www.sec.gov. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Except as otherwise noted in this Offer to Purchase, all of the information with respect to the Company set forth in this Offer to Purchase has been derived from publicly available information. 8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND THE PARENT. The Purchaser, a Delaware corporation and a wholly owned subsidiary of Parent, was organized in connection with the Offer and has not carried on any activities to date other than those incident to its formation and commencement of the Offer. Parent, a Delaware corporation incorporated in 1964, is an outgrowth of a department store originally founded by William Dillard. Parent operates retail department stores located primarily in the Southeastern, Southwestern and Midwestern areas of the United States, offering a distinctive mix of name-brand and private label merchandise. Parent has its principal executive offices at 1600 Cantrell Road, Little Rock, Arkansas 72201 and is currently operating 270 stores. The telephone number for Parent is (501) 376-5200. The name, citizenship, business address, principal occupation or employment, and five-year employment history of each of the directors and executive officers of the Purchaser and the Parent and certain other information are set forth in Schedule I hereto. 11 Set forth below are certain selected consolidated financial data relating to the Parent and its subsidiaries for the Parent's last three fiscal years which have been derived from the financial statements contained in the Parent's Annual Report on Form 10-K for the fiscal year ended January 31, 1998 (the "Form 10-K") filed by the Parent with the Commission. More comprehensive financial information is included in the reports (including management's discussion and analysis of financial condition and results of operations) and other documents filed by the Parent with the Commission, and the following financial data is qualified in its entirety by reference to such reports and other documents, including the financial information and related notes contained therein. Such reports and other documents may be examined and copies thereof may be obtained from the offices of the Commission and the NYSE in the manner set forth below. DILLARD'S, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED ---------------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 -------------- -------------- -------------- Net Sales..................................................... $ 6,631,752 $ 6,227,585 $ 5,918,038 Cost of Sales................................................. 4,393,291 4,124,765 3,893,786 Income Before Taxes........................................... 410,035 378,761 269,653 Income Taxes.................................................. 151,710 140,140 102,470 Net Earnings.................................................. 258,325 238,621 167,183(a) Earnings per share (fully-diluted)............................ $ 2.31 $ 2.09 $ 1.48 Average Number of Shares outstanding.......................... 111,993,814 113,988,633 113,143,842 BALANCE SHEET DATA (AT PERIOD END) Total Assets.................................................. $ 5,591,847 $ 5,059,726 $ 4,778,535 Total Liabilities............................................. 2,783,909 2,342,548 2,300,208 Stockholders' Equity.......................................... $ 2,807,938 $ 2,717,178 $ 2,478,327
- ------------------------ (a) Includes impairment charges of $126.6 million before taxes ($78.5 million after taxes). The Parent is subject to the informational filing requirements of the Exchange Act and in accordance therewith is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning the Parent's directors and officers, their remuneration, options granted to them, the principal holders of the Parent's securities and any material interest of such persons in transactions with the Parent is required to be disclosed in such proxy statements and distributed to the Parent's stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at prescribed rates at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Such reports, proxy statements and other information may also be obtained at the Web site that the Commission maintains at http://www.sec.gov. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material is also available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Except as set forth on Schedule I hereto, none of the Purchaser, the Parent nor, to the best knowledge of the Purchaser and the Parent, any of the persons listed on Schedule I hereto or any associate or 12 majority-owned subsidiary of the Purchaser, the Parent or any of the persons so listed, beneficially owns or has a right to acquire directly or indirectly any Shares, and none of the Purchaser, the Parent nor, to the best knowledge of the Purchaser and the Parent, any of the persons or entities referred to above, or any of the respective executive officers, directors or subsidiaries of any of the foregoing, has effected any transactions in the Shares during the past 60 days. 9. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required by the Purchaser to purchase all outstanding Shares pursuant to the Offer and to pay fees and expenses related to the Offer and the proposed Merger is estimated to be approximately $3 billion. The Purchaser plans to obtain all funds needed for the Offer and the proposed Merger through capital contributions or advances made by Parent. Parent plans to obtain the funds for such capital contributions or advances from its available cash and from working capital and expects to obtain the balance of such funds required to purchase the Shares from borrowings under credit facilities that Parent will seek to obtain from commercial banks and other financing sources. Parent has spoken to various banks and other financing sources who have indicated their willingness to assist in obtaining such financing. Any debt incurred to fund the purchase of the Shares in the Offer is expected to be repaid from funds internally generated by the Parent and its subsidiaries and from external sources, including potentially from the sales of debt securities or receivables financings on terms not yet determined. 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. Over the past several years, the members of Parent's senior management have considered various potential transactions which could enhance the value of Parent for its stockholders, including the possibility of a strategic acquisition of the Company. In prior years, however, no formal discussions concerning a potential transaction had taken place. Since early 1997, in light of the industry rumors concerning the willingness of the Company to consider a sale, Parent had intensified its review of the Company's business and its prospects. During each regularly scheduled meeting of the Board of Directors of Parent from November 1997 to February 1998, the Board discussed a potential transaction with the Company as part of its review of Parent's strategic alternatives. On April 6, 1998, Parent contacted Morgan Stanley, Parent's financial advisor, to discuss Parent's potential interest in the Company. After reviewing the current state of the Company's business and its operating performance, Parent authorized Morgan Stanley to contact representatives of the Company to discuss Parent's interest in pursuing a potential acquisition of the Company. In response to Parent's inquiry, Roger Milliken, a director of the Company and a representative of the Milliken family, which controls, directly or indirectly, approximately 40% of the Shares, communicated that the Company was not prepared to discuss a potential transaction with Parent at that time because it was currently evaluating its strategic alternatives and was not prepared to make a decision to pursue a transaction with Parent. On May 5, 1998, Goldman Sachs, the financial advisor to the Company, called Morgan Stanley to inform them that the Company was currently engaged in substantive negotiations with a third party with respect to the sale of the Company and that if Parent was still interested that the Company would provide Parent with an opportunity to participate in the sale process. On May 5-6, 1998 Morgan Stanley had several conversations with William Dillard II and certain of Parent's senior officers concerning the merits of a potential acquisition of the Company and Morgan Stanley undertook a detailed business review of the Company. On May 7, 1998, the parties concluded that to make a meaningful assessment of the benefits of the transaction, Parent would need to review confidential information and on such date the parties entered into the Parent Confidentiality Agreement. On May 8-9, 1998, officers of the Parent and Parent's legal and financial advisors continued Parent's due diligence review of the Company and commenced the review of the Company's nonpublic information in a data room. Legal and financial diligence continued until May 16, 1998. 13 On May 9, 1998, the executive officers of the Company delivered a management presentation to the executive officers and legal and financial advisors of Parent. On May 9-10, 1998, Parent's executive officers and financial advisors continued to evaluate the financial basis for pursuing a transaction. On May 10, 1998, Morgan Stanley informed Goldman Sachs that on the basis of Parent's review of the Company's information, Parent was prepared to pursue a transaction at a range of value of $75-80 per share. On May 11-12, 1998, Parent continued to meet with its financial advisors to evaluate the financial and strategic ramifications of the transaction. On May 12, 1998, at a special meeting of Parent's Board of Directors, the Board analyzed and reviewed various strategic and financial considerations concerning the possible acquisition and the status of negotiations. Management responded to questions from directors and after further deliberation, the Board authorized management to continue to pursue the transaction. On May 12, 1998, Morgan Stanley, on behalf of Parent, informed Goldman Sachs that Parent was prepared to pursue the transaction at $78 per share. On May 13, 1998, Parent's legal advisors reviewed the contract terms with the officers of Parent and forwarded a copy of a revised merger agreement to counsel for the Company. On May 14, 1998, the legal advisors to Parent and the Company met to negotiate the terms of the Merger Agreement and the related agreements and the Company communicated to Parent that if Parent was prepared to increase its bid to $80 that it would negotiate a transaction with Parent on an exclusive basis. After discussions with Parent's financial advisors, the senior officers of Parent met to discuss a final valuation of the transaction and after discussing the merits of the transaction, Parent instructed Morgan Stanley to inform Goldman Sachs that Parent was prepared to offer $80 per share for the Company if the Company would commit to a 48 hour exclusivity period. On May 14-16, 1998, the parties' legal and financial advisors met to negotiate the terms of the Merger Agreement and related documents. On May 16, 1998, at a regularly scheduled Board of Directors meeting, Parent's Board discussed the results of the negotiations and, after considering reports from management and Parent's legal and financial advisors (including Morgan Stanley's financial analysis and its delivery of a fairness opinion), the Board of Directors approved the Merger Agreement and the transactions contemplated in the Merger Agreement. Following approval of the Board of Directors of the Company and Parent, on May 16, 1998, the Company, Parent and Purchaser entered into the Merger Agreement and the related agreements. 11. THE MERGER AGREEMENT. The following is a summary of the Merger Agreement and the agreements with the Locked-Up Stockholders, which summary is qualified in its entirety by reference to the Merger Agreement and such other agreements which are filed as exhibits to the Tender Offer Statement on Schedule 14D-1. THE OFFER. The Merger Agreement provides for the commencement of the Offer as soon as reasonably practicable, and in any event within five business days from the date of public announcement of the execution thereof. The obligation of Purchaser to accept for payment Shares tendered pursuant to the Offer is subject to (i) the Minimum Condition, and (ii) the satisfaction or waiver of certain conditions of the Offer. Under the Merger Agreement, Purchaser expressly reserves the right, in its sole discretion, to waive any such condition (other than the Minimum Condition) and make any other changes in the terms or conditions of the Offer. The Minimum Condition of the Offer is that at the expiration of the Offer, a number of Shares which, together with any Shares owned, directly or indirectly, by Parent or Purchaser, constitutes more than 50% of the voting power (determined on a fully-diluted basis), on the date of purchase, of all the securities of the Company entitled to vote generally in the election of directors or in a merger shall have been validly tendered and not properly withdrawn prior to the expiration of the Offer. 14 Notwithstanding the above, under the terms of the Merger Agreement, without the written consent of the Company, the Purchaser will not change the Minimum Condition, decrease the price per Share payable in the Offer, change the form of consideration payable in the Offer (other than by adding consideration), reduce the maximum number of Shares to be purchased in the Offer, or modify or amend the conditions to the Offer or otherwise amend the Offer in a manner adverse to holders of the Shares. The Purchaser shall have no obligation to pay interest on the purchase price of tendered Shares, including in the event the Purchaser exercises its right to extend the period of time during which the Offer is open. The rights reserved by the Purchaser in this paragraph are in addition to the Purchaser's rights to terminate the Offer pursuant to Section 15. The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement, including but not limited to the Offer Conditions, Parent will accept for payment and pay for Shares as soon as it is permitted to do so under applicable law. THE MERGER. The Merger Agreement provides, that upon the terms and subject to the conditions thereof (and including those described in Section 15) and in accordance with the DGCL, at the Effective Time of the Merger, the Purchaser shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Purchaser shall cease and the Company shall continue as the surviving corporation of the Merger. At Parent's election, any direct or indirect subsidiary of Parent other than Purchaser may be merged with and into the Company instead of the Purchaser. Pursuant to the Merger Agreement, each Share issued and outstanding immediately prior to the Effective Time (unless otherwise provided for) shall be cancelled, extinguished and converted into the right to receive the Merger Consideration, which equals $80 in cash, or any higher price that may be paid pursuant to the Offer, payable to the holder thereof, without interest, upon surrender of the certificate formerly representing such Share in the manner described in the Merger Agreement, less any required withholding taxes. The Merger Agreement provides that, immediately prior to the Effective Time, each outstanding stock option granted to employees and non-employee directors of the Company and its subsidiaries (each, an "Option"), whether or not then exercisable, shall be cancelled by the Company, and the holder thereof shall be entitled to receive at the Effective Time or as soon as practicable thereafter from the Company in consideration for such cancellation an amount in cash equal to the product of (a) the number of Shares previously subject to such Option and (b) the excess, if any, of the Merger Consideration over the exercise price per Share previously subject to such Option, less any withholding taxes. The Merger Agreement provides that, unless otherwise stipulated, Shares that are issued and outstanding immediately prior to the Effective Time and which are held by stockholders who have not voted in favor of or consented to the Merger and shall have delivered a written demand for appraisal of such Shares in the time and manner provided in Section 262 of the DGCL and shall not have failed to perfect or shall not have effectively withdrawn or lost their rights to appraisal and payment under the DGCL shall not be converted into the right to receive the Merger Consideration, but shall be entitled to receive the consideration as shall be determined pursuant to Section 262 of the DGCL; PROVIDED, HOWEVER, that if such holder shall have failed to perfect or shall have effectively withdrawn or lost his, her or its right to appraisal and payment under the DGCL, such holder's Shares shall thereupon be deemed to have been converted, at the Effective Time, into the right to receive the Merger Consideration as described above without any interest thereon. The Merger Agreement also provides that at the Effective Time and without any further action on the part of the Company and Purchaser, the Restated Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation of the Surviving Corporation until thereafter and further amended as provided therein and under the DGCL. At the Effective Time and without any further action on the part of the Company and Purchaser, the By-Laws of Purchaser shall be the By-Laws of the Surviving Corporation and thereafter may be amended or repealed in accordance with their terms or the Certificate of Incorporation of the Purchaser and as provided by law. 15 The Merger Agreement provides that the directors of Purchaser immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed (as the case may be) and qualified. AGREEMENTS OF THE PARENT, THE PURCHASER AND THE COMPANY. STOCKHOLDERS MEETING. The Merger Agreement provides that if required, the Company, acting through its Board of Directors, shall, in accordance with and subject to applicable law and the Company's Restated Certificate of Incorporation and By-Laws, (i) duly call, give notice of, convene and hold a meeting of its stockholders as soon as practicable following consummation of the Offer for the purpose of adopting the Merger Agreement and the transactions contemplated thereby (the "Stockholders Meeting") and (ii) except if the Board of Directors by majority vote determines in good faith, based on the advice of outside legal counsel to the Company, that to do so would constitute a breach of fiduciary duty under applicable law, (A) include in the Proxy Statement the unanimous recommendation of the Board of Directors that the stockholders of the Company vote in favor of the adoption of the Merger Agreement and the transactions contemplated thereby and the written opinion of the Company's financial adviser, Goldman Sachs, that the consideration to be received by the stockholders of the Company pursuant to the Offer and the Merger is fair to such stockholders and (B) use its reasonable best efforts to obtain the necessary adoption of the Merger Agreement and the transactions contemplated thereby by its stockholders. At the Stockholders Meeting, Parent and Purchaser shall cause all Shares then owned by them and their subsidiaries to be voted in favor of adoption of the Merger Agreement and the transactions contemplated thereby. The Merger Agreement provides, that notwithstanding the foregoing, in the event that the Purchaser shall acquire at least 90% of the outstanding Shares, the Company agrees, at the request of the Purchaser, subject to the respective provisions of the Merger Agreement, to take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition, without a meeting of the Company's stockholders, in accordance with Section 253 of the DGCL. PROXY STATEMENT. The Merger Agreement provides that if required by applicable law, as soon as practicable following Parent's request, the Company shall file the proxy statement with respect to the Stockholders' Meeting with the Commission under the Exchange Act and the rules and regulations promulgated thereunder, and shall use its reasonable best efforts to have such proxy statement cleared by the Commission. The parties will cooperate with one another in this endeavor. DESIGNATION OF DIRECTORS. The Merger Agreement provides that, promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to time thereafter, Purchaser shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as shall give Purchaser representation on the Board of Directors equal to the product of the total number of directors on such Board (giving effect to the directors elected pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by Purchaser or any affiliate of Purchaser bears to the total number of Shares then outstanding, and the Company shall, at such time, promptly take all action necessary to cause Purchaser's designees to be so elected, including either increasing the size of the Board of Directors or securing the resignations of incumbent directors or both. At such times, the Company will use its reasonable best efforts to cause persons designated by Purchaser to constitute the same percentage as is on the board of (i) each committee of the Board of Directors, (ii) each board of directors of each subsidiary of the Company and (iii) each committee of each such board, in each case only to the extent permitted by law. The Merger Agreement provides that until Purchaser acquires a majority of the outstanding Shares on a fully diluted basis, the Company shall use its reasonable best efforts to ensure that all members of the Board of 16 Directors, and such boards and committees as of the date thereof who are not employees of the Company shall remain members of the Board of Directors and such boards and committees. ACCESS TO INFORMATION; CONFIDENTIALITY. Pursuant to the Merger Agreement, from the date thereof to the Effective Time, the Company shall, and shall cause its subsidiaries, officers, directors, employees, auditors and other agents to, afford the officers, employees, auditors and other agents of Parent, and financing sources who shall agree to be bound by such provisions of the Merger Agreement as though a party thereto, complete access, consistent with applicable law, at all reasonable times to its officers, employees, agents, properties, offices, plants and other facilities and to all books and records, and shall furnish Parent and such financing sources with all financial, operating and other data and information as Parent, through its officers, employees or agents, or such financing sources may from time to time reasonably request. The Merger Agreement further provides that all information obtained by Parent and Purchaser pursuant to the above paragraph shall be kept confidential in accordance with the Confidentiality Agreement, dated on or about May 7, 1998 (the "Parent Confidentiality Agreement"), between Parent and the Company. Parent is allowed to share information with potential purchasers of assets in connection with the future divestiture of any of the Company's stores or assets. NO SOLICITATION OF TRANSACTIONS. The Merger Agreement provides that the Company, its subsidiaries and their affiliates will immediately cease any existing discussions and negotiations regarding any acquisition or exchange of all or any material portion of the assets of the Company or any of its subsidiaries or any business combination with or involving the Company or its subsidiaries. The Company may, directly or indirectly, furnish information and access, in each case only in response to a request for such information or access to any person made after the date thereof which was not encouraged, solicited or initiated by the Company or any of its affiliates or any of its or their respective officers, directors, employees, representatives or agents after the date thereof, pursuant to appropriate confidentiality agreements containing terms and conditions (including standstill provisions) that are no less favorable than the terms and conditions contained in the Parent Confidentiality Agreement, and may participate in discussions and negotiate with such person concerning any merger, sale of assets, sale of shares of capital stock or similar transaction (including an exchange of stock or assets) involving the Company or any subsidiary or division of the Company (whether furnishing information and access or participating in discussion and negotiations,) only if such person has submitted a written proposal to the Board of Directors of the Company relating to any such transaction and the Board by a majority vote determines in good faith, based upon the advice of outside counsel to the Company, that failing to take such action would constitute a breach of the Board's fiduciary duty under applicable law. The Board shall notify Parent immediately if any such proposal (oral or written) is made and shall in such notice, indicate in reasonable detail the identity of the offeror and the terms and conditions of any proposal, and if the proposal is in writing, provide a copy of such proposal to Parent, and shall keep Parent promptly advised of all developments which could reasonably be expected to culminate in the Board of Directors withdrawing, modifying or amending its recommendation of the Offer, the Merger and the other transactions contemplated by the Merger Agreement. Except as set forth in the Merger Agreement, neither the Company or any of its affiliates, nor any of its or their respective officers, directors, employees, representatives or agents, shall, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with or provide any information to, any corporation, partnership, person or other entity or group (other than Parent and Purchaser, any affiliate or associate of Parent and Purchaser or any designees of Parent or Purchaser) concerning any merger, sale of any material portion or assets, sale of any shares of capital stock or similar transactions (including an exchange of stock or assets) involving the Company or any subsidiary or division of the Company; PROVIDED, HOWEVER, that nothing herein shall prevent the Board from taking, and disclosing to the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offer; PROVIDED, FURTHER, that the Board shall not recommend that the stockholders of the Company tender their Shares in connection with any such tender offer unless the 17 Board by majority vote shall have determined in good faith, based upon the advice of outside counsel to the Company, that failing to take such action would constitute a breach of the Board's fiduciary duty under applicable law. The Company has also agreed not to release any third party from, or waive any provisions of, any confidentiality or standstill agreement to which the Company is a party, unless the Board shall have determined in good faith, based upon the advice of outside counsel, that failing to release such third party or waive such provisions would constitute a breach of the fiduciary duties of the Board of Directors under applicable law. DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that the Certificate of Incorporation of the Surviving Company shall contain provisions no less favorable with respect to indemnification than are set forth in the governing documents of the Company and these provisions are not to be materially modified for a period of six years from the Merger in any manner that would adversely affect the rights thereunder of individuals who at the Effective Time were directors, officers or employees of the Company. For at least six years after the Merger, Parent agrees to maintain the current policies of directors' and officers' liability insurance maintained by the Company and its subsidiaries (or substitute policies with equivalent terms), with respect to matters occurring prior to the Merger to the extent such insurance is reasonably available. The Merger Agreement also provides that for six years after the Effective Time, Parent agrees that it will or will cause the Surviving Corporation to indemnify and hold harmless each present and former director and officer of the Company, determined as of the Effective Time (the "INDEMNIFIED PARTIES"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, the "COSTS") (but only to the extent such Costs are not otherwise covered by insurance and paid) incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent permitted under applicable law (and Parent shall, or shall cause the Surviving Corporation to, also advance expenses as incurred to the fullest extent permitted under applicable law provided the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). FURTHER ACTION; REASONABLE BEST EFFORTS. The Merger Agreement provides that, upon the terms and subject to the conditions thereof, each of the parties thereto shall use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the Merger Agreement as soon as practicable, including but not limited to (i) cooperation in the preparation and filing of the Offer Documents, the Schedule 14D-9, the Proxy Statement, any required filings under the HSR Act and any amendments to any thereof, (ii) cooperation with respect to consummating the financing of the Offer and the Merger and (iii) using its reasonable best efforts to promptly make all required regulatory filings and applications including, without limitation, responding promptly to requests for further information and to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts with the Company and its subsidiaries as are necessary for the consummation of the transactions contemplated by the Merger Agreement and to fulfill the conditions to the Offer and the Merger. 18 CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Merger Agreement, the Company has agreed (and has agreed to cause its subsidiaries) to operate their businesses in the ordinary course and in a manner consistent with past practice. The Company and its subsidiaries will also use reasonable best efforts to seek to preserve intact their current business organizations, keep available the service of its current officers, employees and consultants, and preserve its relationships with customers, suppliers and other persons with which the Company has significant business relations. The Company and its subsidiaries will also refrain from taking various actions without Parent's consent pending consummation of the Merger. These limitations cover, among other things (subject to certain limitations), changes in governing documents, changes in capital stock, declaration or payment of dividend or other distribution (other than regular quarterly dividends consistent with past practice not to exceed $.32), increases in the compensation of directors, officers and employees (except to the extent required under existing plans), adopting a plan of complete or partial dissolution, incurring debt beyond specified limits, making capital expenditures beyond specified limits, entering into transactions, making any material tax election, changing accounting principles and paying or discharging any claims, liabilities or obligations. EMPLOYEE BENEFITS MATTERS. The Merger Agreement provides that, on and after the Effective Time, Parent shall cause the Surviving Corporation and its subsidiaries to promptly pay or provide when due all compensation and benefits earned through or prior to the Effective Time as provided pursuant to the terms of any compensation arrangements, employment agreements and employee or director benefit plans, programs and policies in existence as of the date thereof for all employees (and former employees) and directors (and former directors) of the Company and its subsidiaries. Parent and the Company have agreed that the Surviving Corporation and its subsidiaries shall pay promptly or provide when due all compensation and benefits required to be paid pursuant to the terms of any individual agreement with any employee, former employee, director or former director in effect as of the date thereof. Pursuant to the Merger Agreement the Parent has agreed to cause the Surviving Corporation, for the period commencing at the Effective Time and ending on the second anniversary thereof, to provide employee benefits under plans, programs and arrangements which, in the aggregate, will provide benefits to the employees of the Surviving Corporation and its subsidiaries which are no less favorable in the aggregate than those provided pursuant to the plans, programs and arrangements of Parent in effect on the date thereof; PROVIDED, HOWEVER, that nothing in the Merger Agreement shall prevent the amendment or termination of any specific plan, program or arrangement, require that the Surviving Corporation provide or permit investment in the securities of Parent, the Company or the Surviving Corporation or interfere with the Surviving Corporation's right or obligation to make such changes as are necessary to conform with applicable law. Employees of the Surviving Corporation shall be given credit for all service with the Company and its subsidiaries, to the same extent as such service was credited for such purpose by the Company, under each employee benefit plan, program, or arrangement of the Parent in which such employees are eligible to participate for purposes of eligibility and vesting; PROVIDED, HOWEVER, that in no event shall the employees be entitled to any credit to the extent that it would result in a duplication of benefits with respect to the same period of service. Parent has also agreed to maintain the Company's severance plan (as amended per the Merger Agreement) for a period of one year from the Effective Time and to maintain certain other benefits to the Company's employees. The Merger Agreement further provides that if employees of the Surviving Corporation and its subsidiaries become eligible to participate in a medical, dental or health plan of Parent or its subsidiaries, Parent shall cause such plan to (i) waive any preexisting condition limitations for conditions covered under the applicable medical, health or dental plans of the Company and its subsidiaries and (ii) honor any deductible and out of pocket expenses incurred by the employees and their beneficiaries under such plans during the portion of the calendar year prior to such participation. 19 DISPOSITION OF LITIGATION. The Merger Agreement provides that the Company agrees that it will not settle any litigation currently pending, or commenced after the date thereof, against the Company or any of its directors by any stockholder of the Company relating to the Offer or the Merger Agreement, without the prior written consent of Parent (which shall not be unreasonably withheld). The Merger Agreement further provides that the Company will not voluntarily cooperate with any third party which has sought or may hereafter seek to restrain or prohibit or otherwise oppose the Offer or the Merger and cooperate with Parent and Purchaser to resist any such effort to restrain or prohibit or otherwise oppose the Offer or the Merger. REPRESENTATION AND WARRANTIES. The Merger Agreement contains various customary representations and warranties of the parties thereto including representations and warranties by the Company concerning the Company's capitalization, required filings and consents, the Board of Directors' approval of the Merger Agreement and the transactions contemplated thereby (including approvals so as to render inapplicable thereto the limitation on business combinations contained in Section 203 of the DGCL and certain provisions of the Company's Restated Certificate of Incorporation), SEC filings and financial statements, absence of certain changes or events, business, compliance with law, absence of litigation, employee benefit plans, environmental matters, tax matters, real estate matters and brokers. Some of the representatives are qualified by a material adverse effect clause. "Material Adverse Effect" includes any change or effect that would be materially adverse to the assets, liabilities, results of operations, financial condition or business of the Company and its subsidiaries taken as a whole other than as a result of general economic conditions. CONDITIONS OF THE MERGER. Under the Merger Agreement, the respective obligations of the Parent, Purchaser and the Company to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (i) If required by the DGCL, the Merger Agreement shall have been approved by the affirmative vote of the stockholders of the Company by the requisite vote in accordance with the Company's Certificate of Incorporation and the DGCL (which the Company has represented shall be solely the affirmative vote of a majority of the outstanding Shares); (ii) no statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any United States, foreign, federal or state court or governmental authority which prohibits, restrains, enjoins or restricts the consummation of the Merger; (iii) Purchaser shall have purchased Shares pursuant to the Offer; and (iv) any waiting period applicable to the Merger under the HSR Act shall have been terminated or expired. TERMINATION EVENTS. The Merger Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time notwithstanding approval thereof by the stockholders of the Company: (a) by mutual written consent of the parties; (b) by either party if any governmental authority takes any action permanently restraining, enjoining or otherwise prohibiting the Offer or the Merger, and such action has become final and nonappealable; (c) by Parent if due to an occurrence or circumstance which resulted in a failure to satisfy any of the Offer Conditions (other than as a result of a breach by Parent or Purchaser of its obligations under the Merger Agreement), Purchaser shall have (i) terminated the Offer or (ii) failed to pay for Shares pursuant to the Offer on or prior to the Outside Date (as defined below); (d) by the Company if (i) there shall have been a material breach of any covenant or agreement on the part of Parent or the Purchaser contained in this Agreement which materially adversely affects Parent's or Purchaser's ability to consummate (or materially delays commencement or consummation of) the Offer, and which shall not have been cured prior to the earlier of (A) 10 business days following notice of such breach and (B) two business days prior to the date on which the Offer expires, (ii) Purchaser shall have (A) terminated the Offer or (B) failed to pay for Shares pursuant to the Offer on or prior to the Outside Date (unless such failure is caused by or results from the failure of any representation or warranty of the 20 Company to be true and correct in any material respect or the failure of the Company to perform in any material respect any of its covenants or agreements contained in this Agreement) or (iii) prior to the purchase of Shares pursuant to the Offer, any person shall have made a bona fide offer to acquire the Company (A) that the Board of Directors of the Company by majority vote determines in its good faith judgment is more favorable to the Company's stockholders than the Offer and the Merger and (B) as a result of which the Board of Directors by majority vote determines in good faith, based upon the advice of outside counsel, that it is obligated by its fiduciary obligations under applicable law to terminate this Agreement, PROVIDED that such termination under this clause (iii) shall not be effective until the Company has made payment of the full fee and expense reimbursement discussed below; (e) by Parent prior to the purchase of Shares pursuant to the Offer, if (i) there shall have been a breach of any representation, warranty, covenant or agreement on the part of the Company contained in this Agreement which is reasonably likely to have a Material Adverse Effect, which shall not have been cured prior to the earlier of (A) 10 business days following notice of such breach and (B) two business days prior to the date on which the Offer expires, (ii) the Board shall have withdrawn or modified (including by amendment of the Schedule 14D-9) in a manner adverse to Purchaser its approval or recommendation of the Offer, this Agreement or the Merger or shall have recommended another offer or transaction, shall have resolved to effect any of the foregoing, or (iii) the Minimum Condition shall not have been satisfied by the expiration date of the Offer as it may have been extended pursuant hereto and on or prior to such date (A) any person (including the Company but not including Parent or Purchaser) shall have made a public announcement, disclosure or communication to the Company with respect to a Third Party Acquisition (as defined below) or (B) any person (including the Company or any of its affiliates or subsidiaries), other than Parent or any of its affiliates, shall have become (and remain at the time of termination) the beneficial owner of 19.9% or more of the Shares (unless such person shall have tendered and not withdrawn such person's Shares pursuant to the Offer). As used herein, the "Outside Date" shall mean the latest of (I) 70 days following the date hereof or (II) the date that all conditions to the Offer set forth under "Certain Conditions of the Offer" in Section 15 (the "Offer Conditions"), the satisfaction of which involve compliance with or otherwise relate to any United States antitrust or competition laws or regulations (including any enforcement thereof), have been satisfied for a period of 10 business days; PROVIDED that in no event shall the Outside Date be later than January 31, 1999; TERMINATION FEES AND EXPENSES. If: (i) Parent terminates the Merger Agreement because of the Company's breach, or if the Company terminates the Merger Agreement under circumstances that would have permitted Parent to terminate this Agreement because of the Company's breach, and within 12 months thereafter, the Company enters into an agreement with respect to a Third Party Acquisition, or a Third Party Acquisition occurs, involving any party (or any affiliate or associate thereof) (x) with whom the Company (or its agents) had any discussions with respect to a Third Party Acquisition, (y) to whom the Company (or its agents) furnished information with respect to or with a view to a Third Party Acquisition or (z) who had submitted a proposal or expressed any interest publicly or to the Company in a Third Party Acquisition, in the case of each of clauses (x), (y) and (z) prior to such termination; or (ii) (A) the Company terminates this Agreement to accept a bona fide offer from a third party or (B) the Company terminates this Agreement pursuant to the failure by Purchaser to pay for the Shares and at such time Parent would have been permitted to terminate this Agreement because the Company's Board has withdrawn support for the transaction or the Offer fails at such time as a Third Party Acquisition is publicly announced or communicated or (C) Parent terminates this Agreement because of the withdrawal of recommendation by the Company's Board or the failure to meet the Minimum Condition at such time as a Third Party Acquisition is publicly announced or communicated or a person acquires more than 19.9% of the Shares; then the Company shall pay to Parent and Purchaser, within one business day following the execution and delivery of such agreement or such occurrence, as the case may be, or simultaneously with any termination contemplated by the provisions above, a fee, in cash, of $88,288,000, PROVIDED, HOWEVER, that the Company 21 in no event shall be obligated to pay more than one such fee with respect to all such agreements and occurrences and such termination. The payment of any expenses in the manner described in the next paragraph will be credited against payment of any break-up fee. The Merger Agreement also provides that upon the termination of the Merger Agreement (i) under circumstances in which Parent shall have been entitled to terminate the Merger Agreement pursuant to (e)(i) above (whether or not expressly terminated on such basis) or (ii) if any of the representations and warranties of the Company contained in the Merger Agreement were untrue or incorrect in any material respect when made and at the time of termination remained untrue or incorrect in any material respect and such misrepresentation materially adversely affected the consummation (or materially delayed commencement or consummation) of the Offer, then the Company shall reimburse Parent, Purchaser and their affiliates (not later than one business day after submission of statements therefor) for all actual documented out-of-pocket fees and expenses actually incurred by any of them or on their behalf in connection with the Offer and the Merger and the consummation of all transactions contemplated by the Merger Agreement (including, without limitation, fees and disbursements payable to financing sources, investment bankers, counsel to Purchaser or Parent or any of the foregoing, and accountants) up to a maximum amount of $3 million; PROVIDED, HOWEVER, that in no circumstances shall any payment be made under this paragraph after a payment has been made of the transaction fee discussed above. "Third Party Acquisition" means the occurrence of any of the following events: (i) the acquisition of the Company by merger or similar business combination by any person other than Parent, Purchaser or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of 20.0% or more of the book or fair market value of the consolidated assets of the Company and its subsidiaries, taken as a whole; or (iii) the acquisition by a Third Party of 20.0% or more of the outstanding Shares. STOCKHOLDERS AGREEMENT. Concurrently with the execution and delivery of the Merger Agreement, Parent and certain of the Locked-Up Stockholders entered into a Stockholders' Agreement (the "Stockholders' Agreement"). Pursuant to the Stockholders' Agreement, each such Locked-Up Stockholder agreed to grant Parent an irrevocable option (the "Lock-Up Option") to purchase such stockholder's Shares at a purchase price equal to the Merger Consideration at any time, in whole or in part, commencing on the Exercise Date and ending on the Expiration Date (each as defined below). The "Exercise Date" means the first to occur of the following events: (a) such stockholder fails to perform in any material respect any of such stockholder's covenants in the Stockholders' Agreement or (b) the Merger Agreement is terminated and Parent is entitled to the payment of a termination fee pursuant to the provisions described in paragraph (ii) under "--Termination Fees and Expenses" above. The "Expiration Date" means the first to occur of the following dates: (i) the Effective Time, (ii) 12 months after the termination of the Merger Agreement, or (iii) the date Parent has delivered written notice to such Locked-Up Stockholders of its termination of the Stockholders' Agreement. Parent has agreed that, with respect to Shares owned by Locked-Up Stockholders that are taxable as C corporations under the Internal Revenue Code of 1986, Parent and such stockholders will use their best efforts to have Parent acquire such Share pursuant to the PHC Merger Agreements (as defined below) rather than exercising the Option for such Shares. The Stockholders' Agreement also provides that the Locked-Up Stockholders parties thereto will (i) tender their Shares pursuant to the Offer (except for any such Locked-Up Stockholders that are C corporations, the Shares of which will be acquired pursuant to the PHC Merger Agreements), (ii) grant an irrevocable proxy to Parent to vote their Shares during the term of the Stockholders' Agreement in favor of the adoption of the Merger Agreement and against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Merger or the Offer, (iii) not directly or indirectly solicit, encourage, participate in or initiate any inquiries or the making of any proposal by any person (other than Parent and its affiliates) which may reasonably lead to any sale of the Shares or any acquisition of a material portion of the Company's assets or any equity interest in the Company or its subsidiaries, or 22 (iv) not transfer, pledge, assign or otherwise dispose of their Shares during the term of the Stockholders' Agreement. Notwithstanding anything to the contrary in the Stockholders' Agreement, the Locked-Up Stockholders that are parties thereto are permitted to transfer as charitable gifts up to an aggregate of 300,000 Shares. PHC MERGER AGREEMENTS. Concurrently with the execution and delivery of the Merger Agreement, Parent entered into separate Agreements and Plans of Merger with Minot Mercantile Corporation ("Minot Mercantile") and Woodbank Mills, Inc. ("Woodbank Mills"; individually, with Minot Mercantile, a "PHC"), respectively, each of which is a personal holding corporation operated by certain of the Locked-Up Stockholders (such agreements, the "PHC Merger Agreements"). As of the date of this Offer, Minot Mercantile directly owns 10,484,875 Shares and Woodbank Mills directly owns 27,413 Shares (and, in addition, Woodbank Mills owns approximately 50% of the outstanding shares of Minot Mercantile). At the effective time of the PHC Mergers (as defined below), each PHC's assets will consist solely of Shares and cash and cash equivalents (and, in the case of Woodbank Mills, shares of common stock of Minot Mercantile). Pursuant to the PHC Merger Agreements, subject to the satisfaction of the conditions to the Offer (other than the condition that the PHC Mergers are consummated), separate newly formed, wholly owned subsidiaries of Parent will be merged with and into each PHC, with such companies becoming wholly owned subsidiaries of Parent (the "PHC Mergers"). As a result of the PHC Mergers, Parent will acquire all of the Shares owned by each PHC. Under the PHC Merger Agreements, stockholders of each PHC will receive merger consideration for their shares based on the Merger Consideration being paid by Parent pursuant to the Offer and the Merger under the Merger Agreement. Each PHC Merger Agreement provides that the related PHC will agree to a number of additional covenants, including, without limitation, (i) limiting any activities pending the consummation of the related PHC Merger, (ii) calling and holding respective stockholders' meetings to adopt such PHC Merger Agreement, (iii) refraining from any solicitations of alternative transactions, (iv) providing Parent access to such PHC and its books and records and (v) taking all requisite further action and using their respective reasonable best efforts to cause all conditions to the related PHC Merger to be satisfied. Under each PHC Merger Agreement, the related PHC Merger is subject to the satisfaction at or prior to its respective effective time of the following conditions: (a) such PHC Merger Agreement shall have been adopted by the stockholders of such PHC, (b) no statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any United States, foreign, federal or state court or governmental authority which prohibits, restrains, enjoins or restricts the consummation of such PHC Merger, the Offer or the Merger, (c) any waiting period applicable to such PHC Merger under the HSR Act shall have been terminated or expired, (d) all of the conditions to the Offer (other than the consummation of the PHC Mergers), shall have been satisfied and Purchaser shall have determined to purchase the Shares pursuant to the Offer, PROVIDED that, if the Merger Agreement is terminated under circumstances in which Parent is entitled to the payment of a termination fee pursuant to the provisions described in paragraph (ii) under "--Termination Fees and Expenses" above, Parent (in its sole and absolute discretion) shall be entitled to waive the satisfaction of the conditions described in this clause (d), and (e) in the case of the PHC Merger Agreement for Minot Mercantile, the condition that the PHC Merger for Woodbank Mills shall have been consummated. Each PHC Merger Agreement may be terminated and the related PHC Merger abandoned at any time prior to its respective effective time: (a) by mutual written consent of Parent and the related PHC, (b) by Parent or the related PHC if any court of competent jurisdiction or other governmental body located or having jurisdiction within the United States shall have issued a final order, injunction, decree, judgment or ruling or taken any other final action restraining, enjoining or otherwise prohibiting such PHC Merger, the Offer or the Merger and such order, injunction, decree, judgment, ruling or other action is or shall 23 have become final and nonappealable, (c) by Parent if due to an occurrence or circumstance which resulted in a failure to satisfy any of the conditions to the Offer (other than as a result of a breach by Parent or Purchaser of its obligations under the Merger Agreement), Purchaser shall have (i) terminated the Offer or (ii) failed to pay for Shares pursuant to the Offer on or prior to the Outside Date, (d) by the related PHC if (i) the Merger Agreement is terminated and (ii) Parent is no longer entitled to the payment of a termination fee pursuant to the provisions described in paragraph (ii) under "--Termination Fees and Expenses" above, or (e) by Parent prior to the purchase of Shares pursuant to the Offer, if (i) there shall have been a breach of any representation, warranty, covenant or agreement on the part of the related PHC contained in such PHC Merger Agreement which is reasonably likely to have a material adverse effect, which shall not have been cured prior to the earlier of (A) 10 business days following notice of such breach and (B) two business days prior to the date on which the Offer expires, or (ii) the Merger Agreement is terminated. PHC PROXY AND INDEMNIFICATION AGREEMENTS. Concurrently with the execution and delivery of the Merger Agreement, Parent has entered into separate Proxy and Indemnification Agreements with holders of no less than 70% of the outstanding stock of each PHC (such agreements, the "PHC Proxy and Indemnification Agreements"; together with the Stockholders' Agreement and the PHC Merger Agreements, the "Lock-Up Agreements"). Each PHC Proxy and Indemnification Agreement provides that the Locked-Up Stockholders parties thereto will (i) grant an irrevocable proxy to Parent to vote their shares of the related PHC during the term of such agreement in favor of the adoption of the related PHC Merger Agreement and against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the related PHC Merger or the Offer, (ii) not directly or indirectly solicit, encourage, participate in or initiate any inquiries or the making of any proposal by any person (other than Parent and its affiliates) which may reasonably lead to any sale of their shares of the related PHC or any acquisition of a material portion of the related PHC's assets or any equity interest in the related PHC, or (iii) not transfer, pledge, assign or otherwise dispose of their shares of the related PHC during the term of such agreement. Under each PHC Proxy and Indemnification Agreement, each Locked-Up Stockholder that is a party thereto further agrees to, jointly and severally, indemnify and hold Parent and its affiliates harmless from any and all liabilities, damages, expenses, losses or other claims (including, without limitation, reasonable attorneys' fees and expenses), directly or indirectly, suffered or paid that arise out of or relate to (i) the failure of any representation or warranty made by (A) the related PHC under its PHC Merger Agreement or (B) any such Locked-Up Stockholder thereunder, in each case to be true and correct in all respects as of the date of the related PHC Merger Agreement and as of the effective time thereunder, (ii) any breach by (A) the related PHC of any of its covenants or agreements contained in its PHC Merger Agreement and (B) any such Locked-Up Stockholder of any of its covenants or agreements contained herein, and (iii) the related PHC's business, operations or conduct at any time on or prior to the effective time of the related PHC Merger. 12. PURPOSE OF THE OFFER; THE MERGER; PLANS FOR THE COMPANY. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. The Offer is being made pursuant to the Merger Agreement. As promptly as practicable following consummation of the Offer and after satisfaction or waiver of all conditions to the Merger set forth in the Merger Agreement, the Purchaser intends to acquire the remaining equity interest in the Company not acquired in the Offer by consummating the Merger. VOTE REQUIRED TO APPROVE THE MERGER. The Board of Directors of the Company has approved and adopted the Merger and the Merger Agreement in accordance with the DGCL. The Board will be required to submit the Merger Agreement to the Company's stockholders for approval at a stockholders' meeting convened for that purpose in accordance with the DGCL. If stockholder approval is required, the Merger Agreement must generally be approved by the vote of the holders of a majority of the outstanding 24 Shares. As a result, if the Minimum Condition is satisfied, the Purchaser will have the power, which it intends to exercise, to approve the Merger Agreement without the affirmative vote of any stockholder. Pursuant to the Merger Agreement, the Company has agreed, if and to the extent permitted by law, at the request of the Purchaser and subject to the terms of the Merger Agreement, to take all necessary and appropriate actions to cause the Merger to become effective as soon as reasonably practicable after the purchase of the Shares pursuant to the Offer, without a meeting of the Company's stockholders in accordance with the DGCL. THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY, CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO THE ANNUAL MEETING OR ANY SPECIAL MEETING OF THE COMPANY'S STOCKHOLDERS OR ANY ACTION IN LIEU THEREOF. ANY SUCH SOLICITATION WHICH THE PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT. STOCKHOLDER APPROVAL. The DGCL requires that unless otherwise provided by the Company's Restated Certificate of Incorporation, the Merger be approved by the affirmative vote of the holders of at least a majority of the outstanding Shares. The Minimum Condition requires that there shall have been validly tendered and not properly withdrawn on or prior to the Expiration Date a number of Shares which, together with the Shares owned, directly or indirectly, by the Parent, constitutes more than 50% of the voting power (determined on a fully diluted basis) on the date of purchase of all securities entitled to vote generally in the election of directors or in a merger. Upon consummation of the Offer and assuming the Minimum Condition is satisfied, the Purchaser will own sufficient Shares to enable it to effect stockholder approval of the Merger with the affirmative vote of the Shares owned by it. The Board of Directors of the Company has approved the Merger Agreement and the transactions contemplated thereby, so as to render inapplicable the limitation on business combination contained in Section 203 of the DGCL and certain provisions of the Company's Restated Certificate of Incorporation. THE OFFER IS CONDITIONED UPON THE MINIMUM CONDITION BEING SATISFIED. APPRAISAL RIGHTS IN CONNECTION WITH THE OFFER. Stockholders do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, stockholders of the Company at the time of the Merger who do not vote in favor of the Merger will have the right under the DGCL to dissent and demand appraisal of, and receive payment in cash of the fair value of, their Shares outstanding immediately prior to the effective date of the Merger in accordance with Section 262 of the DGCL. Under the DGCL, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of such merger or similar business combination) and to receive payment of such fair value in cash. Any such judicial determination of the fair value of such Shares could be based upon considerations other than or in addition to the price paid in the Offer and the Merger and the market value of the Shares. In WEINBERGER V. UOP, INC., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Stockholders should recognize that the value so determined could be higher or lower than the price per Share paid pursuant to the Offer or the consideration per Share to be paid in the Merger or other similar business combination. In addition, several decisions by Delaware courts have held that in certain circumstances a controlling stockholder of a corporation involved in a merger has a fiduciary duty to other stockholders that requires that the merger be fair to other stockholders. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of the consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court stated in WEINBERGER AND RABKIN V. PHILIP A. HUNT CHEMICAL CORP. that the remedy ordinarily available to minority stockholders in a cash-out merger is the right to appraisal described above. 25 However, a damages remedy or injunctive relief may be available if a merger is found to be the product of procedural unfairness, including fraud, misrepresentation or other misconduct. THE FOREGOING SUMMARY OF THE RIGHTS OF OBJECTING STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE DELAWARE LAW. The foregoing description of the DGCL is not necessarily complete and is qualified in its entirety by reference to the DGCL. RULE 13E-3. The Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions and which may under certain circumstances be applicable to the Merger following the purchase of Shares pursuant to the Offer in which the Purchaser seeks to acquire any remaining Shares. Rule 13e-3 should not be applicable to the Merger if the Merger is consummated within one year after the expiration or termination of the Offer and the price paid in the Merger is not less than the per Share price paid pursuant to the Offer. However, in the event that the Purchaser is deemed to have acquired control of the Company pursuant to the Offer and if the Merger is consummated more than one year after completion of the Offer or an alternative acquisition transaction is effected whereby stockholders of the Company receive consideration less than that paid pursuant to the Offer, in either case at a time when the Shares are still registered under the Exchange Act, the Purchaser may be required to comply with Rule 13e-3 under the Exchange Act. If applicable, Rule 13e-3 would require, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the Merger or such alternative transaction and the consideration offered to minority stockholders in the Merger or such alternative transaction, be filed with the Commission and disclosed to stockholders prior to consummation of the Merger or such alternative transaction. The purchase of a substantial number of Shares pursuant to the Offer may result in the Company being able to terminate its Exchange Act registration. See Section 14. If such registration were terminated, Rule 13e-3 would be inapplicable to any such future Merger or such alternative transaction. PLANS FOR THE COMPANY. Subject to regulatory requirements, the Parent does not have any current definitive plans to dispose of any stores or other assets of the Company or to effect any material changes in its operations, except that Parent may convert any number of the Company's department stores to be operated under the Dillard's nameplate and may sell a number of stores in certain geographic areas where Parent's management believes the combined companies can achieve improved operating results by reducing the overlap of stores. Except as described in this Offer to Purchase, none of the Purchaser, the Parent nor, to the best knowledge of the Purchaser and the Parent, any of the persons listed on Schedule I has any present plans or proposals that would relate to or result in an extraordinary corporate transaction such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries or a sale or other transfer of a material amount of assets of the Company or any of its subsidiaries, any material change in the capitalization or dividend policy of the Company or any other material change in the Company's corporate structure or business or the composition of its Board of Directors or management. 13. DIVIDENDS AND DISTRIBUTIONS. If the Company should, on or after the date of the Merger Agreement, split, combine or otherwise change the Shares or its capitalization, or disclose that it has taken any such action, then without prejudice to the Purchaser's rights under Section 15, the Purchaser may make such adjustments to the purchase price and other terms of the Offer as it deems appropriate to reflect such split, combination or other change. If, on or after the date of the Merger Agreement, the Company should declare or pay any cash or stock dividend or other distribution on, or issue any rights with respect to, the Shares (except for the Company's regular quarterly dividend of up to $.32 per Share) that is payable or distributable to 26 stockholders of record on a date prior to the transfer to the name of the Purchaser or the nominee or transferee of the Purchaser on the Company's stock transfer records of such Shares that are purchased pursuant to the Offer, then without prejudice to the Purchaser's rights under Section 15, (i) the purchase price payable per Share by the Purchaser pursuant to the Offer will be reduced to the extent any such dividend or distribution is payable in cash and (ii) any non-cash dividend, distribution (including additional Shares) or right received and held by a tendering stockholder shall be required to be promptly remitted and transferred by the tendering stockholder to the Depositary for the account of the Purchaser, accompanied by appropriate documentation of transfer. Pending such remittance or appropriate assurance thereof, the Purchaser will, subject to applicable law, be entitled to all rights and privileges as owner of any such non-cash dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. 14. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, STOCK EXCHANGE LISTING AND EXCHANGE ACT REGISTRATION. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and could reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares by the public. Following completion of the Offer, at least a majority of the outstanding Shares will be owned by Purchaser. According to the NYSE's published guidelines, the NYSE would consider delisting the Shares if, among other things, the number of record holders of at least 100 Shares should fall below 1,200, the number of publicly held Shares (exclusive of holdings of officers, directors and their families and other concentrated holdings of 10% or more ("NYSE Excluded Holdings")) should fall below 600,000 or the aggregate market value of publicly held Shares (exclusive of NYSE Excluded Holdings) should fall below $5,000,000. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NYSE for continued listing and the listing of the Shares is discontinued, the market for the Shares could be adversely affected. If the NYSE were to delist the Shares, it is possible that the Shares would continue to trade on another securities exchange or in the over-the-counter market and that price or other quotations would be reported by such exchange or through the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other sources. The extent of the public market therefor and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the Shares on the part of the securities firms, the possible termination of registration under the Exchange Act as described below and other factors. Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer price. The Shares are currently registered under the Exchange Act. The purchase of Shares pursuant to the Offer may result in the Shares becoming eligible for deregistration under the Exchange Act. Registration of the Shares may be terminated upon application of the Company to the Commission if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders. The termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of the Shares and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of the securities pursuant to Rule 144 under the Securities Act of 1933. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be eligible for NASDAQ reporting. 27 The Shares are currently "margin securities" under the rules of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares for the purpose of buying, carrying, or trading in securities ("purpose loans"). Depending upon factors similar to those described above with respect to listing and market quotations, it is possible that, following the Offer, the Shares might no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations and therefore could no longer be used as collateral for purpose loans made by brokers. 15. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, but subject to the terms and conditions of the Merger Agreement, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer, and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any Shares tendered pursuant to the Offer, and may amend or terminate the Offer (whether or not any Shares have theretofore been purchased or paid for) to the extent permitted by the Merger Agreement if, (i) at the expiration of the Offer, a number of shares which, together with any Shares owned, directly or indirectly, by Parent or Purchaser, constitutes more than 50% of the voting power (determined on a fully-diluted basis), on the date of purchase, of all the securities of the Company entitled to vote generally in the election of directors or in a merger shall not have been validly tendered and not properly withdrawn prior to the expiration of the Offer, or (ii) at any time on or after the date of this Agreement and prior to the acceptance for payment of Shares, any of the following conditions occurs or has occurred: (a) there shall have been entered any order, preliminary or permanent injunction, decree, judgment or ruling in any action or proceeding before any court or governmental, administrative or regulatory authority or agency, or any statute, rule or regulation enacted, entered, enforced, promulgated, amended or issued that is applicable to Parent, Purchaser, the Company or any subsidiary or affiliate of Purchaser or the Company or the Offer or the Merger, by any legislative body, court, government or governmental, administrative or regulatory authority or agency that is reasonably likely to have the effect of: (i) making illegal or otherwise directly or indirectly restraining or prohibiting the making of the Offer in accordance with the terms of the Merger Agreement, the acceptance for payment of, or payment for, some of or all the Shares by Purchaser or any of its affiliates or the consummation of the Merger; (ii) prohibiting the ownership or operation of the Company and its subsidiaries by Parent or any of Parent's subsidiaries, (iii) imposing limitations on the ability of Parent, Purchaser or any of Parent's affiliates effectively to acquire or hold or to exercise full rights of ownership of the Shares, including without limitation the right to vote any Shares acquired or owned by Parent or Purchaser or any of its affiliates on all matters properly presented to the stockholders of the Company, including without limitation the adoption of the Merger Agreement or the right to vote any shares of capital stock of any subsidiary directly or indirectly owned by the Company; or (iv) requiring divestiture by Parent or Purchaser or any of their affiliates of any Shares; (b) there shall have occurred any event that is reasonably likely to have a Material Adverse Effect; (c) there shall have occurred (i) any general suspension of trading in, or limitation on prices (other than suspensions or limitations triggered on the New York Stock Exchange by price fluctuations on a trading day) for, securities on any national securities exchange, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) a commencement of a war or material armed hostilities or other material national calamity directly involving the United States or materially adversely affecting the consummation of the Offer or (iv) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; 28 (d) (A) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Purchaser the approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved or recommended any takeover proposal or any other acquisition of Shares other than the Offer, (B) any such person or group shall have entered into a definitive agreement or an agreement in principle with the Company with respect to a tender offer or exchange offer for any Shares or a merger, consolidation or other business combination with or involving the Company or any of its subsidiaries, or (C) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; (e) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified by reference to a Material Adverse Effect shall not be true and correct, or any such representations and warranties that are not so qualified shall not be true and correct in any respect that is reasonably likely to have a Material Adverse Effect, in each case as if such representations and warranties were made at the time of such determination; (f) the Company shall have failed to perform in any material respect any material obligation or to comply in any material respect with any material agreement or material covenant of the Company to be performed or complied with by it under the Merger Agreement; (g) the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; (h) any waiting periods under the HSR Act applicable to the purchase of Shares pursuant to the Offer or the Merger shall not have expired or been terminated; or (i) each of the PHC Mergers shall not have been consummated in accordance with the terms of the related PHC Merger Agreement, respectively; which, in the reasonable judgment of Purchaser with respect to each and every matter referred to above and regardless of the circumstances (except for any action or inaction by Purchaser or any of its affiliates constituting a breach of the Merger Agreement) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment of or payment for Shares or to proceed with the Merger. The foregoing conditions are for the sole benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition (except for any action or inaction by Purchaser or any of its affiliates constituting a breach of the Merger Agreement) or (other than the Minimum Condition) may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 16. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. GENERAL. Except as set forth below, based upon its examination of publicly available filings by the Company with the Commission and other publicly available information concerning the Company, neither the Purchaser nor the Parent is aware of any licenses or other regulatory permits that appear to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the Purchaser's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) as contemplated herein, or of any filings, approvals or other actions by or with any domestic (federal or state), foreign or supranational governmental authority or administrative or regulatory agency that would be required prior to the acquisition of Shares (or the indirect acquisition of the stock of the Company's subsidiaries) by the Purchaser pursuant to the Offer as contemplated herein. Should any such approval or other action be required, it is the Purchaser's present intention to seek such approval or action. However, the Purchaser 29 does not presently intend to delay the purchase of Shares tendered pursuant to the Offer pending the receipt of any such approval or the taking of any such action (subject to the Purchaser's right to delay or decline to purchase Shares if any of the conditions in Section 15 shall have occurred). There can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the business of the Company, the Parent or the Purchaser or that certain parts of the businesses of the Company, the Parent or the Purchaser might not have to be disposed of or held separate or other substantial conditions complied with in order to obtain such approval or other action or in the event that such approval was not obtained or such other action was not taken, any of which could cause the Purchaser to elect to terminate the Offer without the purchase of the Shares thereunder. The Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this Section 16. STATE TAKEOVER LAWS. A number of states have adopted takeover laws and regulations which purport to varying degrees to be applicable to attempts to acquire securities of corporations which are incorporated in such states or which have or whose business operations have substantial economic effects in such states, or which have substantial assets, security holders, principal executive offices or principal places of business therein. To the extent that certain provisions of certain of these state takeover statutes purport to apply to the Offer, the Purchaser believes that such laws conflict with federal law and constitute an unconstitutional burden on interstate commerce. In 1982, the Supreme Court of the United States, in EDGAR V. MITE CORP., invalidated on constitutional grounds the Illinois Business Takeovers Act, which as a matter of state securities law made takeovers of corporations meeting certain requirements more difficult, and the reasoning in such decision is likely to apply to certain other state takeover statutes. However, in 1987, in CTS CORP. V. DYNAMICS CORP. OF AMERICA, the Supreme Court of the United States held that the State of Indiana could, as a matter of corporate law and in particular those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without the prior approval of the remaining stockholders, provided that such laws were applicable only under certain conditions. Subsequently, in TLX ACQUISITION CORP. V. TELEX CORP., a federal district court in Oklahoma ruled that the Oklahoma statutes were unconstitutional insofar as they applied to corporations incorporated outside Oklahoma in that they would subject such corporations to inconsistent regulations. Similarly, in TYSON FOODS, INC. V. MCREYNOLDS, a federal district court in Tennessee ruled that four Tennessee takeover statutes were unconstitutional as applied to corporations incorporated outside Tennessee. This decision was affirmed by the United States Court of Appeals for the Sixth Circuit. In December 1988, a federal district court in Florida held in GRAND METROPOLITAN PLC V. BUTTERWORTH that the provisions of the Florida Affiliated Transactions Act and the Florida Control Share Acquisition Act were unconstitutional as applied to corporations incorporated outside of Florida. Except as described herein, the Purchaser has not attempted to comply with any state takeover statutes in connection with the Offer. The Purchaser reserves the right to challenge the validity or applicability of any state law allegedly applicable to the Offer and nothing in this Offer to Purchase nor any action taken in connection herewith is intended as a waiver of that right. In the event that any state takeover statute is found applicable to the Offer, the Purchaser might be unable to accept for payment or purchase Shares tendered pursuant to the Offer or be delayed in continuing or consummating the Offer. In such case, the Purchaser may not be obligated to accept for purchase or pay for, any Shares tendered. See Section 15. ANTITRUST. Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares pursuant to the Offer is subject to such requirements. See Section 2. The Parent has filed, on May 20, 1998, with the FTC and the Antitrust Division a Premerger Notification and Report Form in connection with the purchase of Shares pursuant to the Offer. Under the 30 provisions of the HSR Act applicable to the Offer, the purchase of Shares pursuant to the Offer may not be consummated until the expiration of a 15-calendar day waiting period following the filing by the Parent. Accordingly, the waiting period under the HSR Act applicable to such purchases of Shares pursuant to the Offer will expire at 11:59 p.m., New York City time, on June 4, 1998, unless such waiting period is extended by a request from the FTC or the Antitrust Division for additional information or documentary material prior to the expiration of the waiting period. If either the FTC or the Antitrust Division were to request additional information or documentary material from the Parent, the waiting period would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by the Parent with such request. Thereafter, the waiting period could be extended only by court order or agreement of the parties. If the acquisition of Shares is delayed pursuant to a request by the FTC or the Antitrust Division for additional information or documentary material pursuant to the HSR Act, the Offer may, but need not, be extended and in any event the purchase of and payment for Shares will be deferred until ten days after the request is substantially complied with, unless the waiting period is sooner terminated by the FTC and the Antitrust Division. See Section 2. Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order or agreement of the parties. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See Section 4. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by the Purchaser pursuant to the Offer. At any time before or after the purchase by the Purchaser of Shares pursuant to the Offer, either of the FTC and the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by the Purchaser or the divestiture of substantial assets of the Parent, its subsidiaries or the Company. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Based upon an examination of publicly available information relating to the businesses in which the Company and its subsidiaries are engaged, the Purchaser has determined that the Company and the Parent both service customers in certain geographic areas. Should the FTC or the Antitrust Division raise antitrust concerns, the Purchaser would be prepared, in order to expedite the Offer or the Merger, to address those concerns promptly and to consider the possible divestiture of certain assets to deal with those concerns, if necessary. There is no guarantee that the Purchaser and the FTC or the Antitrust Division would reach an agreement with respect to such divestiture. See Section 15 for certain conditions to the Offer, including conditions with respect to litigation and certain government actions. MARGIN CREDIT REGULATIONS. Federal Reserve Board Regulations G, T, U and X (the "Margin Credit Regulations") restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, including the Shares, if the credit is secured directly or indirectly thereby. Such secured credit may not be extended or maintained in an amount that exceeds the maximum loan value of the margin stock. Under the Margin Credit Regulations, the Shares are presently margin stock and the maximum loan value thereof is generally 50% of their current market value. The definition of "indirectly secured" contained in the Margin Credit Regulations provides that the term does not include an arrangement with a customer if the lender in good faith has not relied upon margin stock as collateral in extending or maintaining the particular credit. 17. FEES AND EXPENSES. Morgan Stanley is acting as Dealer Manager in connection with the Offer and serving as financial advisor to the Parent and the Purchaser in connection with the proposed acquisition of the Company. The Parent has agreed to pay to Morgan Stanley a fee of $11.450 million upon the consummation of a merger or other business combination with, or acquisition of 80% or more of the Shares or of all or substantially all of the assets of, the Company. The Parent and the Purchaser will also reimburse Morgan Stanley for reasonable out-of-pocket expenses, including reasonable attorneys' fees, 31 and have also agreed to indemnify Morgan Stanley against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. The Purchaser has retained D.F. King & Co., Inc. to act as the Information Agent and Harris Trust Company of New York to act as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominee stockholders to forward the Offer materials to beneficial owners. The Information Agent and the Depositary will receive reasonable and customary compensation for services relating to the Offer and will be reimbursed for certain out-of-pocket expenses. The Purchaser and the Parent have also agreed to indemnify the Information Agent and the Depositary against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person for soliciting tenders of Shares pursuant to the Offer (other than to the Dealer Manager, the Information Agent and the Depositary). Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by the Purchaser for customary mailing and handling expenses incurred by them in forwarding offering materials to their customers. 18. MISCELLANEOUS. The Offer is being made solely by this Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. The Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a good faith effort to comply with any such state statute. If after such good faith effort, the Purchaser cannot comply with such state statute, the Offer will not be made to nor will tenders be accepted from or on behalf of the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by the Dealer Manager or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. The Purchaser and the Parent have filed with the Commission a Schedule 14D-1 (including exhibits) pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to the Offer. Such statement and any amendments thereto, including exhibits, may be inspected and copies may be obtained from the offices of the Commission (except that they will not be available at the regional offices of the Commission) in the manner set forth in Section 7 of this Offer to Purchase. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF THE PURCHASER OR THE PARENT NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. MSC Acquisitions, Inc. May 21, 1998 32 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER AND THE PARENT 1. DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER. The name and position with the Purchaser of each director and executive officer of the Purchaser are set forth below. The other required information with respect to each such person is set forth under "Directors and Executive Officers of the Parent" below. All directors and executive officers listed below are citizens of the United States.
NAME POSITION - -------------------------------------------------------- -------------------------------------------------------- William Dillard II...................................... President James I. Freeman........................................ Senior Vice President, Chief Financial Officer and Director Paul J. Schroeder, Jr. ................................. Vice President, Secretary and Director
2. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARENT. The name, business address, present principal occupation or employment and material occupations, positions, offices or employments during the last five years of each director and executive officer of the Parent and certain other information are set forth below. Unless otherwise indicated, the business address of each such director and executive officer is: c/o Dillard's, Inc., 1600 Cantrell Road, Little Rock, Arkansas 72201. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with the Parent. All directors and executive officers listed below are citizens of the United States.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATIONS, POSITIONS, OFFICES NAME AND ADDRESS OR EMPLOYMENT HELD DURING THE LAST FIVE YEARS - --------------------------------------- ------------------------------------------------------------------------ Calvin N. Clyde, Jr.................... Director (since 1985); Chairman of the Board and Publisher of T.B. T.B. Butler Publishing Co., Inc. Butler Publishing Co., Inc. (daily and Sunday newspaper) 410 West Erwin Tyler, Texas 75702 Robert C. Connor....................... Director (since 1987); Entrepreneur (Private/Personal Investments) 31 Hickory Hills Circle Little Rock, Arkansas 72212 Drue Corbusier......................... Director (since 1994); Executive Vice President of Parent (since Dillard's, Inc. 5/16/98); Vice President of Parent (until 5/16/98); Chairman of Division 4501 North Beach Street 7 of Parent (since 6/93); General Merchandise Manager of Division 7 of Fort Worth, Texas 76137 Parent (until 6/93) Will D. Davis.......................... Director (since 1972); Partner at Heath, Davis & McCalla, Attorneys, Heath, Davis & McCalla Austin Texas 200 Perry Brooks Building 121 8th Street Austin, Texas 78701 Alex Dillard........................... Director (since 1975); President of Parent (since 5/16/98); Vice Dillard's, Inc. President of Parent (until 5/16/98) 1600 Cantrell Road Little Rock, Arkansas 72201
I-1
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATIONS, POSITIONS, OFFICES NAME AND ADDRESS OR EMPLOYMENT HELD DURING THE LAST FIVE YEARS - --------------------------------------- ------------------------------------------------------------------------ Mike Dillard........................... Director (since 1976); Executive Vice President of Parent; Chairman of Dillard's, Inc. Division 4 of Parent 900 West Capitol Little Rock, Arkansas 72201 William Dillard........................ Director (since 1964); Chairman of the Board (since 5/6/98); Chief Dillard's, Inc. Executive Officer of Parent (until 5/16/98) 1600 Cantrell Road Little Rock, Arkansas 72201 William Dillard, II.................... Director (since 1967); Chief Executive Officer of Parent (since Dillard's, Inc. 5/16/98); President of Parent (until 5/16/98); Chief Operating Officer 1600 Cantrell Road of Parent (until 5/16/98). Director of Acxiom Corporation, Barnes & Little Rock, Arkansas 72201 Noble, Inc. and Simon Debartolo Group, Inc. James I. Freeman....................... Director (since 1991); Senior Vice President and Chief Financial Officer Dillard's, Inc. of Parent 1600 Cantrell Road Little Rock, Arkansas 72201 John Paul Hammerschmidt................ Director (since 1992); United States Congressman 1967-93; now retired. P.O. Box 999 Director of American Freightways Corporation, First Federal Bank of Harrison, Arkansas 72602 Arkansas and Southwestern Energy Co. William B. Harrison, Jr................ Director (since 1986); Vice Chairman, Chase Manhattan Corporation, New Chase Manhattan Corporation York, New York. Director of Chase Manhattan Corporation, 270 Park Avenue, 8th Floor Freeport-McMoran Inc., and Freeport-McMoran Copper and Gold, Inc. New York, New York 10017-2070 John H. Johnson........................ Director (since 1986); Chairman & CEO, Johnson Publishing Company, Inc., Johnson Publishing Company, Inc. Chicago, Illinois 820 South Michigan Avenue Chicago, Illinois 60605 E. Ray Kemp............................ Director (since 1970); Former Vice Chairman of the Board and Chief 9 St. Johns Place Administrative Officer of Parent (until 1992); now retired Little Rock, Arkansas 72207 Jackson T. Stephens.................... Director (since 1997); Chairman--Stephens Group, Inc., Little Rock, Stephens Group, Inc. Arkansas 111 Center Street, 25th Floor Little Rock, Arkansas 72201 William H. Sutton...................... Director (since 1994); Managing Partner at Friday, Eldredge & Clark, Friday, Eldredge & Clark Attorneys, Little Rock, Arkansas 2000 First Commercial Building 400 Capitol Avenue Little Rock, Arkansas 72201 Paul J. Schroeder, Jr.................. Vice President of Parent (since 5/16/98); Secretary of Parent (since Dillard's, Inc. 5/16/98); General Counsel of Parent (since 5/16/98); previously, Partner 1600 Cantrell Road at Bryan Cave, Attorneys, St. Louis, Missouri Little Rock, Arkansas 72201
I-2 3. OWNERSHIP OF SUBJECT COMPANY'S SECURITIES BY DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER. Except for Jack Stephens, who owns 3,600 Shares (which he purchased on April 21, 1995), to the best knowledge of Parent and Purchaser, none of Parent's and Purchaser's other directors or executive officers beneficially owns any equity securities, or rights to acquire any equity securities of the Company and none has been involved in any transactions with respect to any class of the Company's Securities or with the Company or any of its directors, executive officers, affiliates or associates during the past 60 days. Stephens Capital Management ("SCM"), a registered investment advisor and division of Stephens Group, Inc., manages numerous customer accounts on a discretionary basis. SCM currently holds 104,696 Shares of the Company for the benefit of its various customers. SCM has discretionary authority over such accounts. Jack Stephens is the Chairman of Stephens Group, Inc. I-3 Facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary as follows: THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT Wall Street Station (for Eligible Institutions DELIVERY: P.O. Box 1023 only) 88 Pine Street New York, NY 10268-1023 (212) 701-7636 or -7637 19th Floor New York, NY 10005 CONFIRM BY TELEPHONE: (212) 701-7624
Any questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent. You may also contact your broker, dealer, commercial bank or trust company for assistance concerning the Offer. The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll-Free: 1-800-431-9633 The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway, 35th Floor New York, NY 10036 (212) 761-8117 (Call Collect) (800) 761-8950 x8117 EX-7.2 3 LETTER OF TRANSMITTAL Exhibit 7.2 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF MERCANTILE STORES COMPANY, INC. PURSUANT TO THE OFFER TO PURCHASE DATED MAY 21, 1998 BY MSC ACQUISITIONS, INC. A WHOLLY OWNED SUBSIDIARY OF DILLARD'S, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 19, 1998, UNLESS THE OFFER IS EXTENDED. THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT DELIVERY: Wall Street Station (for Eligible Institutions only) 88 Pine Street P.O. Box 1023 (212) 701-7636 or -7637 19th Floor New York, NY 10268-1023 New York, NY 10005 Confirm by Telephone: (212) 701-7624
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders, either if certificates for Shares (as defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if tenders of Shares are to be made by book-entry transfer into the account of Harris Trust Company of New York, as Depositary (the "Depositary"), at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Stockholders who tender Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders". Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
- ---------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - ---------------------------------------------------------------------------------------------------- NAME(S) & ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS SHARE CERTIFICATE(S) AND SHARE(S) TENDERED NAME(S) APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) - ---------------------------------------------------------------------------------------------------- TOTAL NUMBER SHARE OF SHARES NUMBER OF CERTIFICATE REPRESENTED BY SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** - ---------------------------------------------------------------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- TOTAL SHARES ---------------------------------------------- * Need not be completed by Book-Entry Stockholders. ** Unless otherwise indicated, all Shares represented by certificates delivered to the Depositary will be deemed to have been tendered. See Instruction 4. ----------------------------------------------
2 / / CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution Check box of Book-Entry Transfer Facility: / / The Depository Trust Company Account Number Transaction Code Number / / CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): Window Ticket Number (if any): Date of Execution of Notice of Guaranteed Delivery: Name of Institution that Guaranteed Delivery: If delivered by Book-Entry Transfer, check box of Book-Entry Transfer Facility): / / The Depository Trust Company Account Number Transaction Code Number
3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to MSC Acquisitions, Inc., a Delaware corporation (the "Purchaser"), a wholly owned subsidiary of Dillard's, Inc., a Delaware corporation ("Parent"), the above-described shares of Common Stock, $.14 2/3 par value per share (the "Shares"), of Mercantile Stores Company, Inc., a Delaware corporation (the "Company"), at a purchase price of $80 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 21, 1998 (the "Offer to Purchase") and in this Letter of Transmittal (which together constitute the "Offer"). The undersigned understands that the Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, receipt of which is hereby acknowledged. Subject to, and effective upon, acceptance for payment for the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby and any and all non-cash dividends, distributions (including additional Shares) or rights declared, paid or issued with respect to the tendered Shares on or after May 16, 1998 and payable or distributable to the undersigned on a date prior to the transfer to the name of the Purchaser or nominee or transferee of the Purchaser on the Company's stock transfer records of the Shares tendered herewith (collectively, a "Distribution"), and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any Distribution) with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver such Share Certificates (as defined herein) (and any Distribution) or transfer ownership of such Shares (and any Distribution) on the account books maintained by the Book-Entry Transfer Facility, together in either case with appropriate evidences of transfer, to the Depositary for the account of the Purchaser, (b) present such Shares (and any Distribution) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any Distribution), all in accordance with the terms and subject to the conditions of the Offer. The undersigned irrevocably appoints designees of the Purchaser as such stockholder's proxy, with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after May 16, 1998. Such appointment will be effective when, and only to the extent that, the Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior proxies given by such stockholder with respect to such Shares (and such other shares and securities) will be revoked without further action, and no subsequent proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of the Purchaser will be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's payment for such Shares the Purchaser must be able to exercise full voting rights with respect to such Shares. 4 The undersigned hereby represents and warrants that (a) the undersigned has full power and authority to tender, sell, assign and transfer the Shares (and any Distribution) tendered hereby and (b) when the Shares are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title to the Shares (and any Distribution), free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned, upon request, will execute and deliver any additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and any Distribution). In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of the Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer; and pending such remittance or appropriate assurance thereof, the Purchaser will be, subject to applicable law, entitled to all rights and privileges as owner of any such Distribution and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date (as defined in the Offer to Purchase) and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after July 19, 1998. See Section 4 of the Offer to Purchase. The undersigned understands that tenders of Shares pursuant to any of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions set forth in the Offer, including the undersigned's representation that the undersigned owns the Shares being tendered. Unless otherwise indicated herein under "Special Payment Instructions", please issue the check for the purchase price and/or issue or return any certificate(s) for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered". Similarly, unless otherwise indicated herein under "Special Delivery Instructions", please mail the check for the purchase price and/or any certificate(s) for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered". In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or any certificate(s) for Shares not tendered or accepted for payment in the name of, and deliver such check and/or such certificates to, the person or persons so indicated. The undersigned recognizes that the Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name(s) of the registered holder(s) thereof if the Purchaser does not accept for payment any of the Shares so tendered. 5 - ------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned. Issue / / check / / certificates to: Name _______________________________________________________________________ (PLEASE PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) ____________________________________________________________________________ (TAX ID. OR SOCIAL SECURITY NO.) (SEE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE) ---------------------------- - ------------------------------------------------------------ ---------------------------- SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. Mail / / check / / certificates to: Name _______________________________________________________________________ (PLEASE PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) ____________________________________________________________________________ 6 SIGN HERE SIGN SIGN AND COMPLETE SUBSTITUTE FORM W-9 HERE HERE X __________________________________________________________________________ \ ^ X __________________________________________________________________________ (SIGNATURE(S) OF HOLDER(S)) Dated: _______________________________________________________________, 1998 (Must be signed by the registered holder(s) exactly as name(s) appear(s) on Share Certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) ____________________________________________________________________ ____________________________________________________________________________ (PLEASE PRINT) Capacity (full title) ______________________________________________________ Address ____________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone Number _____________________________________________ Tax Identification or Social Security No. ________________________________________________________ COMPLETE SUBSTITUTE FORM W-9 ON REVERSE GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature _______________________________________________________ Name _______________________________________________________________________ Name of Firm _______________________________________________________________ (PLEASE PRINT) Address ____________________________________________________________________ (Include Zip Code) Area Code and Telephone Number _____________________________________________ Dated: _______________________________________________________________, 1998 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) of Shares tendered herewith, unless such holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" above, or (b) if such Shares are tendered for the account of a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5 of this Letter of Transmittal. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedure for tender by book-entry transfer set forth in Section 3 of the Offer to Purchase. Share Certificates, or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility, as well as this Letter of Transmittal (or a facsimile hereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). Stockholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Purchaser, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation) representing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or a facsimile hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares and any other required information should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. (NOT APPLICABLE TO BOOK-ENTRY STOCKHOLDERS) If fewer than all the Shares evidenced by any Share Certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered". In such cases, new Share Certificates for the Shares that were evidenced by your old Share Certificates, but were not tendered by you, will be sent to you, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 8 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Purchaser of their authority so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to or certificates for Shares not tendered or not purchased are to be issued in the name of a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the certificate(s) listed, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the certificate(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, the Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificate(s) for Shares not tendered or accepted for payment are to be registered in the name of, any person other than the registered holder(s), or if tendered certificate(s) are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or an exemption therefrom, is submitted. Except as otherwise provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificate(s) listed in this Letter of Transmittal. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in the name of, and/or certificates for Shares not tendered or not accepted for payment are to be issued or returned to, a person other than the signer of this Letter of Transmittal or if a check and/or such certificates are to be returned to a person other than the person(s) signing this Letter of Transmittal or to an address other than that shown in this Letter of Transmittal, the appropriate boxes on this Letter of Transmittal must be completed. 8. WAIVER OF CONDITIONS. Subject to the terms and conditions of the Merger Agreement, the conditions of the Offer (other than the Minimum Condition (as defined in the Offer to Purchase)) may be waived by the Purchaser in whole or in part at any time and from time to time in its sole discretion. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the Depositary is not provided with the correct TIN, the Internal Revenue Service may subject the stockholder or other payee to a $50 penalty. In addition, payments that are made to such stockholder or other payee with respect to Shares purchased pursuant to the Offer may be subject to 31% backup withholding. 9 Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the stockholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Depositary. The stockholder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to the Dealer Manager or the Information Agent at their respective addresses and telephone numbers set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or the Dealer Manager or from brokers, dealers, commercial banks or trust companies. 11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary. The stockholder will then be instructed as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. 10 PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK - ------------------------------------------------------------------------------------------------ SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN Social Security Number IN THE BOX AT THE RIGHT AND or Employer FORM W-9 CERTIFY BY SIGNING AND DATING Identification Number BELOW. ------------------------ PART 2--Certification--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Department of the Identification Number (or I am waiting for a number to be Treasury issued to me) and Internal Revenue Service (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been PAYER'S REQUEST FOR notified by the Internal Revenue Service (the "IRS") that TAXPAYER IDENTIFICATION I am subject to backup withholding as a result of a NUMBER ("TIN") failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (2). SIGN HERE ^ Signature PART 3-- Date , 1998 Awaiting TIN / /
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld.
Signature Date , 1998
THE INFORMATION AGENT FOR THE OFFER IS: D.F. KING & CO., INC. 77 Water Street New York, New York 10005 BANKS AND BROKERS CALL COLLECT: (212) 269-5550 ALL OTHERS CALL TOLL FREE: 1-800-431-9633 THE DEALER MANAGER FOR THE OFFER IS: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 (212) 761-8117 (Call Collect) (800) 761-8950 (Toll Free) x8117 May 21, 1998 EX-7.3 4 NOTICE OF GUARANTEED DELIVERY Exhibit 7.3 NOTICE OF GUARANTEED DELIVERY TO TENDER SHARES OF COMMON STOCK OF MERCANTILE STORES COMPANY, INC. As set forth in Section 3 of the Offer to Purchase described below, this instrument or one substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates for Shares (as defined below) are not immediately available or the certificates for Shares and all other required documents cannot be delivered to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) or if the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This instrument may be delivered by hand or transmitted by facsimile transmission or mail to the Depositary. THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT DELIVERY: Wall Street Station (FOR ELIGIBLE INSTITUTIONS 88 Pine Street ONLY) P.O. Box 1023 (212) 701-7636 or -7637 19th Floor New York, NY 10268-1023 New York, NY 10005 CONFIRM BY TELEPHONE: (212) 701-7624
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box in the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tender(s) to MSC Acquisitions, Inc., a Delaware corporation and a wholly owned subsidiary of Dillard's, Inc., a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 21, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of Common Stock, $.14 2/3 par value per share (the "Shares"), of Mercantile Stores Company, Inc., a Delaware corporation, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Signature(s) Address(es) Name(s) of Record Holders ZIP CODE PLEASE TYPE OR PRINT Area Code and Tel. No.(s) Number of Shares (Check the box below if Shares will be tendered by book-entry transfer) Certificate Nos. (If Available) / / The Depository Trust Company Dated , 1998 Account Number
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program, (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that such tender of Shares complies with Rule 14e-4, and (c) guarantees to deliver to the Depositary either the certificates evidencing all tendered Shares, in proper form for transfer, or to deliver Shares pursuant to the procedure for book-entry transfer into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility"), in either case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents, all within three New York Stock Exchange trading days after the date hereof. NAME OF FIRM AUTHORIZED SIGNATURE Name ADDRESS PLEASE TYPE OR PRINT Title ZIP CODE Area Code and Tel. No. Dated , 1998
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 2 EX-7.4 5 BROKER LETTER Exhibit 7.4 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF MERCANTILE STORES COMPANY, INC. AT $80 NET PER SHARE BY MSC ACQUISITIONS, INC. A WHOLLY OWNED SUBSIDIARY OF DILLARD'S, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 19, 1998, UNLESS THE OFFER IS EXTENDED. May 21, 1998 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by MSC Acquisitions, Inc., a Delaware corporation (the "Purchaser"), and a wholly owned subsidiary of Dillard's, Inc., a Delaware corporation (the "Parent"), to act as Dealer Manager in connection with the Purchaser's offer to purchase for cash all the outstanding shares of Common Stock, par value $.14 2/3 per share (the "Shares"), of Mercantile Stores Company, Inc., a Delaware corporation (the "Company") at a purchase price of $80 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 21, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer") enclosed herewith. Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary (as defined below) prior to the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase, dated May 21, 1998. 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares. 3. The Notice of Guaranteed Delivery for Shares to be used to accept the Offer if Share Certificates are not immediately available or if such certificates and all other required documents cannot be delivered to Harris Trust Company of New York (the "Depositary") by the Expiration Date or if the procedure for book-entry transfer cannot be completed by the Expiration Date. 4. The Letter to Stockholders of the Company from the Chairman of the Board, President and Chief Executive Officer of the Company, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. 5. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer. 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. 7. A return envelope addressed to Harris Trust Company of New York, the Depositary. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 19, 1998, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, (i) a duly executed and properly completed Letter of Transmittal and any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry delivery of Shares, and other required documents should be sent to the Depositary, and (ii) either Share Certificates representing the tendered Shares should be delivered to the Depositary or such Shares should be tendered by book-entry transfer into the Depositary's account maintained at the Book-Entry Transfer Facility (as described in the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their Share Certificates or other required documents on or prior to the Expiration Date or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. The Purchaser will not pay any commissions or fees to any broker, dealer or other person (other than the Dealer Manager, the Depositary and D.F. King & Co., Inc. (the "Information Agent") (as described in the Offer to Purchase)) for soliciting tenders of Shares pursuant to the Offer. The Purchaser will, however, upon request, reimburse you for customary clerical and mailing expenses incurred by you in forwarding any of the enclosed materials to your clients. The Purchaser will pay or cause to be paid any stock transfer taxes payable on the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to Morgan Stanley & Co. Incorporated, the Dealer Manager, or the Information Agent, at their respective addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Additional copies of the enclosed materials may be obtained from the Information Agent. Very truly yours, MORGAN STANLEY & CO. INCORPORATED NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE PURCHASER, THE PARENT, THE DEALER MANAGER, THE COMPANY, THE DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 2 EX-7.5 6 CLIENT LETTER Exhibit 7.5 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF MERCANTILE STORES COMPANY, INC. AT $80 NET PER SHARE BY MSC ACQUISITIONS, INC. A WHOLLY OWNED SUBSIDIARY OF DILLARD'S, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 19, 1998, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration is an Offer to Purchase, dated May 21, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal relating to an offer by MSC Acquisitions, Inc., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Dillard's, Inc., a Delaware corporation (the "Parent"), to purchase all of the outstanding shares of Common Stock, $.14 2/3 par value per share (the "Shares"), of Mercantile Stores Company, Inc., a Delaware corporation (the "Company"), at a purchase price of $80 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which together constitute the "Offer"). We are the holder of record of Shares held by us for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish to have us tender on your behalf any or all of such Shares held by us for your account, pursuant to the terms and subject to the conditions set forth in the Offer to Purchase. Your attention is directed to the following: 1. The tender price is $80 per share, net to the seller in cash without interest thereon. 2. The Offer is made for all of the outstanding Shares. 3. The Board of Directors of the Company has determined that the Merger Agreement (as defined below) and the transactions contemplated thereby, including each of the Offer and the Merger (as defined below), are advisable and are fair to and in the best interests of the stockholders of the Company and recommends that holders of the Shares accept the Offer and tender their Shares to the Purchaser. 4. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of May 16, 1998 (the "Merger Agreement"), which provides that subsequent to the consummation of the Offer, the Purchaser will merge with and into the Company (the "Merger"). At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company and Shares, if any, owned by the Purchaser, the Parent or any direct or indirect subsidiary of the Parent or of the Company and other than Shares, if any, held by stockholders who have not voted in favor of the Merger Agreement or consented thereto in writing and have timely delivered to the Company demand for appraisal of such Shares in accordance with the Delaware General Corporation Law) shall be cancelled, extinguished and converted automatically into the right to receive $80 in cash, without interest. 5. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Friday, June 19, 1998, unless the Offer is extended. 6. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares pursuant to the Offer. 7. The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn prior to the expiration of the Offer, at least that number of Shares which, when combined with the Shares owned, directly or indirectly, by the Parent and its direct and indirect subsidiaries, constitute more than 50% of the voting power (determined on a fully-diluted basis) of all securities of the Company entitled to vote generally in the election of directors or in a merger and (ii) the expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Offer is being made solely by the Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. The Purchaser is not aware of any State where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid State statute. If the Purchaser becomes aware of any valid State statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a good faith effort to comply with any such State statute. If, after such good faith effort, the Purchaser cannot comply with such State statute, the Offer will not be made to nor will tenders be accepted from or on behalf of the holders of Shares in such State. In any jurisdiction where the securities, "blue sky" or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by the Dealer Manager or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. If you wish to have us tender any or all of the Shares held by us for your account, please instruct us by completing, executing and returning to us the instruction form contained in this letter. If you authorize a tender of your Shares, all such Shares will be tendered unless otherwise specified in such instruction form. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF MERCANTILE STORES COMPANY, INC. The undersigned acknowledge(s) receipt of your letter enclosing the Offer to Purchase dated May 21, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal pursuant to an offer by MSC Acquisitions, Inc., a Delaware corporation and a wholly owned subsidiary of Dillard's, Inc., a Delaware corporation, to purchase all outstanding shares of Common Stock, $.14 2/3 par value per share (the "Shares"), of Mercantile Stores Company, Inc., a Delaware corporation. This will instruct you to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal furnished to the undersigned. Number of Shares to be Tendered* ................................................ Shares Dated........................................... , 1998 SIGN HERE ........................................................... ........................................................... Signature(s) ........................................................... Please print name(s) ........................................................... Address ........................................................... Area Code and Telephone Number ........................................................... Tax Identification or Social Security Number
- ------------------------ * Unless otherwise indicated, it will be assumed that all of your Shares held by us for your account are to be tendered. EX-7.6 7 W-9 GUIDELINES Exhibit 7.6 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. Social Security numbers have nine digits separated by two hyphens: I.E. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: 00-0000000. The table below will help determine the number to give the payer.
- ----------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT NUMBER OF - ----------------------------------------------------- 1. An individual's The individual account 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, the first individual on the account(1) 3. Husband and wife The actual owner of (joint account) the account or, if joint funds, either person(1) 4. Custodian account of The minor(2) a minor (Uniform Gift to Minors Act) 5. Adult and minor The adult, or if the (joint account) minor is the only contributor, the minor(1) 6. Account in the name The ward, minor, or of guardian or incompetent committee for a person(3) designated ward, minor, or incompetent person 7. a. The usual The grantor- revocable savings trustee(1) trust account (grantor is also trustee) b. So-called trust The actual owner(4) account that is not a legal or valid trust under State law 8. Sole proprietorship The owner(4) account - ----------------------------------------------------- GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF - ----------------------------------------------------- 9. A valid estate or The legal entity (Do pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, The organization charitable or educational organization account 12. Partnership account The partnership held in the name of the partnership 13. Association, club, The organization or other tax-exempt organization 14. A broker or The broker or registered nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district or prison) that receives agricultural program payments
- --------------------------------------------- - --------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or employer identification number. (4) List first and circle the name of the legal trust, estate, or pension trust. Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title. (5) Show your individual name. You may also enter your business name. You may use either your social security number or your employer identification number. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for business and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service. To complete Substitute Form W-9 if you do not have a taxpayer identification number, write "Applied For" in the space for the taxpayer identification number in Part I, sign and date the Form, and give it to the requester. Generally, you will then have 60 days to obtain a taxpayer identification number and furnish it to the requester. If the requester does not receive your taxpayer identification number within 60 days, backup withholding, if applicable, will begin and continue until you furnish your taxpayer identification number to the requester. PAYEES EXEMPT FROM BACKUP WITHHOLDING The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation. (2) An organization exempt from tax under section 501(a), or an IRA, or a custodial account under section 403(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Securities, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - - Payments to nonresident aliens subject to withholding under Section 1441. - - Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner. - - Payments of patronage dividends where the amount received is not paid in money. - - Payments made by certain foreign organizations. - - Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt interest dividends under section 852). - - Payments described in section 6049(b)(5) to nonresident aliens. - - Payments on tax-free covenant bonds under Section 1451 of the Code. - - Payments made by certain foreign organizations. - - Payments made to a nominee. EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE A SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Certain payments other than interest, dividends and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see Sections 6041, 6041(a), 6042, 6044, 6045, 6049, 6050A and 6050N of the Code and the regulations promulgated therein. PRIVACY ACT NOTICE.--Section 6109 requires recipients of dividends, interest or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish you taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-7.7 8 NOTICE OF OFFER TO PURCHASE Exhibit 7.7 This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase dated May 21, 1998 and the related Letter of Transmittal (and any amendments thereto) and is being made to all holders of Shares. The Purchaser (as defined below) is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to a state statute. If the Purchaser becomes aware of any state where the making of the Offer is prohibited, the Purchaser will make a good faith effort to comply with any such statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, the Purchaser cannot comply with any applicable statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In those jurisdictions where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by Morgan Stanley & Co. Incorporated or one or more registered brokers or dealers licensed under the laws of such jurisdictions. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of Mercantile Stores Company, Inc. at $80 Net Per Share by MSC Acquisitions, Inc. a wholly owned subsidiary of Dillard's, Inc. MSC Acquisitions, Inc., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Dillard's, Inc., a Delaware corporation (the "Parent"), is offering to purchase all of the outstanding shares of Common Stock, $.14 2/3 par value per share (the "Shares"), of Mercantile Stores Company, Inc., a Delaware corporation (the "Company"), at a purchase price of $80 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 21, 1998 (the "Offer to Purchase") and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). - ------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 19, 1998, UNLESS THE OFFER IS EXTENDED. - ------------------------------------------------------------------------------- THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES WHICH, TOGETHER WITH ANY SHARES OWNED, DIRECTLY OR INDIRECTLY, BY THE PARENT OR THE PURCHASER, CONSTITUTES MORE THAN 50% OF THE VOTING POWER (DETERMINED ON A FULLY-DILUTED BASIS) OF ALL THE SECURITIES OF THE COMPANY ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS OR IN A MERGER AND (II) THE EXPIRATION OR TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED. 2 The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. Following the consummation of the Offer, the Purchaser intends to effect the Merger described below. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of May 16, 1998 (the "Merger Agreement"), among the Parent, the Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by the Purchaser, and further provides that, following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement and the Delaware General Corporation Law ("DGCL"), the Purchaser will be merged with and into the Company (the "Merger"), and each Share issued and outstanding immediately prior to the effective time of the Merger (other than Shares held in the treasury of the Company and each Share owned by the Parent, the Purchaser or any other direct or indirect subsidiary of the Parent or of the Company, which shall be cancelled, and other than Shares, if any, held by stockholders who have not voted in favor of or consented to the Merger and who have delivered a written demand for appraisal of such Shares in the time and manner provided in the DGCL) will, by virtue of the Merger and without any action on the part of the Purchaser, the Company or the holders of the capital stock, be cancelled, extinguished and converted into the right to receive $80 in cash payable to the holder thereof, without interest, upon the surrender of the certificate formerly representing such Share, less any required withholding taxes. The Merger Agreement is more fully described in Section 11 of the Offer to Purchase. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE HOLDERS OF SHARES AND RECOMMENDS THAT ALL HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES TO THE PURCHASER. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when the Purchaser gives oral or written notice to Harris Trust Company of New York (the "Depositary") of the Purchaser's acceptance of such Shares for payment pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from the Purchaser and transmitting such payments to stockholders whose Shares have been accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates representing Shares (the "Share Certificates") or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer, and (iii) any other documents required by the Letter of Transmittal. Subject to the applicable rules and regulations of the Securities and Exchange Commission and the terms of the Merger Agreement, the Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the events set forth in Section 15 of the Offer to Purchase shall have occurred, to (i) extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and the payment for, any Shares, by giving oral or written notice of such extension to the Depositary and (ii) amend the Offer in any respect by giving oral or written notice of such amendment to the Depositary. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement to be made no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. 3 During any such extension all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw such stockholder's Shares. The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, June 19, 1998, unless and until the Purchaser, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), shall have extended the period during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after July 19, 1998. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered such Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If Share Certificates to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to Purchase) unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in the second sentence of this paragraph. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares and furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Dealer Manager or the Information Agent as set forth below. Requests for copies of the Offer to Purchase and the related Letter of Transmittal and all other tender offer materials may be directed to the Information Agent or the Dealer Manager, and copies will be furnished promptly at the Purchaser's expense. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Dealer Manager and the Information Agent) for soliciting tenders of Shares pursuant to the Offer. 4 The Information Agent for the Offer is: D.F KING & CO., INC. ------------ 77 Water Street New York, New York 10005 Banks and Brokers Call Collect (212) 269-5550 All Others Call Toll Free 1-800-431-9633 (Toll-Free) The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER 1585 Broadway 35th Floor New York, New York 10036 (212) 761-8117 (call collect) or (800) 761-8950 (toll free) x8117 May 21, 1998 EX-7.8 9 PRESS RELEASE Exhibit 7.8 DILLARD'S Dillard's, Inc. 1600 Cantrell Road Little Rock, AR 72201 News Release Contact: James I. Freeman For Immediate Release (501) 376-5980 DILLARD'S, INC. ANNOUNCES DEFINITIVE AGREEMENT FOR ACQUISITION OF MERCANTILE STORES COMPANY, INC. Little Rock, Arkansas, May 18 1998 - Dillard's Inc. announced today that the boards of directors of Dillard's, Inc. and Mercantile Stores Company, Inc. have approved a definitive agreement under which Dillard's, Inc. will acquire Mercantile Stores for $80.00 per share or approximately $2.9 billion in cash. Pursuant to the agreement, a cash tender offer will be commenced by a wholly-owned subsidiary of Dillard's, Inc. no later than May 22, 1998 to acquire all of the outstanding shares of Mercantile Stores Company, Inc. Mercantile operates 103 predominately fashion apparel stores and 16 home fashion stores. The stores span 17 states, situated mainly in the southern, southeastern, and midwest regions of the country. Operating under 13 different names and managed by five regional divisions, Mercantile's sales for fiscal year 1997 exceeded $3 billion. "We're very excited about this transaction," said William Dillard, II, Chief Executive Officer of Dillard's, Inc. "We have admired Mercantile for many years. This acquisition will allow us to broaden the markets in which we have stores and help us to better server customers in our existing markets." Mr. Dillard added, "The stores are a great fit for the Dillard's location strategy, ranging from urban to less populated areas. They have achieved the number one market position in 70% of their markets. This could not have been accomplished without a great pool of talent. We're excited to be associated with this fine organization." The tender offer will be subject to the valid tender of shares (together with any other shares acquired by Dillard's, Inc.) representing a majority of the voting power of Mercantile Stores Company, Inc., the expiration of the waiting period under applicable antitrust and competition laws, and other customary conditions. The Milliken family, holders of approximately 40% of the stock of Mercantile Stores Company, Inc., has contractually agreed to support the transaction. Established sixty years ago by William Dillard, Dillard's, Inc. currently operates 272 stores in twenty-seven states featuring branded and private label merchandise in the upper-middle price range and catering to a broad spectrum of the population. [Home]]Up][Dillard's Events!][Major Acquisition] EX-7.9 10 PRESS RELEASE Exhibit 7.9 PRESS RELEASE NEWS RELEASE For Immediate Release DILLARD'S INC. AND MERCANTILE STORES COMPANY RECEIVE SECOND REQUEST FROM FEDERAL TRADE COMMISSION Little Rock, Arkansas, (June 4, 1998)--Dillard's Inc. ("Dillard's") and Mercantile Stores Company, Inc. ("Mercantile") said that the Federal Trade Commission has requested additional information in connection with Dillard's Hart-Scott-Rodino filing relating to its tender offer for all of the outstanding shares of Mercantile. William Dillard, II, Chief Executive Officer of Dillard's, said: "This request was expected. We have previously indicated that if the Federal Trade Commission raises antitrust concerns, we are prepared to work with the Federal Trade Commission to deal with such concerns." In addition, Dillard's announced that it has filed a Change in Bank Control Notice with the Office of the Comptroller of the Currency ("OCC") with respect to the acquisition of Mercantile's credit card bank. Dillard's currently expects to receive approval from the OCC for the transfer during the period that it seeks Hart-Scott-Rodino clearance from the Federal Trade Commission, such transfer to become effective upon consummation of the parties' proposed merger. EX-7.10 11 AGREEMENT PLAN OF MERGER Exhibit 7.10 ---------------------------------------------------------- AGREEMENT AND PLAN OF MERGER Among DILLARD'S, INC. MSC ACQUISITIONS, INC. and MERCANTILE STORES COMPANY, INC. Dated as of May 16, 1998 ---------------------------------------------------------- TABLE OF CONTENTS
ARTICLE I THE OFFER ............................ 2 SECTION 1.1 The Offer ................................................... 2 SECTION 1.2 Company Action .............................................. 3 ARTICLE II THE MERGER ............................ 4 SECTION 2.1 The Merger ................................................. 4 SECTION 2.2 Closing; Effective Time .................................... 4 SECTION 2.3 Effects of the Merger ...................................... 4 SECTION 2.4 Certificate of Incorporation; By-Laws ...................... 5 SECTION 2.5 Directors and Officers ..................................... 5 SECTION 2.6 Conversion of Securities ................................... 5 SECTION 2.7 Treatment of Options ....................................... 6 SECTION 2.8 Dissenting Shares and Section 262 Shares ................... 6 SECTION 2.9 Surrender of Shares; Stock Transfer Books .................. 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY ....................... 8 SECTION 3.1 Organization and Qualification; Subsidiaries ............... 8 SECTION 3.2 Certificate of Incorporation and By-Laws ................... 8 SECTION 3.3 Capitalization ............................................. 8 SECTION 3.4 Authority Relative to This Agreement ....................... 9 SECTION 3.5 No Conflict; Required Filings and Consents ................. 10 SECTION 3.6 Compliance ................................................. 10 SECTION 3.7 SEC Filings; Financial Statements .......................... 11 SECTION 3.8 Absence of Certain Changes or Events ....................... 11 SECTION 3.9 Absence of Litigation ...................................... 12 SECTION 3.10 Employee Benefit Plans ..................................... 12 SECTION 3.11 Tax Matters ................................................ 14 SECTION 3.12 Offer Documents; Proxy Statement ........................... 14 SECTION 3.13 Environmental Matters ...................................... 15 SECTION 3.14 Real Estate Matters ........................................ 17 SECTION 3.15 Brokers .................................................... 18 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER .............................. 18 SECTION 4.1 Corporate Organization ..................................... 18 SECTION 4.2 Authority Relative to This Agreement ....................... 18
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SECTION 4.3 No Conflict; Required Filings and Consents ................. 18 SECTION 4.4 Offer Documents; Proxy Statement ........................... 19 SECTION 4.5 Brokers .................................................... 20 SECTION 4.6 Funds ...................................................... 20 ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER .......................... 20 SECTION 5.1 Conduct of Business of the Company Pending the Merger ...... 20 ARTICLE VI ADDITIONAL AGREEMENTS ................................. 22 SECTION 6.1 Stockholders Meeting ....................................... 22 SECTION 6.2 Proxy Statement ............................................ 22 SECTION 6.3 Company Board Representation; Section 14(f) ................ 23 SECTION 6.4 Access to Information; Confidentiality ..................... 24 SECTION 6.5 No Solicitation of Transactions ............................ 25 SECTION 6.6 Employee Benefits Matters .................................. 26 SECTION 6.7 Directors' and Officers' Indemnification and Insurance ..... 27 SECTION 6.8 Postponement of Annual Meeting ............................. 28 SECTION 6.9 Notification of Certain Matters ............................ 28 SECTION 6.10 Further Action; Reasonable Best Efforts .................... 28 SECTION 6.11 Public Announcements ....................................... 29 SECTION 6.12 Disposition of Litigation .................................. 29 ARTICLE VII CONDITIONS OF MERGER ................................. 29 SECTION 7.1 Conditions to Obligation of Each Party to Effect the Merger . 29 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ........................... 30 SECTION 8.1 Termination ................................................ 30 SECTION 8.2 Effect of Termination ...................................... 31 SECTION 8.3 Fees and Expenses .......................................... 32 SECTION 8.4 Amendment .................................................. 33 SECTION 8.5 Waiver ..................................................... 33 ARTICLE IX GENERAL PROVISIONS .................................. 33 SECTION 9.1 Non-Survival of Representations, Warranties and Agreements 33 SECTION 9.2 Notices .................................................... 33 SECTION 9.3 Certain Definitions ........................................ 34 SECTION 9.4 Severability ............................................... 35
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SECTION 9.5 Entire Agreement; Assignment ............................... 36 SECTION 9.6 Parties in Interest ........................................ 36 SECTION 9.7 Governing Law .............................................. 36 SECTION 9.8 Headings ................................................... 36 SECTION 9.9 Counterparts ............................................... 36 SECTION 9.10 Knowledge .................................................. 36 SECTION 9.11 Specific Performance ....................................... 36
Annex A - Offer Conditions -iii- AGREEMENT AND PLAN OF MERGER, dated as of May 16, 1998 (this "Agreement"), among DILLARD'S, INC., a Delaware corporation ("Parent"), MSC ACQUISITIONS, INC., a Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and MERCANTILE STORES COMPANY, INC., a Delaware corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company and the stockholders of the Company to enter into this Agreement with Parent and Purchaser, providing for the merger (the "Merger") of Purchaser with the Company in accordance with the General Corporation Law of the State of Delaware ("DGCL"), upon the terms and subject to the conditions set forth herein; WHEREAS, the Board of Directors of Parent and Purchaser have each approved the Merger of Purchaser with the Company in accordance with the DGCL upon the terms and subject to the conditions set forth herein; WHEREAS, concurrently with the execution and delivery of this Agreement, Parent, MMC Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("MMC MergerSub"), and Minot Mercantile Corporation, a Delaware corporation ("Holding Co."), have entered into a merger agreement, dated as of the date hereof (the "Holding Co. Merger Agreement"), pursuant to which MMC MergerSub will be merged with and into Holding Co. (the "Holding Co. Merger"), and Holding Co. shall be the surviving corporation; WHEREAS, concurrently with the execution and delivery of this Agreement, Parent, WMI Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("WMI MergerSub"), and Woodbank Mills, Inc., a Delaware corporation ("Woodbank"), have entered into a merger agreement, dated as of the date hereof (the "Woodbank Merger Agreement"), pursuant to which WMI MergerSub will be merged with and into Woodbank (the "Woodbank Merger"), and Woodbank shall be the surviving corporation; and WHEREAS, concurrently with the execution and delivery of this Agreement, Parent and each of Holding Co., Woodbank, various family trust entities (collectively, the "Related Sellers") have entered into a stockholders' agreement, dated as of the date hereof (the "Stockholders' Agreement"), pursuant to which, among other things, the Related Sellers have granted an option in favor of Parent with respect to the shares of Company Common Stock (as defined herein) respectively held by such persons, subject to the terms and conditions contained therein; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Purchaser and the Company hereby agree as follows: 2 ARTICLE I THE OFFER SECTION 1.1 The Offer. (a) Provided that this Agreement shall not have been terminated in accordance with Section 8.1 and no event shall have occurred and no circumstance shall exist which would result in a failure to satisfy any of the conditions or events set forth in Annex A hereto (the "Offer Conditions"), Purchaser shall, as soon as reasonably practicable after the date hereof (and in any event within five business days from the date of public announcement of the execution hereof), commence an offer (the "Offer") to purchase for cash all of the issued and outstanding shares of Common Stock, par value $.14 2/3 per share (referred to herein as either the "Shares" or "Company Common Stock"), of the Company at a price of $80.00 per Share, net to the seller in cash. The obligation of Purchaser to accept for payment Shares tendered pursuant to the Offer shall be subject only to the satisfaction or waiver by Purchaser of the Offer Conditions. Purchaser expressly reserves the right, in its sole discretion, to waive any such condition (other than the Minimum Condition as defined in the Offer Conditions) and make any other changes in the terms or conditions of the Offer, provided that, unless previously approved by the Company in writing, no change may be made which decreases the price per Share payable in the Offer, changes the form of consideration payable in the Offer (other than by adding consideration), reduces the maximum number of Shares to be purchased in the Offer, modify or amend the Offer Conditions or otherwise amend the Offer in a manner adverse to holders of the Shares. Purchaser covenants and agrees that, subject to the terms and conditions of this Agreement, including but not limited to the Offer Conditions, it will accept for payment and pay for Shares as soon as it is permitted to do so under applicable law; provided that, Purchaser shall have the right, in its sole discretion, to extend the Offer for up to five business days, notwithstanding the prior satisfaction of the Offer, in order to attempt to satisfy the requirements of Section 253 of the DGCL. It is agreed that the Offer Conditions are for the benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition (except for any action or inaction by Purchaser or Parent constituting a breach of this Agreement) or, except with respect to the Minimum Condition, may be waived by Purchaser, in whole or in part at any time and from time to time, in its sole discretion. Purchaser further agrees that the Holding Co. Merger and the Woodbank Merger will not be closed until the Offer Conditions are otherwise satisfied or waived by Purchaser, and immediately prior to the purchase of the Shares by Purchaser pursuant to the Offer. Purchaser agrees that, so long as this Agreement is in effect and all of the Offer Conditions are satisfied other than the conditions to the Offer set forth in clause (h) of Annex A and the Minimum Condition, at the request of the Company the Purchaser, at its option, shall extend the Offer until the earlier of (1) such time as such conditions are satisfied or waived, and (2) the date chosen by the Company which shall not be later than (x) the Outside Date (as defined herein), (y) the earliest date on which the Company reasonably believes such condition will be satisfied; provided, that the Company may request further extensions up until the Outside Date if the Offer Conditions set forth in clause (h) and the Minimum Condition are still the only Offer Condition not satisfied unless this Agreement has been terminated pursuant to the provisions of Article VIII. (b) As soon as reasonably practicable on the date the Offer is commenced, Purchaser shall file a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with 3 respect to the Offer with the Securities and Exchange Commission (the "SEC"). The Schedule 14D-1 shall contain an Offer to Purchase and forms of the related letter of transmittal (which Schedule 14D-1, Offer to Purchase and other documents, together with any supplements or amendments thereto, are referred to herein collectively as the "Offer Documents"). Parent and Purchaser agree that the Company and its counsel shall be given an opportunity to review the Schedule 14D-1 before it is filed with the SEC. Parent, Purchaser and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents that shall have become false or misleading in any material respect, and Parent and Purchaser further agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. SECTION 1.2 Company Action. (a) The Company hereby approves of and consents to the Offer and represents and warrants that: (i) its Board of Directors, at a meeting duly called and held on May 15, 1998, has unanimously (A) determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are advisable and are fair to and in the best interests of the holders of Shares, (B) approved this Agreement and the transactions contemplated hereby, including each of the Offer and the Merger, and (C) resolved to recommend that the stockholders of the Company accept the Offer, tender their Shares to Purchaser thereunder and adopt this Agreement; provided, however, that prior to the consummation of the Offer, if the Company's Board of Directors by majority vote shall have determined in good faith, based upon the advice of outside counsel to the Company, that failure to modify or withdraw its recommendation would constitute a breach of the Board's fiduciary duty under applicable law, the Board of Directors may so modify or withdraw its recommendation; and (ii) Goldman, Sachs & Co. (the "Financial Adviser") has delivered to the Board of Directors of the Company its opinion that the consideration to be received by holders of Shares, other than Parent and Purchaser, pursuant to each of the Offer and the Merger is fair to such holders from a financial point of view. The Company has been authorized by the Financial Adviser to permit, subject to prior review and consent by such Financial Adviser, the inclusion of such fairness opinion (or a reference thereto) in the Schedule 14D-9 referred to below and the Proxy Statement referred to in Section 3.12. The Company hereby consents to the inclusion in the Offer Documents of the recommendations of the Company's Board of Directors described in this Section 1.2(a). (b) The Company shall file with the SEC, contemporaneously with the commencement of the Offer pursuant to Section 1.1, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto, the "Schedule 14D- 9"), containing the recommendations of the Company's Board of Directors described in Section 1.2(a)(i) and shall promptly mail the Schedule 14D-9 to the stockholders of the Company. The Schedule 14D-9 and all amendments thereto will comply in all material respects with the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder. The Company, Parent and Purchaser each agrees promptly to correct any information provided by it for use in the Schedule 14D-9 that shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. 4 (c) In connection with the Offer, if requested by Purchaser, the Company shall promptly furnish Purchaser with mailing labels, security position listings, any non-objecting beneficial owner lists and any available listings or computer files containing the names and addresses of the record holders of Shares, each as of a recent date, and shall promptly furnish Purchaser with such additional information (including but not limited to updated lists of stockholders, mailing labels, security position listings and non-objecting beneficial owner lists) and such other assistance as Parent, Purchaser or their agents may reasonably require in communicating the Offer to the record and beneficial holders of Shares. Subject to the requirements of law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer and the Merger, Parent and each of its affiliates and associates shall hold in confidence the information contained in any of such lists, labels or additional information and, if this Agreement is terminated, shall promptly deliver to the Company all copies of such information then in their possession. ARTICLE II THE MERGER SECTION 2.1 The Merger. Upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL, at the Effective Time (as defined in Section 2.2), Purchaser shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Purchaser shall cease and the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). At Parent's election, any direct or indirect subsidiary of Parent other than Purchaser may be merged with and into the Company instead of the Purchaser. In the event of such an election, the parties agree to execute an appropriate amendment to this Agreement in order to reflect such election. SECTION 2.2 Closing; Effective Time. Subject to the provisions of Article VII, the closing of the Merger (the "Closing") shall take place in New York City at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, as soon as practicable but in no event later than the first business day after the satisfaction or waiver of the conditions set forth in Article VII, or at such other place or at such other date as Parent and the Company may mutually agree. The date on which the Closing actually occurs is hereinafter referred to as the "Closing Date". At the Closing, the parties hereto shall cause the Merger to be consummated by filing this Agreement or a certificate of merger or a certificate of ownership and merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as required by and executed in accordance with the relevant provisions of the DGCL (the date and time of the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (or such later time as is specified in the Certificate of Merger) being the "Effective Time"). SECTION 2.3 Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of the DGCL. Without limiting the generality of the foregoing and subject thereto, at the Effective Time all the property, rights, privileges, immunities, powers and franchises of the Company and Purchaser shall vest in the Surviving Corporation, and all debts, 5 liabilities and duties of the Company and Purchaser shall become the debts, liabilities and duties of the Surviving Corporation. SECTION 2.4 Certificate of Incorporation; By-Laws. (a) At the Effective Time and without any further action on the part of the Company and Purchaser, the Restated Certificate of Incorporation of the Company (as amended, the "Certificate of Incorporation"), as in effect immediately prior to the Effective Time, shall be the certificate of incorporation of the Surviving Corporation until thereafter amended as provided therein and under the DGCL. (b) At the Effective Time and without any further action on the part of the Company and Purchaser, the By-Laws of the Purchaser, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation and thereafter may be amended or repealed in accordance with their terms or the Certificate of Incorporation of the Purchaser and as provided by law. SECTION 2.5 Directors and Officers. The directors of Purchaser immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation (directors of the Company shall tender their resignations effective upon the Effective Time), and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed (as the case may be) and qualified. SECTION 2.6 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, the Company or the holders of any of the following securities: (a) Each Share issued and outstanding immediately prior to the Effective Time (other than any Shares to be cancelled pursuant to Section 2.6(b), Shares held by Holding Co. or Woodbank and any Dissenting Shares (as defined in Section 2.8(a)) shall be cancelled, extinguished and converted into the right to receive $80.00 in cash or any higher price that may be paid pursuant to the Offer (the "Merger Consideration") payable to the holder thereof, without interest, upon surrender of the certificate formerly representing such Share in the manner provided in Section 2.9, less any required withholding taxes. (b) Each share of Company Common Stock held in the treasury of the Company and each Share owned by the Company, Parent, Purchaser or any other direct or indirect subsidiary of such persons, in each case immediately prior to the Effective Time, shall be cancelled and retired without any conversion thereof and no payment or distribution shall be made with respect thereto. (c) Each share of common stock of Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. 6 SECTION 2.7 Treatment of Options. Immediately prior to the Effective Time, the Company shall cause each of the 95,500 outstanding options to purchase Company Common Stock under the Company's 1996 Option Plan as set forth in Schedule 2.7 to the Company Disclosure Letter (an "Option"), whether or not then exercisable or vested, to be cancelled by the Company, and the holder thereof to be entitled to receive at the Effective Time or as soon as practicable thereafter from the Company in consideration for such cancellation an amount in cash equal to the product of (a) the number of Shares previously subject to such Option and (b) the excess, if any, of the Merger Consideration over the exercise price per Share previously subject to such Option (such payment to be net of applicable withholding taxes). SECTION 2.8 Dissenting Shares and Section 262 Shares. (a) Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and which are held by stockholders who have not voted in favor of or consented to the Merger and shall have delivered a written demand for appraisal of such shares of Company Common Stock in the time and manner provided in Section 262 of the DGCL and shall not have failed to perfect or shall not have effectively withdrawn or lost their rights to appraisal and payment under the DGCL (the "Dissenting Shares") shall not be converted into the right to receive the Merger Consideration, but shall be entitled to receive the consideration as shall be determined pursuant to Section 262 of the DGCL; provided, however, that if such holder shall have failed to perfect or shall have effectively withdrawn or lost his, her or its right to appraisal and payment under the DGCL, such holder's shares of Company Common Stock shall thereupon be deemed to have been converted, at the Effective Time, into the right to receive the Merger Consideration set forth in Section 2.6(a) of this Agreement, without any interest thereon. (b) The Company shall give Parent (i) prompt notice of any demands for appraisal pursuant to Section 262 received by the Company, withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of Parent or as otherwise required by applicable law, make any payment with respect to any such demands for appraisal or offer to settle or settle any such demands. SECTION 2.9 Surrender of Shares; Stock Transfer Books. (a) Prior to the Effective Time, Purchaser shall designate a bank or trust company to act as agent for the holders of Shares in connection with the Merger (the "Paying Agent") to receive the Merger Consideration to which holders of Shares shall become entitled pursuant to Section 2.6(a). When and as needed, Parent or Purchaser will make available to the Paying Agent sufficient funds to make all payments pursuant to Section 2.9(b). Such funds shall be invested by the Paying Agent as directed by Purchaser or, after the Effective Time, the Surviving Corporation, provided that such investments shall be in obligations of or guaranteed by the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively, or in certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital exceeding $500 million. Any net profit resulting from, or interest or income produced by, such investments will be payable to the Surviving Corporation or Parent, as Parent directs. 7 (b) Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each record holder, as of the Effective Time, of an outstanding certificate or certificates which immediately prior to the Effective Time represented Shares (the "Certificates"), a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates for payment of the Merger Consideration therefor. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each Share formerly represented by such Certificate, and such Certificate shall then be cancelled. No interest shall be paid or accrued for the benefit of holders of the Certificates on the Merger Consideration payable upon the surrender of the Certificates. If payment of the Merger Consideration is to be made to a person other than the person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the person requesting such payment shall have paid any transfer and other taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such tax either has been paid or is not applicable. (c) At any time following six months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which had been made available to the Paying Agent and which have not been disbursed to holders of Certificates, and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Certificate for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (d) At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of shares of Company Common Stock on the records of the Company. From and after the Effective Time, the holders of Certificates evidencing ownership of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided for herein or by applicable law. 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Purchaser that, except as set forth in the letter (the "Company Disclosure Letter") delivered by the Company to Purchaser prior to the date of execution of this Agreement: SECTION 3.1 Organization and Qualification; Subsidiaries. Each of the Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority and any necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and governmental approvals is not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect (as defined below) or prevent or materially delay the consummation of the Offer or the Merger. Each of the Company and each of its subsidiaries is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing as are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. When used in connection with the Company or any of its subsidiaries, the term "Material Adverse Effect" means any change or effect that would be materially adverse to the assets, liabilities, results of operations, financial condition or business of the Company and its subsidiaries taken as a whole, other than, as a result of changes in general economic conditions in the United States. SECTION 3.2 Certificate of Incorporation and By-Laws. The Company has heretofore furnished to Parent a complete and correct copy of the Certificate of Incorporation and the By-Laws of the Company as currently in effect. Such Certificate of Incorporation and ByLaws are in full force and effect and no other organizational documents are applicable to or binding upon the Company. The Company is not in violation of any of the provisions of its Certificate of Incorporation or By-Laws. SECTION 3.3 Capitalization. The authorized capital stock of the Company consists of 36,887,475 shares of Company Common Stock. As of May 16, 1998, (a) 36,748,550 shares of Company Common Stock were issued and outstanding, all of which were validly issued, fully paid and nonassessable and were issued free of preemptive (or similar) rights and (b) 138,925 shares of Company Common Stock were held in the treasury of the Company. Since May 16, 1998, no options to purchase shares of Company Common Stock have been granted and no shares of Company Common Stock have been issued and the total number of Options outstanding as of May 16, 1998 was 95,500. Except (i) as set forth above and (ii) as a result of the exercise of Options outstanding as of May 16, 1998, there are outstanding (A) no shares of capital stock or other voting securities of the Company, (B) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, (C) no options or other rights to acquire from the Company, and no obligation of the Company 9 to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company and (D) no equity equivalents, interests in the ownership or earnings of the Company or other similar rights (collectively, "Company Securities"). There are no outstanding obligations of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. There are no other options, calls, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company or any of its subsidiaries to which the Company or any of its subsidiaries is a party. All shares of Company Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, shall be duly authorized, validly issued, fully paid and nonassessable and free of preemptive (or similar) rights. There are no outstanding contractual obligations of the Company or any of its subsidiaries to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any such subsidiary or any other entity. Each of the outstanding shares of capital stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable and all such shares are owned by the Company or another wholly owned subsidiary of the Company as set forth in Schedule 3.3 to the Company Disclosure Letter and are owned free and clear of all security interests, liens, claims, pledges, agreements, limitations in voting rights, charges or other encumbrances of any nature whatsoever, except where the failure to own such shares free and clear is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. The Company has delivered to Parent prior to the date hereof a list of the subsidiaries and affiliates of the Company which evidences, among other things, the percentage of capital stock or other equity interests owned by the Company, directly or indirectly, in such subsidiaries or associated entities. No entity in which the Company owns, directly or indirectly, less than a 50% equity interest is, individually or when taken together with all such other entities, material to the business of the Company and its subsidiaries taken as a whole other than the Metro North Company. SECTION 3.4 Authority Relative to This Agreement. The Company has all necessary corporate power and authority to execute and deliver this Agreement, 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 authorized by all necessary corporate action and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than, with respect to the Merger, the adoption of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock if and to the extent required by applicable law, and the filing of appropriate merger documents as required by the DGCL). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Parent and Purchaser, constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. The Board of Directors of the Company has approved this Agreement and the transactions contemplated hereby (including but not limited to the Offer and the Merger and the transactions contemplated by the Holding Co. Merger Agreement, Woodbank Merger Agreement and the Stockholders Agreements and the transactions contemplated by each such agreement) so as to render inapplicable hereto and thereto (a) the limitation on business combinations contained in Section 203 of the DGCL (or any similar provision) and (b) the restriction on "business 10 combinations" with "related persons" contained in Article EIGHTH of the Certificate of Incorporation. As a result of the foregoing actions subject to the applicability of Section 253 of the DGCL, the only vote required to authorize the Merger is the affirmative vote of a majority of the outstanding Shares. SECTION 3.5 No Conflict; Required Filings and Consents. (a) The execution, delivery and performance of this Agreement by the Company do not and will not: (i) conflict with or violate the Certificate of Incorporation or By-Laws of the Company or the equivalent organizational documents of any of its subsidiaries; (ii) assuming that all consents, approvals and authorizations contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been obtained and all filings described in such clauses have been made, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its or any of their respective properties are bound or affected; or (iii) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both could become a default) or result in the loss of a material benefit under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of the Company or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties are bound or affected, except, in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. (b) The execution, delivery and performance of this Agreement by the Company and the consummation of the Merger by the Company do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any governmental or regulatory authority, except for (i) applicable requirements, if any, of the Exchange Act and the rules and regulations promulgated thereunder, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), state securities, takeover and "blue sky" laws, (ii) the filing and recordation of appropriate merger or other documents as required by the DGCL and (iii) such consents, approvals, authorizations, permits, actions, filings or notifications the failure of which to make or obtain are not, individually or in the aggregate, reasonably likely to (x) prevent or materially delay the Company from performing its obligations under this Agreement or (y) have a Material Adverse Effect. SECTION 3.6 Compliance. Neither the Company nor any of its subsidiaries is in conflict with, or in default or violation of, (i) any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its or any of their respective properties are bound or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties are bound or affected, except for any such conflicts, defaults or violations which are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. 11 SECTION 3.7 SEC Filings; Financial Statements. (a) The Company and, to the extent applicable, each of its then or current subsidiaries, has filed all forms, reports, statements and documents required to be filed with the SEC since January 1, 1995 (collectively, the "SEC Reports"), each of which has complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder, or the Exchange Act, and the rules and regulations promulgated thereunder, each as in effect on the date so filed. None of the SEC Reports (including but not limited to any financial statements or schedules included or incorporated by reference therein) contained when filed, or (except to the extent revised or superseded by a subsequent filing with the SEC) contains, any untrue statement of a material fact or omitted or omits to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Each of the audited consolidated balance sheets of the Company as of January 31, 1998 and February 1, 1997 and the related statements of consolidated income and retained earnings, and statements of consolidated cash flows for each of the three fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996, included in its Annual Reports on Form 10-K for the fiscal years ended January 31, 1998, in each case, including any related notes thereto, as filed with the SEC (collectively, the "Company Financial Statements"), has been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and fairly presents in all material respects the consolidated financial position of the Company and its subsidiaries at the respective date thereof and the consolidated results of its operations and changes in cash flows for the periods indicated. (c) There are no liabilities of the Company or any of its subsidiaries of any kind whatsoever, whether or not accrued and whether or not contingent or absolute, that are material to the Company and its subsidiaries, taken as a whole, other than (i) liabilities disclosed or provided for in the consolidated balance sheet of the Company and its subsidiaries at January 31, 1998, including the notes thereto, (ii) the SEC Reports, (iii) liabilities incurred on behalf of the Company in connection with this Agreement and the contemplated Merger, and (iv) liabilities incurred in the ordinary course of business consistent with past practice since January 31, 1998, none of which are, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. (d) The Company has heretofore furnished or made available to Parent a complete and correct copy of any amendments or modifications which have not yet been filed with the SEC to agreements, documents or other instruments which previously had been filed by the Company with the SEC pursuant to the Securities Act and the rules and regulations promulgated thereunder or the Exchange Act and the rules and regulations promulgated thereunder. SECTION 3.8 Absence of Certain Changes or Events. Since January 31, 1998, except as contemplated by this Agreement or as disclosed in the SEC Reports filed and publicly available prior to the date of this Agreement or as disclosed in Schedule 3.8 to the Company Disclosure Letter, the Company and its subsidiaries have conducted their businesses only in the 12 ordinary course and in a manner consistent with past practice and, since such date, there has not been: (i) any changes in the assets, liabilities, results of operation, financial condition or business of the Company or any of its subsidiaries having or reasonably likely to have a Material Adverse Effect; (ii) any condition, event or occurrence which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect; (iii) any damage, destruction or loss (whether or not covered by insurance) with respect to any assets of the Company or any of its subsidiaries which is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect; (iv) any change by the Company in its accounting methods, principles or practices; (v) any revaluation by the Company of any of its material assets, including but not limited to writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business; (vi) any entry by the Company or any of its subsidiaries into any commitment or transactions material to the Company and its subsidiaries taken as a whole (other than commitments or transactions entered into in the ordinary course of business); (vii) any declaration, setting aside or payment of any dividends or distributions in respect of the Shares other than the regular quarterly dividend in the amount of $.32 per share; (viii) any increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including without limitation the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards), stock purchase or other employee benefit plan or agreement or arrangement, or any other increase in the compensation payable or to become payable to any present or former directors, officers or key employees of the Company or any of its subsidiaries, except for increases in base compensation in the ordinary course of business consistent with past practice, or any employment, consulting or severance agreement or arrangement entered into with any such present or former directors, officers or key employees; or (ix) any other action which, if it had been taken after the date hereof, would have required the consent of Parent under Section 5.1. SECTION 3.9 Absence of Litigation. Except as disclosed in the SEC Reports filed and publicly available prior to the date of this Agreement, there are no suits, claims, actions, proceedings or investigations pending or, to the best knowledge of the Company, threatened against the Company or any of its subsidiaries, or any properties or rights of the Company or any of its subsidiaries, before any court, arbitrator or administrative, governmental or regulatory authority or body, that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. As of the date hereof, neither the Company nor any of its subsidiaries nor any of their respective properties is or are subject to any order, writ, judgment, injunction, decree, determination or award having, or which, insofar as can be reasonably foreseen, is reasonably likely to have a Material Adverse Effect or prevent or materially delay consummation of the transactions contemplated hereby. SECTION 3.10 Employee Benefit Plans. Except (i) as set forth in the SEC Reports filed and publicly available prior to the date of this Agreement or (ii) as is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect or prevent or materially delay the consummation of the Offer or the Merger: (a) Schedule 3.10 to the Company Disclosure Letter contains a true and complete list of each "employee benefit plan" (within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including, 13 without limitation, multiemployer plans within the meaning of ERISA section 3(37)), stock purchase, stock option, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA, whether formal or informal, oral or written, legally binding or not, under which any employee or former employee of the Company or any of its subsidiaries, has any present or future right to benefits or under which the Company or any of its subsidiaries has any present or future liability. All such plans, agreements, programs, policies and arrangements shall be collectively referred to as the "Company Plans". (b) With respect to each Company Plan, the Company has delivered or made available to Parent a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof and, to the extent applicable: (i) any related trust agreement or other funding instrument; (ii) the most recent determination letter, if applicable; (iii) any summary plan description and other written communications by the Company or any of its subsidiaries to their employees concerning the extent of the benefits provided under a Company Plan; and (iv) for the three most recent years (A) the Form 5500 and attached schedules, (B) audited financial statements and (C) actuarial valuation reports. (c) (i) Each Company Plan has been established and administered in accordance with its terms, and in material compliance with the applicable provisions of ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), and other applicable laws, rules and regulations; (ii) each Company Plan which is intended to be qualified within the meaning of Code section 401(a) is so qualified and has received a favorable determination letter as to its qualification, and nothing has occurred, whether by action or failure to act, that would cause the loss of such qualification; (iii) no event has occurred and no condition exists that would subject the Company or any of its subsidiaries, either directly or by reason of their affiliation with any member of their "Controlled Group" (defined as any organization which is a member of a controlled group of organizations within the meaning of Code sections 414(b), (c), (m) or (o)), to any tax, fine, lien or penalty imposed by ERISA, the Code or other applicable laws, rules and regulations; (iv) for each Company Plan with respect to which a Form 5500 has been filed, no material change has occurred with respect to the matters covered by the most recent Form since the date thereof; and (v) no "reportable event" (as such term is defined in ERISA section 4043), "prohibited transaction" (as such term is defined in ERISA section 406 and Code section 4975) or "accumulated funding deficiency" (as such term is defined in ERISA section 302 and Code section 412 (whether or not waived)) has occurred with respect to any Company Plan. (d) With respect to each of the Company Plans that is subject to Title IV of ERISA, as of the Effective Time, the assets of each such Company Plan are at least equal in value to the present value of the accrued benefits (vested and unvested) of the participants in such Company Plan on a termination basis, based on the actuarial methods and assumptions indicated in the most recent actuarial valuation reports. 14 (e) Neither the Company nor any subsidiary is a party to any multiemployer plan within the meaning of section 4001(a)(3) of ERISA or any collective bargaining agreement. (f) With respect to any Company Plan, (i) no actions, suits or claims (other than routine claims for benefits in the ordinary course) are pending or, to the knowledge of the Company, threatened, and (ii) no facts or circumstances exist, to the knowledge of the Company, that could give rise to any such actions, suits or claims. (g) No Company Plan exists that could result in the payment to any present or former employee of the Company or any of its subsidiaries of any money or other property or accelerate or provide any other rights or benefits to any present or former employee of the Company or any of its subsidiaries as a result of the transaction contemplated by this Agreement, whether or not such payment would constitute a parachute payment within the meaning of Code section 280G. SECTION 3.11 Tax Matters. The Company and each of its subsidiaries, and any consolidated, combined, unitary or aggregate group for tax purposes of which the Company or any of its subsidiaries is or has been a member has timely filed all Tax Returns required to be filed by it in the manner provided by law, has paid all Taxes (including interest and penalties) shown thereon to be due and has provided adequate reserves in its financial statements according to generally accepted accounting principles for any Taxes that have not been paid, whether or not shown as being due on any Tax Returns. All such Tax Returns were true, correct and complete in all material respects. Except as has been disclosed to Parent in Schedule 3.11 to the Company Disclosure Letter: (i) no material claim for unpaid Taxes has become a lien or encumbrance of any kind against the property of the Company or any of its subsidiaries or is being asserted against the Company or any of its subsidiaries; (ii) as of the date hereof no audit of any Tax Return of the Company or any of its subsidiaries is being conducted by a Tax authority; and (iii) no extension of the statute of limitations on the assessment of any Taxes has been granted by the Company or any of its subsidiaries and is currently in effect. As used herein, "Taxes" shall mean any taxes of any kind, including but not limited to those on or measured by or referred to as income, gross receipts, capital, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, value added, property or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any governmental authority. As used herein, "Tax Return" shall mean any return, report or statement required to be filed with any governmental authority with respect to Taxes. SECTION 3.12 Offer Documents; Proxy Statement. Neither the Schedule 14D-9, nor any of the information supplied by the Company for inclusion in the Offer Documents, shall, at the respective times such Schedule 14D-9, the Offer Documents or any amendments or supplements thereto are filed with the SEC or are first published, sent or given to stockholders, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Neither the proxy statement to be sent to the stockholders of the Company in connection with the Stockholders Meeting (as 15 defined in Section 6.1) or the information statement to be sent to such stockholders, as appropriate (such proxy statement or information statement, as amended or supplemented, is herein referred to as the "Proxy Statement"), shall, at the date the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to stockholders and at the time of the Stockholders Meeting, if any, and at the Effective Time, be false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders Meeting which has become false or misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Parent or Purchaser or any of their respective representatives which is contained in the Schedule 14D-9 or the Proxy Statement. The Schedule 14D-9 and the Proxy Statement will comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. SECTION 3.13 Environmental Matters. (a) Except as disclosed in SEC Reports filed and publicly available prior to the date of this Agreement and to the extent that the inaccuracy of any of the following (or the circumstances giving rise to such inaccuracy), individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect or prevent or materially delay consummation of the Offer or the Merger: (i) the Company and its subsidiaries are, and within the period of all applicable statutes of limitation have been, in compliance with all applicable Environmental Laws; (ii) the Company and its subsidiaries hold all Environmental Permits (each of which is in full force and effect) required for any of their current operations and for any property owned, leased, or otherwise operated by any of them, and are, and within the period of all applicable statutes of limitation have been, in compliance with all such Environmental Permits; (iii) no review by, or approval of, any Governmental Authority or other person is required under any Environmental Law in connection with the execution or delivery of this Agreement or the consummation of the transactions contemplated hereby; (iv) neither the Company nor any of its subsidiaries has received any Environmental Claim (as hereinafter defined) against any of them, and the Company has no knowledge of any such Environmental Claim being threatened; (v) to the knowledge of the Company, Hazardous Materials are not present on any property owned, leased, or operated by the Company or any of its subsidiaries, that is reasonably likely to form the basis of any Environmental Claim against any of them; and the Company has no reason to believe that Hazardous Materials are present on any other property that is reasonably likely to form the basis of any Environmental Claim against any of them; 16 (vi) the Company has no knowledge of any material Environment Claim pending or threatened, or of the presence or suspected presence of any Hazardous Materials that is reasonably likely to form the basis of any Environmental Claim, in any case against any person or entity whose liability the Company or any of its subsidiaries has or may have retained or assumed either contractually or by operation of law. or against any real property which the Company or any of its subsidiaries formerly owned, leased, or operated, in whole or in part; and (vii) to the knowledge of the Company, the Company has informed the Parent and the Purchaser of: all material facts which the Company reasonably believes could form the basis of a material Environmental Claim against the Company or any of its subsidiaries arising out of the non-compliance or alleged non-compliance with any Environmental Law, or the presence or suspected presence of Hazardous Materials at any location. (b) For purposes of this Agreement, the terms below shall have the following meanings: "Environmental Claim" means any claim, demand, action, suit, complaint, proceeding, directive, investigation, lien, demand letter, or notice (written or oral) of noncompliance, violation, or liability, by any person or entity asserting liability or potential liability (including without limitation liability or potential liability for enforcement, investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damage, personal injury, fines or penalties) arising out of, based on or resulting from (i) the presence, discharge, emission, release or threatened release of any Hazardous Materials at any location, (ii) circumstances forming the basis of any violation or alleged violation of any Environmental Laws or Environmental Permits, or (iii) otherwise relating to obligations or liabilities under any Environmental Law. "Environmental Laws" means any and all laws, rules, orders, regulations, statutes, ordinances, guidelines, codes, decrees, or other legally enforceable requirement (including, without limitation, common law) of any foreign government, the United States, or any state, local, municipal or other governmental authority, regulating, relating to or imposing liability or standards of conduct concerning protection of human health as affected by the environment or Hazardous Materials (including without limitation employee health and safety) or the environment (including without limitation indoor air, ambient air, surface water, groundwater, land surface, subsurface strata, or plant or animal species). "Environmental Permits" means all permits, licenses, registrations, approvals, exemptions and other filings with or authorizations by any Governmental Authority under any Environmental Law. "Governmental Authority" means any government, any state or other political subdivision thereof and any entity (including, without limitation, a court) exercising 17 executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Materials" means all hazardous or toxic substances, wastes, materials or chemicals, petroleum (including crude oil or any fraction thereof), petroleum products, asbestos, asbestos-containing materials, pollutants, contaminants, radioactivity, electromagnetic fields and all other materials, whether or not defined as such, that are regulated pursuant to any Environmental Laws or that could result in liability under any applicable Environmental Laws. SECTION 3.14 Real Estate Matters. (a) The Company or its subsidiaries has good, valid, and, in the case of Owned Properties (as defined below), marketable fee title to: (i) all of the material real property and interests in real property owned by the Company or its subsidiaries, except for properties sold or otherwise disposed of in the ordinary course of business (the "Owned Properties"), and (ii) all of the material leasehold estates in all real properties leased by the Company or its subsidiaries, except leasehold interests terminated in the ordinary course of business (the "Leased Properties"; the Owned Properties and Leased Properties being sometimes referred to herein as the "Real Properties"), in each case free and clear of all mortgages, liens, security interests, easements, covenants, rights-of-way, subleases and other similar restrictions and encumbrances ("Encumbrances"), except for Encumbrances which, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect. (b) Except to the extent that the inaccuracy of any of the following (or the circumstances giving rise to such inaccuracy), individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect: (i) each of the agreements by which the Company has obtained a leasehold interest in each Leased Property (individually, a "Lease" and collectively, the "Leases") is in full force and effect in accordance with its respective terms and the Company or its subsidiary is the holder of the lessee's or tenant's interest thereunder; to the knowledge of the Company, there exists no default under any Lease and no circumstance exists which, with the giving of notice, the passage of time or both, is reasonably likely to result in such a default; the Company and its subsidiaries have complied with and timely performed all conditions, covenants, undertakings and obligations on their parts to be complied with or performed under each of the Leases; the Company and its subsidiaries have paid all rents and other charges to the extent due and payable under the Leases; (ii) there are no leases, subleases, licenses, concessions or any other contracts or agreements granting to any person or entity other than the Company or any of its subsidiaries any right to the possession, use, occupancy or enjoyment of any Real Property or any portion thereof; (iii) the current operation and use of the Real Properties does not violate any statute, law, regulation, rule, ordinance, permit, requirement, order or decree now in effect; the use being made of each Real Property at present is in conformity with the certificate of occupancy issued for such Real Property; (iv) there are no existing, or to the knowledge of the Company, threatened, condemnation or eminent domain proceedings (or proceedings in lieu thereof) affecting the Real Properties or any portion thereof; (v) no default or breach exists under any of the covenants, conditions, restrictions, rights-of-way, or easements, if any, affecting all or any portion of a Real Property, which are to be performed or complied with by the Company or any of its subsidiaries; and (vi) all the buildings, structures, equipment and other tangible 18 assets of the Company (whether owned or leased) are in normal operating condition (normal wear and tear excepted) and are fit for use in the ordinary course of business. (c) Neither the Company nor any of its subsidiaries is obligated under or bound by any option, right of first refusal, purchase contract, or other contractual right to sell or dispose of any Owned Property or any portions thereof or interests therein which property, portions and interests, individually or in the aggregate, are material to the Company and its subsidiaries. SECTION 3.15 Brokers. No broker, finder or investment banker (other than the Financial Adviser) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of the Company. The Company has heretofore furnished to Parent information concerning the fee which will be payable to the Financial Advisor in connection with the transactions contemplated hereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER Parent and Purchaser hereby, jointly and severally, represent and warrant to the Company that: SECTION 4.1 Corporate Organization. Each of Parent and Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority and any necessary governmental authority to own, operate or lease its properties and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and governmental approvals is not, individually or in the aggregate, reasonably likely to prevent the consummation of the Offer or the Merger. SECTION 4.2 Authority Relative to This Agreement. Each of Parent and Purchaser has all necessary 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 Purchaser and the consummation by each of Parent and Purchaser of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Purchaser other than filing and recordation of appropriate merger documents as required by the DGCL. This Agreement has been duly executed and delivered by Parent and Purchaser and, assuming due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of each such corporation enforceable against such corporation in accordance with its terms. SECTION 4.3 No Conflict; Required Filings and Consents. (a) The execution, delivery and performance of this Agreement by Parent and Purchaser do not and will not: (i) 19 conflict with or violate the respective certificates of incorporation or by-laws of Parent or Purchaser; (ii) assuming that all consents, approvals and authorizations contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been obtained and all filings described in such clauses have been made, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or Purchaser or by which either of them or their respective properties are bound or affected; or (iii) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both could become a default) or result in the loss of a material benefit under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the property or assets of Parent or Purchaser pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Purchaser is a party or by which Parent or Purchaser or any of their respective properties are bound or affected, except, in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which are not, individually or in the aggregate, reasonably likely to prevent or materially delay the consummation of the Offer or the Merger. (b) The execution, delivery and performance of this Agreement by Parent and Purchaser do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any governmental or regulatory authority, except (i) for applicable requirements, if any, of the Exchange Act and the rules and regulations promulgated thereunder, the HSR Act, state securities, takeover and "blue sky" laws, (ii) the filing and recordation of appropriate merger or other documents as required by the DGCL, and (iii) such consents, approvals, authorizations, permits, actions, filings or notifications the failure of which to make or obtain are not, individually or in the aggregate, reasonably likely to prevent the consummation of the Offer or the Merger. SECTION 4.4 Offer Documents; Proxy Statement. The Offer Documents, as filed pursuant to Section 1.1, will not, at the time such Offer Documents are filed with the SEC or are first published, sent or given to stockholders, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The information supplied by Parent for inclusion in the Proxy Statement shall not, on the date the Proxy Statement is first mailed to stockholders, at the time of the Stockholders Meeting (as defined in Section 6.1), if any, or at the Effective Time, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or shall omit to state a material fact required to be stated therein or necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders Meeting which has become false or misleading. Notwithstanding the foregoing, Parent and Purchaser make no representation or warranty with respect to any information supplied by the Company or any of its representatives which is contained in or incorporated by reference in any of the foregoing documents or the Offer Documents. The Offer Documents, as amended and supplemented, will comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. 20 SECTION 4.5 Brokers. No broker, finder or investment banker (other than Morgan Stanley & Co. Incorporated) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Parent or Purchaser. SECTION 4.6 Funds. Parent or Purchaser, at the expiration date of the Offer and at the Effective Time, will have the funds necessary to consummate the Offer and the Merger, respectively. ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER SECTION 5.1 Conduct of Business of the Company Pending the Merger. The Company covenants and agrees that, during the period from the date hereof to the Effective Time, unless Parent shall otherwise agree in writing, the businesses of the Company and its subsidiaries shall be conducted only in, and the Company and its subsidiaries shall not take any action except in, the ordinary course of business and in a manner consistent with past practice; and the Company and its subsidiaries shall each use its reasonable best efforts to preserve substantially intact the business organization of the Company and its subsidiaries, to keep available the services of the present officers, employees and consultants of the Company and its subsidiaries and to preserve the present relationships of the Company and its subsidiaries with customers, suppliers and other persons with which the Company or any of its subsidiaries has significant business relations. By way of amplification and not limitation, neither the Company nor any of its subsidiaries shall, between the date of this Agreement and the Effective Time, directly or indirectly do, or commit to do, any of the following without the prior written consent of Parent: (a) Amend or otherwise change its certificate of incorporation or by-laws or equivalent organizational documents; (b) Issue, deliver, sell, pledge, dispose of or encumber, or authorize or commit to the issuance, sale, pledge, disposition or encumbrance of, (i) any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including but not limited to stock appreciation rights or phantom stock), of the Company or any of its subsidiaries (except for the issuance of up to 95,500 shares of Common Stock required to be issued pursuant to the terms of Options outstanding as of May 16, 1998) or (ii) any material assets of the Company or any of its subsidiaries, except for sales of inventory in the ordinary course of business and in a manner consistent with past practice; (c) Declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock (other than regular quarterly dividends consistent with past practice, in an amount not to exceed $.32 per share); 21 (d) Reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) Acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof; (ii) incur any indebtedness for borrowed money (except for drawdowns on the Company's existing credit facility in the ordinary course of business consistent with past practice) or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans, advances or capital contributions to, or investments in, any other person; (iii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice; or (iv) except as set forth in Schedule 5.1(e)(iv) of the Company Disclosure Letter, other than as provided in the Company's capital expenditure budget (a copy of which was provided to Parent) authorize any single capital expenditure which is in excess of $200,000 or capital expenditures which are, in the aggregate, in excess of $1,000,000 for the Company and its subsidiaries taken as a whole; (f) Except to the extent required under existing employee and director benefit plans, agreements or arrangements as in effect on the date of this Agreement, increase the compensation or fringe benefits of any of its directors, officers or employees, except for increases in salary or wages of employees of the Company or its subsidiaries who are not officers of the Company in the ordinary course of business in accordance with past practice, or grant any severance or termination pay not currently required to be paid under existing severance plans to or enter into any employment, consulting or severance agreement or arrangement with any present or former director, officer or other employee of the Company or any of its subsidiaries, or establish, adopt, enter into or amend or terminate any collective bargaining agreement or Company Plan, including, but not limited to, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (g) Except as may be required as a result of a change in law or in generally accepted accounting principles, change any of the accounting practices or principles used by it; (h) Make any material Tax election, change any material method of Tax accounting or settle or compromise any material federal, state, local or foreign Tax liability; (i) Settle or compromise any pending or threatened suit, action or claim which is material or which relates to the transactions contemplated hereby; (j) Adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries not constituting an inactive subsidiary (other than the Merger); 22 (k) Pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction (i) in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in the Company Financial Statements or incurred in the ordinary course of business and consistent with past practice and (ii) of liabilities required to be paid, discharged or satisfied pursuant to the terms of any contract in existence on the date hereof (including, without limitation, benefit plans relating to directors); or (l) Take, or offer or propose to take, or agree to take in writing or otherwise, any of the actions described in Sections 5.1(a) through 5.1(k) or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue and incorrect as of the date when made if such action had then been taken, or would result in any of the conditions set forth in Annex A not being satisfied. ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.1 Stockholders Meeting. (a) If adoption of this Agreement is required by applicable law, the Company, acting through its Board of Directors, shall in accordance with and subject to applicable law and the Company's Certificate of Incorporation and By-Laws, (i) duly call, give notice of, convene and hold a meeting of its stockholders as soon as practicable following consummation of the Offer for the purpose of adopting this Agreement and the transactions contemplated hereby (the "Stockholders Meeting") and (ii) except if the Board of Directors by majority vote determines in good faith, based on the advice of outside legal counsel to the Company that to do so would constitute a breach of fiduciary duty under applicable law, (A) include in the Proxy Statement the unanimous recommendation of the Board of Directors that the stockholders of the Company vote in favor of the adoption of this Agreement and the written opinion of the Financial Adviser that the consideration to be received by the stockholders of the Company pursuant to the Offer and the Merger is fair to such stockholders and (B) use its reasonable best efforts to obtain the necessary adoption of this Agreement. At the Stockholders Meeting, Parent and Purchaser shall cause all Shares then owned by them and their subsidiaries to be voted in favor of adoption of this Agreement. (b) Notwithstanding the foregoing, in the event that Purchaser shall acquire at least 90% of the outstanding Shares, the Company agrees, at the request of Purchaser, subject to Article VII, to take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition, without a meeting of the Company's stockholders, in accordance with Section 253 of the DGCL. SECTION 6.2 Proxy Statement. If required by applicable law, as soon as practicable following Parent's request, the Company shall file with the SEC under the Exchange Act and the rules and regulations promulgated thereunder, and shall use its reasonable best efforts 23 to have cleared by the SEC, the Proxy Statement with respect to the Stockholders Meeting. Parent, Purchaser and the Company will cooperate with each other in the preparation of the Proxy Statement; without limiting the generality of the foregoing, each of Parent and Purchaser will furnish to the Company the information relating to it required by the Exchange Act and the rules and regulations promulgated thereunder to be set forth in the Proxy Statement. The Company agrees to use its reasonable best efforts, after consultation with the other parties hereto, to respond promptly to any comments made by the SEC with respect to the Proxy Statement and any preliminary version thereof filed by it and cause such Proxy Statement to be mailed to the Company's stockholders at the earliest practicable time. SECTION 6.3 Company Board Representation; Section 14(f). (a) Promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to time thereafter, Purchaser shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as shall give Purchaser representation on the Board of Directors equal to the product of the total number of directors on such Board (giving effect to the directors elected pursuant to this sentence and including any vacancies or unfilled newly-created directorships) multiplied by the percentage that the aggregate number of Shares beneficially owned by Purchaser or any affiliate of Purchaser bears to the total number of Shares then outstanding, and the Company shall amend, or cause to be amended its by-laws to provide for each of the matters set forth in this Section 6.3 and shall, at such time, promptly take all action necessary to cause Purchaser's designees to be so elected, including either increasing the size of the Board of Directors or securing the resignations of incumbent directors or both. At such times, the Company will use its reasonable best efforts to cause persons designated by Purchaser to constitute the same percentage as is on the board of (i) each committee of the Board of Directors, (ii) each board of directors of each subsidiary of the Company and (iii) each committee of each such board, in each case only to the extent permitted by law. Until Purchaser acquires a majority of the outstanding Shares on a fully diluted basis, the Company shall use its reasonable best efforts to ensure that all the members of the Board of Directors and such boards and committees as of the date hereof who are not employees of the Company shall remain members of the Board of Directors and such boards and committees. (b) The Company's obligations to appoint designees to its Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 6.3 and shall include in the Schedule 14D-9 or a separate Rule 14f-1 information statement provided to stockholders such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 6.3. Parent or Purchaser will supply to the Company and be solely responsible for any information with respect to either of them and their nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. (c) In addition to any vote of the Board of Directors required by law, the Certificate of Incorporation or the By-laws of the Company, following the election or appointment of Purchaser's designees pursuant to this Section 6.3 and prior to the Effective Time, the concurrence of a majority of the directors of the Company then in office who are neither designated by Purchaser nor are employees of the Company (the "Disinterested Directors") will 24 be required to authorize any amendment, or waiver of any term or condition, of this Agreement or the Certificate of Incorporation or By-Laws of the Company, any termination of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Purchaser or waiver or assertion of any of the Company's rights hereunder, the awarding of the $3 million pursuant to the terms of the Company's incentive performance plan, and any other consent or action by the Board of Directors with respect to this Agreement. Notwithstanding Section 6.3(a) hereof, the number of Disinterested Directors shall be not less than three; provided, however, that, in such event, if the number of Disinterested Directors shall be reduced below three for any reason, the remaining Disinterested Director(s) shall be entitled to designate persons to fill such vacancies who shall be deemed to be Disinterested Directors for purposes of this Agreement, or if no Disinterested Directors then remain, the other directors who were directors prior to the date hereof shall designate three persons to fill such vacancies who shall not be officers, stockholders or affiliates of the Company, Parent or Purchaser, and such persons shall be deemed to be Disinterested Directors for purposes of this Agreement. SECTION 6.4 Access to Information; Confidentiality. (a) From the date hereof to the Effective Time, the Company shall, and shall cause its subsidiaries, officers, directors, employees, auditors and other agents to, afford the officers, employees, auditors and other agents of Parent, and financing sources who shall agree to be bound by the provisions of this Section 6.4 as though a party hereto, complete access, consistent with applicable law, at all reasonable times to its officers, employees, agents, properties, offices, plants and other facilities and to all books and records, and shall furnish Parent and such financing sources with all financial, operating and other data and information as Parent, through its officers, employees or agents, or such financing sources may from time to time reasonably request. Notwithstanding the foregoing, any such investigation or consultation shall be conducted in such a manner as not to interfere unreasonably with the business or operations of the Company or its subsidiaries. (b) As soon as practicable after the date of this Agreement, Company and Parent shall cooperate in good faith to develop a plan (the "Plan") with respect to the communications with their respective employees and the employees of their respective subsidiaries regarding the transactions contemplated by this Agreement. Prior to consummation of the Offer, Parent shall use its reasonable best efforts to coordinate any communications to the Company's employees (including employees of the Company's subsidiaries) through the officers of the Company and in a manner that will not disrupt the operations of the Company. (c) All information obtained by Parent and Purchaser pursuant to this Section 6.4 shall be kept confidential in accordance with the Confidentiality Agreement, dated on or about May 7, 1998 (the "Parent Confidentiality Agreement"), between Parent and the Company; provided, that Parent shall not be prohibited from sharing information with any potential purchaser of assets in connection with the future divestiture of any of the Company's stores or assets. (d) No investigation pursuant to this Section 6.4 shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. 25 SECTION 6.5 No Solicitation of Transactions. The Company, its affiliates and their respective officers, directors, employees, representatives and agents shall immediately cease any existing discussions or negotiations, if any, with any parties conducted heretofore with respect to any acquisition or exchange of all or any material portion of the assets of, or any equity interest in, the Company or any of its subsidiaries or any business combination with or involving the Company or any of its subsidiaries. At any time prior to consummation of the Offer, the Company may, directly or indirectly, furnish information and access, in each case only in response to a request for such information or access to any person made after the date hereof which was not encouraged, solicited or initiated by the Company or any of its affiliates or any of its or their respective officers, directors, employees, representatives or agents after the date hereof, pursuant to appropriate confidentiality agreements containing terms and conditions (including standstill provisions) that are no less favorable than the terms and conditions contained in the Parent Confidentiality Agreement, and may participate in discussions and negotiate with such person concerning any merger, sale of assets, sale of shares of capital stock or similar transaction (including an exchange of stock or assets) involving the Company or any subsidiary or division of the Company, in each case (whether furnishing information and access or participating in discussions and negotiations) only if such person has submitted a written proposal to the Board of Directors of the Company relating to any such transaction and the Board by a majority vote determines in good faith, based upon the advice of outside counsel to the Company, that failing to take such action would constitute a breach of the Board's fiduciary duty under applicable law. The Board shall provide a copy of any such written proposal to Parent immediately after receipt thereof, shall notify Parent immediately if any proposal (oral or written) is made and shall in such notice, indicate in reasonable detail the identity of the offeror and the terms and conditions of any proposal and shall keep Parent promptly advised of all developments which could reasonably be expected to culminate in the Board of Directors withdrawing, modifying or amending its recommendation of the Offer, the Merger and the other transactions contemplated by this Agreement. Except as set forth in this Section 6.5, neither the Company or any of its affiliates, nor any of its or their respective officers, directors, employees, representatives or agents, shall, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any corporation, partnership, person or other entity or group (other than Parent and Purchaser, any affiliate or associate of Parent and Purchaser or any designees of Parent or Purchaser) concerning any merger, sale of any material portion or assets, sale of any shares of capital stock or similar transactions (including an exchange of stock or assets) involving the Company or any subsidiary or division of the Company; provided, however, that nothing herein shall prevent the Board from taking, and disclosing to the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offer; provided, further, that the Board shall not recommend that the stockholders of the Company tender their Shares in connection with any such tender offer unless the Board by majority vote shall have determined in good faith, based upon the advice of outside counsel to the Company, that failing to take such action would constitute a breach of the Board's fiduciary duty under applicable law. The Company agrees not to release any third party from, or waive any provisions of, any confidentiality or standstill agreement to which the Company is a party, unless the Board by majority vote shall have determined in good faith, based upon the advice of outside counsel, that failing to release such third party or waive such provisions would constitute a breach of the fiduciary duties of the Board of Directors under applicable law. 26 SECTION 6.6 Employee Benefits Matters. (a) On and after the Effective Time, Parent shall cause the Surviving Corporation and its subsidiaries to promptly pay or provide when due all compensation and benefits earned through or prior to the Effective Time as provided pursuant to the terms of any compensation arrangements, employment agreements and employee or director benefit plans, programs and policies in existence as of the date hereof for all employees (and former employees) and directors (and former directors) of the Company and its subsidiaries (including all compensation and benefits earned through the Effective Time pursuant to the Company Plans set forth in Schedule 3.10(a) of the Company Disclosure Letter). Parent and the Company agree that the Surviving Corporation and its subsidiaries shall pay promptly or provide when due all compensation and benefits required to be paid pursuant to the terms of any individual agreement with any employee, former employee, director or former director in effect as of the date hereof and disclosed in Schedule 3.10(a) of the Company Disclosure Letter. (b) Except as set forth in Schedule 6.6(b) of the Company Disclosure Letter, Parent shall cause the Surviving Corporation, for the period commencing at the Effective Time and ending on the second anniversary thereof, to provide employee benefits under plans, programs and arrangements which, in the aggregate, will provide benefits to the employees of the Surviving Corporation and its subsidiaries (other than employees covered by a collective bargaining agreement) which are no less favorable in the aggregate than those provided to Parent's similarly situated employees pursuant to the plans, programs and arrangements (other than those related to the equity securities of the Company) of Parent and its subsidiaries in effect on the date hereof and employees covered by collective bargaining agreements shall be provided with such benefits as shall be required under the terms of any applicable collective bargaining agreement; provided, however, that nothing herein shall prevent the amendment or termination of any specific plan, program or arrangement, require that the Surviving Corporation provide or permit investment in the securities of Parent, the Company or the Surviving Corporation or interfere with the Surviving Corporation's right or obligation to make such changes as are necessary to conform with applicable law. Employees of the Surviving Corporation shall be given credit for all service with the Company and its subsidiaries, to the same extent as such service was credited for such purpose by the Company, under each employee benefit plan, program, or arrangement of the Parent in which such employees are eligible to participate for purposes of eligibility and vesting; provided, however, that in no event shall the employees be entitled to any credit to the extent that it would result in a duplication of benefits with respect to the same period of service. (c) If employees of the Surviving Corporation and its subsidiaries become eligible to participate in a medical, dental or health plan of Parent or its subsidiaries, Parent shall cause such plan to (i) waive any preexisting condition limitations for conditions covered under the applicable medical, health or dental plans of the Company and its subsidiaries and (ii) honor any deductible and out-of-pocket expenses incurred by the employees and their beneficiaries under such plans during the portion of the calendar year prior to such participation. (d) Nothing in this Section 6.6 shall require the continued employment of any person or, with respect to clauses (b) and (c) hereof, prevent the Company and/or the Surviving Corporation and their subsidiaries from taking any action or refraining from taking any action 27 which the Company and its subsidiaries prior to the Effective Time, could have taken or refrained from taking. SECTION 6.7 Directors' and Officers' Indemnification and Insurance. (a) The Certificate of Incorporation and By-Laws of the Surviving Corporation shall contain provisions no less favorable with respect to indemnification than are set forth in the Certificate of Incorporation and By-laws of the Company, which provisions shall not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at the Effective Time were directors, officers or employees of the Company. (b) Parent shall use its reasonable best efforts to cause to be maintained in effect for six years from the Effective Time the current policies of the directors' and officers' liability insurance maintained by the Company (provided that Parent may substitute therefor policies of at least the same coverage containing terms and conditions which are not materially less advantageous) with respect to matters occurring prior to the Effective Time to the extent such insurance is reasonably available. (c) For six years after the Effective Time, Parent agrees that it will or will cause the Surviving Corporation to indemnify and hold harmless each present and former director and officer of the Company, determined as of the Effective Time (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") (but only to the extent such Costs are not otherwise covered by insurance and paid) incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (collectively, "Claims"), arising out of or pertaining to matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent permitted under applicable law (and Parent shall, or shall cause the Surviving Corporation to, also advance expenses as incurred to the fullest extent permitted under applicable law provided the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). (d) Any Indemnified Party wishing to claim indemnification under Section 6.7(c), upon learning of any such Claim, shall promptly notify Parent thereof, but the failure to so notify shall not relieve Parent of any liability it may have to such Indemnified Party if such failure does not materially prejudice Parent. In the event of any such Claim (whether arising before or after the Effective Time), (i) Parent or the Surviving Corporation shall have the right to assume the defense thereof with counsel reasonably acceptable to the Indemnified Parties and Parent shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if Parent or the Surviving Corporation elects not to assume such defense or counsel for the Indemnified Parties advises that there are issues that raise conflicts of interest between Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and Parent or the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; provided, however, that Parent shall be obligated pursuant to 28 this paragraph (d) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction unless the use of one counsel for such Indemnified Parties would present such counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate in the defense of any such matter and (iii) Parent shall not be liable for any settlement effected without its prior written consent, which consent shall not be unreasonably withheld; and provided, further, that Parent shall not have any obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. SECTION 6.8 Postponement of Annual Meeting. The Company shall as soon as possible indefinitely postpone its annual meeting of stockholders currently scheduled for May 27, 1998, and shall take no action unless compelled by legal process to reschedule such annual meeting or to call a special meeting of stockholders of the Company except in accordance with this Agreement unless and until this Agreement has been terminated in accordance with its terms. SECTION 6.9 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of the occurrence or non-occurrence of (i) any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.9 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. SECTION 6.10 Further Action; Reasonable Best Efforts. (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as soon as practicable, including but not limited to (i) cooperation in the preparation and filing of the Offer Documents, the Schedule 14D-9, the Proxy Statement, any required filings under the HSR Act and any amendments to any thereof, (ii) cooperation with respect to consummating the financing for the Offer and the Merger and (iii) using its reasonable best efforts to promptly make all required regulatory filings and applications including, without limitation, responding promptly to requests for further information and to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts with the Company and its subsidiaries and Parent and its subsidiaries as are necessary for the consummation of the transactions contemplated by this Agreement and to fulfill the conditions to the Offer and the Merger. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their reasonable best efforts to take all such necessary action. (b) The Company and Parent each shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly 29 furnishing the other with copies of notices or other communications received by Parent or the Company, as the case may be, or any of their subsidiaries, from any governmental authority with respect to the Offer or the Merger or any of the other transactions contemplated by this Agreement. The parties hereto will consult and cooperate with one another, and consider in good faith the views of one another in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto in connection with proceedings under or relating to the HSR Act or any other antitrust law. (c) Each party shall timely and promptly make all filings which are required under the HSR Act and Parent shall pay the filing fee. Each party will furnish to the other such necessary information and reasonable assistance as it may request in connection with its preparation of such filings. Each party will supply the other with copies of all correspondence, filings or communications between such party or its representatives and the Federal Trade Commission, the Antitrust Division of the United States Department of Justice or any other governmental agency or authority or members of their respective staffs with respect to this Agreement or the transactions contemplated hereby. SECTION 6.11 Public Announcements. Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the Offer or the Merger and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with its securities exchange. SECTION 6.12 Disposition of Litigation. (a) The Company agrees that it will not settle any litigation currently pending, or commenced after the date hereof, against the Company or any of its directors by any stockholder of the Company relating to the Offer or this Agreement, without the prior written consent of Parent (which shall not be unreasonably withheld). (b) The Company will not voluntarily cooperate with any third party which has sought or may hereafter seek to restrain or prohibit or otherwise oppose the Offer or the Merger and will cooperate with Parent and Purchaser to resist any such effort to restrain or prohibit or otherwise oppose the Offer or the Merger. ARTICLE VII CONDITIONS OF MERGER SECTION 7.1 Conditions to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) If required by the DGCL, this Agreement shall have been adopted by the affirmative vote of the stockholders of the Company by the requisite vote in accordance 30 with the Company's Certificate of Incorporation and the DGCL (which the Company has represented shall be solely the affirmative vote of a majority of the outstanding Shares). (b) No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any United States, foreign, federal or state court or governmental authority which prohibits, restrains, enjoins or restricts the consummation of the Merger; provided, however, that prior to invoking this condition each party agrees to comply with Section 6.10. (c) Purchaser shall have purchased Shares pursuant to the Offer. (d) Any waiting period applicable to the Merger under the HSR Act shall have terminated or expired. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.1 Termination. This Agreement may be terminated and the Merger contemplated hereby may be abandoned at any time prior to the Effective Time, notwithstanding approval thereof by the stockholders of the Company: (a) By mutual written consent of Parent, Purchaser and the Company; (b) By Parent or the Company if any court of competent jurisdiction or other governmental body located or having jurisdiction within the United States shall have issued a final order, injunction, decree, judgment or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Offer or the Merger and such order, injunction, decree, judgment, ruling or other action is or shall have become final and nonappealable; provided, however, that prior to invoking this right of termination each party agrees to comply with Section 6.10; (c) By Parent if due to an occurrence or circumstance which resulted in a failure to satisfy any of the Offer Conditions (other than as a result of a breach by Parent or Purchaser of its obligations hereunder), Purchaser shall have (i) terminated the Offer or (ii) failed to pay for Shares pursuant to the Offer on or prior to the Outside Date (as defined below); (d) By the Company if (i) there shall have been a material breach of any covenant or agreement on the part of Parent or the Purchaser contained in this Agreement which materially adversely affects Parent's or Purchaser's ability to consummate (or materially delays commencement or consummation of) the Offer, and which shall not have been cured prior to the earlier of (A) 10 business days following notice of such breach and (B) two business days prior to the date on which the Offer expires, (ii) 31 Purchaser shall have (A) terminated the Offer or (B) failed to pay for Shares pursuant to the Offer on or prior to the Outside Date (unless such failure is caused by or results from the failure of any representation or warranty of the Company to be true and correct in any material respect or the failure of the Company to perform in any material respect any of its covenants or agreements contained in this Agreement) or (iii) prior to the purchase of Shares pursuant to the Offer, any person shall have made a bona fide offer to acquire the Company (A) that the Board of Directors of the Company by majority vote determines in its good faith judgment is more favorable to the Company's stockholders than the Offer and the Merger and (B) as a result of which the Board of Directors by majority vote determines in good faith, based upon the advice of outside counsel, that it is obligated by its fiduciary obligations under applicable law to terminate this Agreement, provided that such termination under this clause (iii) shall not be effective until the Company has made payment of the full fee and expense reimbursement required by Section 8.3; or (e) By Parent prior to the purchase of Shares pursuant to the Offer, if (i) there shall have been a breach of any representation, warranty, covenant or agreement on the part of the Company contained in this Agreement which is reasonably likely to have a Material Adverse Effect, which shall not have been cured prior to the earlier of (A) 10 business days following notice of such breach and (B) two business days prior to the date on which the Offer expires, (ii) the Board shall have withdrawn or modified (including by amendment of the Schedule 14D-9) in a manner adverse to Purchaser its approval or recommendation of the Offer, this Agreement or the Merger or shall have recommended another offer or transaction in accordance with Section 6.5, shall have resolved to effect any of the foregoing, or (iii) the Minimum Condition shall not have been satisfied by the expiration date of the Offer as it may have been extended pursuant hereto and on or prior to such date (A) any person (including the Company but not including Parent or Purchaser) shall have made a public announcement, disclosure or communication to the Company with respect to a Third Party Acquisition or (B) any person (including the Company or any of its affiliates or subsidiaries), other than Parent or any of its affiliates, shall have become (and remain at the time of termination) the beneficial owner of 19.9% or more of the Shares (unless such person shall have tendered and not withdrawn such person's Shares pursuant to the Offer). As used herein, the "Outside Date" shall mean the latest of (I) 70 days following the date hereof or (II) the date that all conditions to the Offer set forth in paragraph (h) of the Offer Conditions, the satisfaction of which involve compliance with or otherwise relate to any United States antitrust or competition laws or regulations (including any enforcement thereof), have been satisfied for a period of 10 business days; provided that in no event shall the Outside Date be later than January 31, 1999. SECTION 8.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 8.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except as set forth in Section 8.3 and Section 9.1; provided, however, that nothing herein shall relieve any party from liability for any wilful breach hereof; provided, further, that the payment of the termination fee set forth in Section 8.3(a)(i) shall be considered with respect to the calculation of any damages resulting from any such wilful breach by the Company. 32 SECTION 8.3 Fees and Expenses. (a) If: (i) Parent terminates this Agreement pursuant to Section 8.1(e)(i) hereof, or if the Company terminates this Agreement pursuant to Section 8.1(d)(ii) hereof under circumstances that would have permitted Parent to terminate this Agreement pursuant to Section 8.1(e)(i) hereof, and within 12 months thereafter, the Company enters into an agreement with respect to a Third Party Acquisition, or a Third Party Acquisition occurs, involving any party (or any affiliate or associate thereof) (x) with whom the Company (or its agents) had any discussions with respect to a Third Party Acquisition, (y) to whom the Company (or its agents) furnished information with respect to or with a view to a Third Party Acquisition or (z) who had submitted a proposal or expressed any interest publicly or to the Company in a Third Party Acquisition, in the case of each of clauses (x), (y) and (z) prior to such termination; or (ii) (A) the Company terminates this Agreement pursuant to 8.1(d)(iii) or (B) the Company terminates this Agreement pursuant to Section 8.1(d)(ii)(B) hereof and at such time Parent would have been permitted to terminate this Agreement under Section 8.1(e)(ii) or (iii) hereof or (C) Parent terminates this Agreement pursuant to Section 8.1(e)(ii) or (iii) hereof; then the Company shall pay to Parent and Purchaser, within one business day following the execution and delivery of such agreement or such occurrence, as the case may be, or simultaneously with any termination contemplated by Section 8.3(a)(ii) above, a fee, in cash, of $88,288,000, provided, however, that the Company in no event shall be obligated to pay more than one such fee with respect to all such agreements and occurrences and such termination. The payment of any expenses pursuant to Section 8.3(b) shall be credited against the payment of any fee pursuant to Section 8.3(a). "Third Party Acquisition" means the occurrence of any of the following events: (i) the acquisition of the Company by merger or similar business combination by any person other than Parent, Purchaser or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of 20.0% or more of the book or fair market value of the consolidated assets of the Company and its subsidiaries, taken as a whole; or (iii) the acquisition by a Third Party of 20.0% or more of the outstanding Shares. (b) Upon the termination of this Agreement (i) under circumstances in which Parent shall have been entitled to terminate this Agreement pursuant to Section 8.1(e)(i) hereof (whether or not expressly terminated on such basis) or (ii) if any of the representations and warranties of the Company contained in this Agreement were untrue or incorrect in any material respect when made and at the time of termination remained untrue or incorrect in any material respect and such misrepresentation materially adversely affected the consummation (or materially delayed commencement or consummation) of the Offer, then the Company shall reimburse Parent, Purchaser and their affiliates (not later than one business day after submission of statements therefor) for all actual documented out-of-pocket fees and expenses actually incurred by any of them or on their behalf in connection with the Offer and the Merger and the consummation of all transactions contemplated by this Agreement (including, without limitation, 33 fees and disbursements payable to financing sources, investment bankers, counsel to Purchaser or Parent or any of the foregoing, and accountants) up to a maximum amount of $3 million; provided, however, that in no circumstances shall any payment be made under this Section 8.3(b) after a payment has been made under Section 8.3(a). (c) Except as otherwise specifically provided herein, each party shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby. SECTION 8.4 Amendment. Subject to Section 6.3, this Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that, after adoption of the Agreement by the stockholders of the Company, no amendment may be made which would reduce the amount or change the type of consideration into which each Share shall be converted upon consummation of the Merger. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 8.5 Waiver. Subject to Section 6.3, at any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. ARTICLE IX GENERAL PROVISIONS SECTION 9.1 Non-Survival of Representations, Warranties and Agreements. The representations, warranties and agreements in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Section 8.1, as the case may be, except that the agreements set forth in Article II, Section 6.6, Section 6.7 and Article IX shall survive the Effective Time and those set forth in Section 6.4, Section 8.3 and Article IX shall survive termination of this Agreement. SECTION 9.2 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by cable, telecopy, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice): 34 if to Parent or Purchaser: Dillard's, Inc. 1600 Cantrell Road Little Rock, Arkansas 72201 Attention: James I. Freeman with additional copies to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Alan G. Schwartz, Esq. if to the Company: Mercantile Stores Company 9450 Seward Road Fairfield, Ohio 45016 Attention: David L. Nichols with a copy to: King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 Attention: Russell B. Richards, Esq. with a further copy to: Curtis, Mallet-Prevost, Colt & Mosle 101 Park Avenue, 35th Floor New York, New York 10178 Attention: Jeremiah T. Mulligan, Esq. SECTION 9.3 Certain Definitions. For purposes of this Agreement, the term: "affiliate" of a person means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; "beneficial owner" with respect to any Shares means a person who shall be deemed to be the beneficial owner of such Shares (i) which such person or any of its affiliates or associates beneficially owns, directly or indirectly, (ii) which such person or any of its affiliates or associates (as such term is defined in Rule 12b-2 of the Exchange Act) has, directly or indirectly, (A) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of consideration rights, exchange 35 rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding or (iii) which are beneficially owned, directly or indirectly, by any other persons with whom such person or any of its affiliates or person with whom such person or any of its affiliates or associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares; provided, however, that no person nor any affiliate or associate of such person shall be deemed to be the beneficial owner of any securities by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which shares neither such person nor any such affiliate or associate is otherwise deemed the beneficial owner. "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise; "generally accepted accounting principles" shall mean the generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession in the United States, in each case applied on a basis consistent with the manner in which the audited financial statements for the fiscal year of the Company ended January 31, 1998 were prepared; "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Exchange Act); and "subsidiary" or "subsidiaries" of the Company, the Surviving Corporation, Parent or any other person means any corporation, partnership, joint venture or other legal entity of which the Company, the Surviving Corporation, Parent or such other person, as the case may be (either alone or through or together with any other subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holder of which is generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. SECTION 9.4 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. 36 SECTION 9.5 Entire Agreement; Assignment. This Agreement, together with the Stockholders Agreement, Parent Confidentiality Agreement, the Holding Co. Merger Agreement and the Woodbank Merger Agreement, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned by operation of law or otherwise, except that Parent and Purchaser may assign all or any of their respective rights and obligations hereunder to any direct or indirect wholly owned subsidiary or subsidiaries of Parent, provided that no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations. SECTION 9.6 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, except for the provisions of Section 6.7, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 9.7 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 9.8 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.9 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. SECTION 9.10 Knowledge. As used in this Agreement, the terms "the best knowledge of the Company", "known to the Company" or words of similar import used herein with respect to the Company shall mean the actual knowledge of any Company Executive, together with the knowledge a reasonable business person would have obtained after making reasonable inquiry and after exercising reasonable diligence with respect to the matters at hand. The "Company Executives" shall consist of David L. Nichols, James M. McVicker, Randolph L. Burnette, Kathryn M. Muldowney and Louis L. Ripley. As used in this Agreement, the terms "the best knowledge of Parent", "known to Parent" or words of similar import used herein with respect to Parent shall mean the actual knowledge of any Parent Executive, together with the knowledge a reasonable business person would have obtained after making reasonable inquiry and after exercising reasonable diligence with respect to the matters at hand. The "Parent Executives" shall consist of the executive officers of Parent as listed in the latest proxy statement or registration statement of Parent filed with the SEC. SECTION 9.11 Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in 37 accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of Delaware or in any Delaware state court, this being in addition to any other remedy to which such party is entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit itself to the personal jurisdiction of any Federal court located in the State of Delaware or any Delaware state court in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a Federal or state court sitting in the State of Delaware, and (iv) consents to service being made through the notice procedures set forth in Section 9.2. 38 IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. DILLARD'S, INC. By: /s/ James I. Freeman -------------------------------- Name: James I. Freeman Title: Senior Vice President and Chief Financial Officer MSC ACQUISITIONS, INC. By: /s/ James I. Freeman -------------------------------- Name: James I. Freeman Title: Senior Vice President and Chief Financial Officer MERCANTILE STORES COMPANY, INC. By: -------------------------------- Name: David L. Nichols Title: Chief Executive Officer IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. DILLARD'S, INC. By: ---------------------------- Name: Title: MSC ACQUISITIONS, INC. By: ---------------------------- Name: Title: MERCANTILE STORES COMPANY, INC. By: /s/ David L. Nichols ---------------------------- Name: David L. Nichols Title: Chairman of the Board ANNEX A Offer Conditions The capitalized terms used in this Annex A have the meanings set forth in the attached Merger Agreement. Notwithstanding any other provision of the Offer, but subject to the terms and conditions of the Merger Agreement, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer, and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any Shares tendered pursuant to the Offer, and may amend or terminate the Offer (whether or not any Shares have theretofore been purchased or paid for) to the extent permitted by the Merger Agreement if, (i) at the expiration of the Offer, a number of shares of Company Common Stock which, together with any Shares owned, directly or indirectly, by Parent or Purchaser (including the shares of Company Common Stock to be acquired pursuant to the Holding Co. Merger and Woodbank Merger), constitutes more than 50% of the voting power (determined on a fully-diluted basis), on the date of purchase, of all the securities of the Company entitled to vote generally in the election of directors or in a merger shall not have been validly tendered and not properly withdrawn prior to the expiration of the Offer, the ("Minimum Condition") or (ii) at any time on or after the date of the Merger Agreement and prior to the acceptance for payment of Shares, any of the following conditions occurs or has occurred: (a) there shall have been entered any order, preliminary or permanent injunction, decree, judgment or ruling in any action or proceeding before any court or governmental, administrative or regulatory authority or agency, or any statute, rule or regulation enacted, entered, enforced, promulgated, amended or issued that is applicable to Parent, Purchaser, the Company or any subsidiary or affiliate of Purchaser or the Company or the Offer or the Merger, by any legislative body, court, government or governmental, administrative or regulatory authority or agency that is reasonably likely to have the effect of: (i) making illegal or otherwise directly or indirectly restraining or prohibiting the making of the Offer in accordance with the terms of the Merger Agreement, the acceptance for payment of, or payment for, some of or all the Shares by Purchaser or any of its affiliates or the consummation of the Merger; (ii) prohibiting the ownership or operation of the Company and its subsidiaries by Parent or any of Parent's subsidiaries, (iii) imposing limitations on the ability of Parent, Purchaser or any of Parent's affiliates effectively to acquire or hold or to exercise full rights of ownership of the Shares, including without limitation the right to vote any Shares acquired or owned by Parent or Purchaser or any of its affiliates on all matters properly presented to the stockholders of the Company, including without limitation the adoption of the Merger Agreement or the right to vote any shares of capital stock of any subsidiary directly or indirectly owned by the Company; or (iv) requiring divestiture by Parent or Purchaser or any of their affiliates of any Shares; provided, that prior to invoking this condition each party agrees to comply with Section 6.10. A-1 (b) there shall have occurred any event that is reasonably likely to have a Material Adverse Effect; (c) there shall have occurred (i) any general suspension of trading in, or limitation on prices (other than suspensions or limitations triggered on the New York Stock Exchange by price fluctuations on a trading day) for, securities on any national securities exchange, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) a commencement of a war or material armed hostilities or other material national calamity directly involving the United States or materially adversely affecting the consummation of the Offer or (v) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; (d) (A) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Purchaser the approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved or recommended any takeover proposal or any other acquisition of Shares other than the Offer, (B) any such person or group shall have entered into a definitive agreement or an agreement in principle with the Company with respect to a tender offer or exchange offer for any Shares or a merger, consolidation or other business combination with or involving the Company or any of its subsidiaries, or (C) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; (e) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified by reference to a Material Adverse Effect shall not be true and correct, or any such representations and warranties that are not so qualified shall not be true and correct in any respect that is reasonably likely to have a Material Adverse Effect, in each case as if such representations and warranties were made at the time of such determination; (f) the Company shall have failed to perform in any material respect any material obligation or to comply in any material respect with any material agreement or material covenant of the Company to be performed or complied with by it under the Merger Agreement; (g) the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; (h) any waiting periods under the HSR Act applicable to the purchase of Shares pursuant to the Offer or the Merger shall not have expired or been terminated; or (i) each of the Holding Co. Merger and the Woodbank Merger shall not have been consummated in accordance with the terms of the Holding Co. Merger Agreement and the Woodbank Merger Agreement, respectively; which, in the reasonable judgment of Purchaser with respect to each and every matter referred to above and regardless of the circumstances (except for any action or inaction by Purchaser or A-2 any of its affiliates constituting a breach of the Merger Agreement) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment of or payment for Shares or to proceed with the Merger. The foregoing conditions are for the sole benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition (except for any action or inaction by Purchaser or any of its affiliates constituting a breach of the Merger Agreement) or (other than the Minimum Condition) may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. A-3 EX-7.11 12 AGMT PLAN OF MERGER DILLARD'S WMI ACQUISITIONS Exhibit 7.11 ---------------------------------------------------------- AGREEMENT AND PLAN OF MERGER Among DILLARD'S, INC. WMI ACQUISITION, INC. and WOODBANK MILLS, INC. Dated as of May 16, 1998 ---------------------------------------------------------- TABLE OF CONTENTS ARTICLE I THE MERGER ........................... 2 SECTION 1.1 The Merger ................................................. 2 SECTION 1.2 Closing; Effective Time .................................... 2 SECTION 1.3 Effects of the Merger ...................................... 2 SECTION 1.4 Certificate of Incorporation; By-Laws ...................... 2 SECTION 1.5 Directors and Officers ..................................... 3 SECTION 1.6 Conversion of Securities ................................... 3 SECTION 1.7 Dissenting Shares and Section 262 Shares ................... 4 SECTION 1.8 Surrender of Shares; Stock Transfer Books .................. 5 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................... 6 SECTION 2.1 Corporate Organization; Subsidiaries and Employees ......... 6 SECTION 2.2 Certificate of Incorporation and By-Laws ................... 6 SECTION 2.3 Capitalization ............................................. 7 SECTION 2.4 Authority Relative to This Agreement ....................... 7 SECTION 2.5 No Conflict; Required Filings and Consents ................. 7 SECTION 2.6 Compliance ................................................. 8 SECTION 2.7 Limited Operations; Financial Statements; No Undisclosed Liabilities .............................................. 8 SECTION 2.8 Absence of Litigation ...................................... 9 SECTION 2.9 Tax Matters ................................................ 9 SECTION 2.10 Investment Company ......................................... 10 SECTION 2.11 Brokers .................................................... 10 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER ................................. 10 SECTION 3.1 Corporate Organization ..................................... 10 SECTION 3.2 Authority Relative to This Agreement ....................... 10 SECTION 3.3 No Conflict; Required Filings and Consents ................. 10 SECTION 3.4 Brokers .................................................... 11 SECTION 3.5 Funds ...................................................... 11 ARTICLE IV CONDUCT PENDING THE CLOSING; ADDITIONAL AGREEMENTS .................... 11 SECTION 4.1 Conduct of Business of the Company Pending the Merger ...... 11 SECTION 4.2 Stockholders Meeting ....................................... 13 -i- SECTION 4.3 No Solicitation; Affirmation of Covenants in Stockholders' Agreement .................................................. 13 SECTION 4.4 Access to Information; Confidentiality ..................... 13 SECTION 4.5 Notification of Certain Matters ............................ 14 SECTION 4.6 Further Action; Reasonable Best Efforts .................... 14 SECTION 4.7 Public Announcements ....................................... 14 ARTICLE V CONDITIONS OF MERGER .................................. 15 SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger 15 SECTION 5.2 Additional Conditions to Obligation of Parent and Purchaser to Effect the Merger ....................................... 15 SECTION 5.3 Additional Conditions to Obligation of the Company to Effect the Merger ................................................. 16 ARTICLE VI TERMINATION, AMENDMENT AND WAIVER .......................... 16 SECTION 6.1 Termination ................................................ 16 SECTION 6.2 Effect of Termination ...................................... 17 SECTION 6.3 Amendment .................................................. 17 SECTION 6.4 Waiver ..................................................... 17 ARTICLE VII GENERAL PROVISIONS .................................. 17 SECTION 7.1 Survival of Representations, Warranties and Agreements ..... 17 SECTION 7.2 Notices .................................................... 17 SECTION 7.3 Certain Definitions ........................................ 19 SECTION 7.4 Severability ............................................... 19 SECTION 7.5 Entire Agreement; Assignment ............................... 19 SECTION 7.6 Parties in Interest ........................................ 19 SECTION 7.7 Fees and Expenses .......................................... 20 SECTION 7.8 Governing Law .............................................. 20 SECTION 7.9 Headings ................................................... 20 SECTION 7.10 Counterparts ............................................... 20 Schedule 1.6(d) - Schedule of Cash Equivalents -ii- AGREEMENT AND PLAN OF MERGER, dated as of May 16, 1998 (this "Agreement"), among DILLARD'S, INC., a Delaware corporation ("Parent"), WMI ACQUISITION, INC., a Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and WOODBANK MILLS, INC., a Delaware corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company and the stockholders of the Company to enter into this Agreement with Parent and Purchaser, providing for the merger (the "Merger") of Purchaser with the Company in accordance with the General Corporation Law of the State of Delaware ("DGCL"), upon the terms and subject to the conditions set forth herein; WHEREAS, the Board of Directors of Parent and Purchaser have each approved the Merger of Purchaser with the Company in accordance with the DGCL upon the terms and subject to the conditions set forth herein; WHEREAS, concurrently with the execution and delivery of this Agreement, Parent, MSC Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("MSC MergerSub"), and Mercantile Stores Company, Inc., a Delaware corporation ("MSC"), have entered into a merger agreement, dated as of the date hereof (the "MSC Merger Agreement"), pursuant to which MSC MergerSub has agreed to make a tender offer (the "Offer") for all outstanding shares of common stock, $.14 2/3 par value per share (the "MSC Common Stock"), of MSC, at $80.00 per share, or any higher price that may be paid pursuant to the Offer (the "Offer Price"), net to the seller in cash, subject to the offer condition contained therein (the "Offer Conditions"), to be followed by a merger (the "MSC Merger") of MSC MergerSub with and into MSC, with MSC as the surviving corporation; WHEREAS, concurrently with the execution and delivery of this Agreement, Parent, MMC Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("MMC MergerSub"), and Minot Mercantile Corporation, a Delaware corporation ("MMC"), have entered into a merger agreement, dated as of the date hereof (the "MMC Merger Agreement"), pursuant to which MMC MergerSub will be merged with and into MMC (the "MMC Merger"), and MMC shall be the surviving corporation; WHEREAS, concurrently with the execution and delivery of this Agreement, holders of not less than 70% of all of the holders (the "WMI Stockholders") of the Company's common stock, par value $1.00 per share (referred to herein as the "Shares" or "Company Common Stock"), have executed and delivered an agreement (the "Proxy and Indemnification Agreement"), pursuant to which (i) the WMI Stockholders have granted Parent an irrevocable proxy to vote their Shares in favor of the adoption of this Agreement and the Merger at the Stockholders Meeting (as defined herein), and (ii) the WMI Stockholders have agreed to indemnify Parent and Purchaser in respect of any and all claims resulting from the Merger, in each case, subject to the terms and conditions contained therein; and WHEREAS, concurrently with the execution and delivery of this Agreement, Parent and each of the Company, MMC and certain affiliated stockholders of MSC (collectively, 2 the "Related Sellers") have entered into a stockholders' agreement, each dated as of the date hereof (each, a "Stockholders' Agreement"), pursuant to which, among other things, each Related Seller has granted an option in favor of Parent with respect to the shares of Company Common Stock respectively held by such person, subject to the terms and conditions contained therein; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Purchaser and the Company hereby agree as follows: ARTICLE I THE MERGER SECTION 1.1 The Merger. Upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL, at the Effective Time (as defined in Section 1.2), Purchaser shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Purchaser shall cease and the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). At Parent's election, any direct or indirect subsidiary of Parent other than Purchaser may be merged with and into the Company instead of the Purchaser. In the event of such an election, the parties agree to execute an appropriate amendment to this Agreement in order to reflect such election. SECTION 1.2 Closing; Effective Time. Subject to the provisions of Article V, the closing of the Merger (the "Closing") shall take place in New York City at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, as soon as practicable but in no event later than the first business day after the satisfaction or waiver of the conditions set forth in Article V, or at such other place or at such other date as Parent and the Company may mutually agree. The date on which the Closing actually occurs is hereinafter referred to as the "Closing Date". At the Closing, the parties hereto shall cause the Merger to be consummated by filing this Agreement or a certificate of merger or a certificate of ownership and merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as required by and executed in accordance with the relevant provisions of the DGCL (the date and time of the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (or such later time as is specified in the Certificate of Merger) being the "Effective Time"). SECTION 1.3 Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of the DGCL. Without limiting the generality of the foregoing and subject thereto, at the Effective Time all the property, rights, privileges, immunities, powers and franchises of the Company and Purchaser shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Purchaser shall become the debts, liabilities and duties of the Surviving Corporation. SECTION 1.4 Certificate of Incorporation; By-Laws. (a) At the Effective Time and without any further action on the part of the Company and Purchaser, the Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be 3 amended and restated so as to read in its entirety in the form set forth in Exhibit A hereto and, as so amended, until thereafter and further amended as provided therein and under the DGCL, it shall be the Certificate of Incorporation of the Surviving Corporation following the Merger. (b) At the Effective Time and without any further action on the part of the Company and Purchaser, the By-Laws of Purchaser, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation and thereafter may be amended or repealed in accordance with their terms or the Certificate of Incorporation of the Purchaser and as provided by law. SECTION 1.5 Directors and Officers. The directors and officers of Purchaser immediately prior to the Effective Time shall be the initial directors and officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation. SECTION 1.6 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, the Company or the holders of any of the following securities: (a) Each share of the Company Common Stock, issued and outstanding immediately prior to the Effective Time (other than any Shares to be cancelled pursuant to Section 1.6(b) and any Dissenting Shares (as defined in Section 1.7(a)) shall be cancelled, extinguished and converted into the right to receive an amount (the "Merger Consideration") calculated as follows: (i) the Aggregate Value of Company Assets (as defined in Section 1.6(d) below) immediately prior to the Effective Time divided by (ii) the aggregate number of shares of Company Common Stock issued and outstanding immediately prior to the Effective Time. The Merger Consideration shall be payable to the holder of each Share, without interest, upon surrender of the certificate formerly representing such Share in the manner provided in Section 1.8, less any required withholding taxes. (b) Each share of Company Common Stock held in the treasury of the Company and each Share owned by the Company, Parent, Purchaser or any other direct or indirect subsidiary of such persons, in each case immediately prior to the Effective Time, shall be cancelled and retired without any conversion thereof and no payment or distribution shall be made with respect thereto. (c) Each share of common stock of Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of identical common stock of the Surviving Corporation. (d) "Aggregate Value of Company Assets" means an amount equal to (i) the product of (A) the aggregate number of outstanding shares of MSC Common Stock directly owned by MMC immediately prior to the "Effective Time" (under and as defined in the MMC Merger Agreement), (B) the Offer Price and (C) a fraction, the numerator 4 of which is the aggregate number of outstanding shares of MMC common stock directly owned by the Company and the denominator of which is all of the outstanding shares of MMC common stock, in each case, immediately prior to the "Effective Time" (under and as defined in the MMC Merger Agreement), plus (ii) the product of (A) the aggregate number of outstanding shares of MSC Common Stock directly owned by the Company immediately prior to the Effective Time and (B) the Offer Price, plus (iii) the aggregate amount of Net Assets (as defined below). "Net Assets" means the amount by which the Company's assets exceeds its liabilities, each of which will be calculated from the Closing Balance Sheet (as defined below). Attached hereto as Schedule 1.6(d) is a list of all of assets and liabilities of the Company as of the date hereof. (e) "Closing Balance Sheet" means a balance sheet of the Company reflecting its assets and liabilities as of Closing, as prepared by the Company and delivered to Parent, for its review and consent, no later than 15 days prior to Closing. Parent shall, within five days of its receipt of the Closing Balance Sheet, complete its review thereof and identify to the Company any items with which Parent does not agree. Parent and the Company will promptly attempt to resolve in good faith any disagreement as to items contained on the Closing Balance Sheet. The Company will, as promptly as practicable after the date hereof, undertake to liquidate and/or sell all of its investments and other assets (other than its shares of MSC Common Stock and MMC common stock) so that the Company's assets, as reflected on the Closing Balance Sheet, will consist solely of cash and short-term, highly liquid cash equivalents (with maturities of seven days or less). The Closing Balance Sheet will set forth, in reasonable detail and specificity (with notes where appropriate), all of the Company's assets and liabilities as of the Closing, including without limitation all tax liabilities incurred on account of any liquidations or sales of the Company's investments or other assets and all liabilities, fees and expenses owing to the Company's advisors. The amount of cash and cash equivalents that are held back to cover the Company's liabilities, as identified on the Closing Balance Sheet, is referred to as the "Holdback Amount". The Holdback Amount will be applied by Parent and Purchaser to pay, upon presentment of proper invoices, to any post-Closing fees, expenses, liabilities and other obligations of the Company. (f) Promptly following the date on which all of the Company's liabilities that were identified on the Closing Balance Sheet, together with all outstanding "Losses" under and as defined in the Proxy and Indemnification Agreement, have been paid in full, any remaining Holdback Amount shall be released to the Paying Agent (as hereinafter defined) for distribution to the former holders of the Shares. SECTION 1.7 Dissenting Shares and Section 262 Shares. (a) Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and which are held by stockholders who have not voted in favor of or consented to the Merger and shall have delivered a written demand for appraisal of such shares of Company Common Stock in the time and manner provided in Section 262 of the DGCL and shall not have failed to perfect or shall not have effectively withdrawn or lost their rights to appraisal and payment under the DGCL (the "Dissenting Shares") shall not be converted into the right to receive the Merger Consideration, but shall be 5 entitled to receive the consideration as shall be determined pursuant to Section 262 of the DGCL; provided, however, that if such holder shall have failed to perfect or shall have effectively withdrawn or lost his, her or its right to appraisal and payment under the DGCL, such holder's shares of Company Common Stock shall thereupon be deemed to have been converted, at the Effective Time, into the right to receive the Merger Consideration set forth in Section 1.6(a) of this Agreement, without any interest thereon. (b) The Company shall give Parent (i) prompt notice of any demands for appraisal pursuant to Section 262 received by the Company, withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of Parent or as otherwise required by applicable law, make any payment with respect to any such demands for appraisal or offer to settle or settle any such demands. Pursuant to the Proxy and Indemnification Agreement, the WMI Stockholders shall indemnify, defend and hold harmless Parent and Purchaser against any and all liabilities, damages, expenses, losses or other claims that are paid in respect of any Dissenting Shares (including reasonable attorneys' fees and expenses) in excess of the aggregate Merger Consideration that would otherwise have been payable in respect of such Dissenting Shares pursuant to Section 1.6(a). SECTION 1.8 Surrender of Shares; Stock Transfer Books. (a) Prior to the Effective Time, Purchaser shall designate a bank or trust company to act as agent for the holders of Shares in connection with the Merger (the "Paying Agent") to receive the Merger Consideration to which holders of Shares shall become entitled pursuant to Section 1.6(a). When and as needed, Parent or Purchaser will make available to the Paying Agent sufficient funds to make all payments pursuant to Section 1.8(b). Such funds shall be invested by the Paying Agent as directed by Purchaser or, after the Effective Time, the Surviving Corporation, provided that such investments shall be in obligations of or guaranteed by the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively, or in certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital exceeding $500 million. Any net profit resulting from, or interest or income produced by, such investments will be payable to the Surviving Corporation or Parent, as Parent directs. (b) Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each record holder, as of the Effective Time, of an outstanding certificate or certificates which immediately prior to the Effective Time represented Shares (the "Certificates"), a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates for payment of the Merger Consideration therefor. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each Share formerly represented by such Certificate, and such Certificate shall then be cancelled. No interest shall be paid or accrued for the benefit of holders of the 6 Certificates on the Merger Consideration payable upon the surrender of the Certificates. If payment of the Merger Consideration is to be made to a person other than the person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the person requesting such payment shall have paid any transfer and other taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such tax either has been paid or is not applicable. (c) At any time following six months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which had been made available to the Paying Agent and which have not been disbursed to holders of Certificates, and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Certificate for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (d) At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of shares of Company Common Stock on the records of the Company. From and after the Effective Time, the holders of Certificates evidencing ownership of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided for herein or by applicable law. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Purchaser that: SECTION 2.1 Corporate Organization; Subsidiaries and Employees. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority and any necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. The Company is not qualified or licensed as a foreign corporation to do business in any jurisdiction. When used in connection with the Company, the term "Material Adverse Effect" means any change or effect that would be materially adverse to the assets, liabilities, results of operations, financial condition or business of the Company. (b) The Company has no subsidiaries and no employees. 7 SECTION 2.2 Certificate of Incorporation and By-Laws. The Company has heretofore furnished to Parent a complete and correct copy of the Certificate of Incorporation and the By-Laws of the Company as currently in effect. Such Certificate of Incorporation and ByLaws are in full force and effect and no other organizational documents are applicable to or binding upon the Company. The Company is not in violation of any of the provisions of its Certificate of Incorporation or By-Laws. SECTION 2.3 Capitalization. The authorized capital stock of the Company consists of 188,200 shares of Company Common Stock, of which (a) 188,200 shares of Company Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable and have been issued free of preemptive (or similar) rights, and (b) no shares of Company Common Stock are held in the treasury of the Company. Except as set forth above, there are outstanding (i) no shares of capital stock or other voting securities of the Company, (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, (iii) no options or other rights to acquire from the Company, and no obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company and (iv) no equity equivalents, interests in the ownership or earnings of the Company or other similar rights (collectively, "Company Securities"). There are no outstanding obligations of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. There are no other options, calls, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company to which the Company is a party. There are no outstanding contractual obligations of the Company to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity and, except for the shares of MSC Common Stock, the Company has no other direct or indirect equity interests in any other person. SECTION 2.4 Authority Relative to This Agreement. The Company has all necessary corporate power and authority to execute and deliver this Agreement, 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 authorized by all necessary corporate action and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than, with respect to the Merger, the adoption of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock and the filing of appropriate merger documents as required by the DGCL). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Parent and Purchaser, constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. As a result of the foregoing actions, the only vote required to authorize the Merger is the affirmative vote of a majority of the outstanding Shares. SECTION 2.5 No Conflict; Required Filings and Consents. (a) The execution, delivery and performance of this Agreement by the Company do not and will not: (i) conflict with or violate the Certificate of Incorporation or By-Laws of the Company or the equivalent 8 organizational documents of any of its subsidiaries; (ii) assuming that all consents, approvals and authorizations contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been obtained and all filings described in such clauses have been made, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its or any of their respective properties are bound or affected; or (iii) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both could become a default) or result in the loss of a material benefit under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of the Company or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties are bound or affected, except, in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. (b) The execution, delivery and performance of this Agreement by the Company and the consummation of the Merger by the Company do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any governmental or regulatory authority, except for (i) applicable requirements, if any, of the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), state securities, takeover and "blue sky" laws, (ii) the filing and recordation of appropriate merger or other documents as required by the DGCL and (iii) such consents, approvals, authorizations, permits, actions, filings or notifications the failure of which to make or obtain are not, individually or in the aggregate, reasonably likely to (x) prevent or materially delay the Company from performing its obligations under this Agreement or (y) have a Material Adverse Effect. SECTION 2.6 Compliance. The Company is not in conflict with, or in default or violation of, (i) any law, rule, regulation, order, judgment or decree applicable to the Company or by which its properties are bound or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company is a party or by which the Company or its properties are bound or affected, except for any such conflicts, defaults or violations which are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. SECTION 2.7 Limited Operations; Financial Statements; No Undisclosed Liabilities. (a) The Company operates solely as a "personal holding corporation" within the meaning of Section 542 of the Internal Revenue Code of 1986, as amended (the "Code"). Except for (i) this Agreement and the transactions contemplated hereby, (ii) activities related to maintaining its corporate existence and (iii) activities related to the Company's ownership of the shares of MSC Common Stock and other investments (including, without limitation, the investment and reinvestment of proceeds received on account of such investments and distributions to the Company's stockholders), the Company has not engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any person. The legal name of the Company is as set forth in this Agreement. The Company has no trade names, fictitious names, assumed names or "doing business as" names. 9 (b) The Company has not incurred, directly or indirectly, any liabilities, commitments, or obligations of any kind whatsoever, whether or not accrued and whether or not contingent or absolute, other than liabilities disclosed in Schedule 2.7(b) of the Company Disclosure Letter. (c) The Company has delivered to Parent true and correct copies of the Company's audited balance sheets for the prior three fiscal years and the related statements of consolidated income and retained earnings, and statements of consolidated cash flows for each of the last three fiscal years, including any related notes thereto (collectively, the "Company Financial Statements"). The Company Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the financial position of the Company at the respective date thereof and the results of its operations and changes in cash flows for the periods indicated. SECTION 2.8 Absence of Litigation. There are no suits, claims, actions, proceedings or investigations pending or, to the best knowledge of the Company, threatened against the Company or any of its subsidiaries, or any properties or rights of the Company or any of its subsidiaries, before any court, arbitrator or administrative, governmental or regulatory authority or body. As of the date hereof, neither the Company nor any of its subsidiaries nor any of their respective properties is or are subject to any order, writ, judgment, injunction, decree, determination or award. SECTION 2.9 Tax Matters. The Company has, or will have, (i) filed all Tax Returns and reports required to be filed by it prior to the Closing Date (taking into account extensions), (ii) paid or accrued all Taxes due and payable for all taxable years or periods ending on or prior to the Closing Date, and (iii) paid or accrued all Taxes for which a notice of assessment or collection has been received (other than amounts being contested in good faith by appropriate proceedings). All such Tax Returns are complete and correct in all material respects. Neither the Internal Revenue Service (the "IRS") nor any other Taxing authority has asserted any claim for Taxes, or is threatening to assert any claims for Taxes, against the Company. The Company has withheld or collected and paid over to the appropriate Taxing authorities all Taxes required by law to be withheld or collected and paid over to such Taxing authorities. The Company has not made an election under Section 341(f) of the Code. There are no liens for Taxes upon any of the assets of the Company (other than liens for Taxes that are not yet due or that are being contested in good faith by appropriate proceedings). No extension of the statute of limitations on the assessment of any Taxes has been granted by the Company and is currently in effect. As used herein, "Taxes" shall mean any taxes of any kind, including but not limited to those on or measured by or referred to as income, gross receipts, capital, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, value added, property or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any governmental authority. As used herein, "Tax Return" shall mean any return, report or statement required to be filed with any governmental authority with respect to Taxes. 10 SECTION 2.10 Investment Company. The Company is not an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such act. SECTION 2.11 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of the Company (other than Goldman, Sachs & Co.'s engagement as financial advisor on behalf of MSC). ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER Parent and Purchaser hereby, jointly and severally, represent and warrant to the Company that: SECTION 3.1 Corporate Organization. Each of Parent and Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority and any necessary governmental authority to own, operate or lease its properties and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and governmental approvals is not, individually or in the aggregate, reasonably likely to prevent the consummation of the Merger. SECTION 3.2 Authority Relative to This Agreement. Each of Parent and Purchaser has all necessary 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 Purchaser and the consummation by each of Parent and Purchaser of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Purchaser other than filing and recordation of appropriate merger documents as required by the DGCL. This Agreement has been duly executed and delivered by Parent and Purchaser and, assuming due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of each such corporation enforceable against such corporation in accordance with its terms. SECTION 3.3 No Conflict; Required Filings and Consents. (a) The execution, delivery and performance of this Agreement by Parent and Purchaser do not and will not: (i) conflict with or violate the respective certificates of incorporation or by-laws of Parent or Purchaser; (ii) assuming that all consents, approvals and authorizations contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been obtained and all filings described in such clauses have been made, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or Purchaser or by which either of them or their respective properties are bound or affected; or (iii) result in any breach or violation of or constitute a default (or an 11 event which with notice or lapse of time or both could become a default) or result in the loss of a material benefit under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the property or assets of Parent or Purchaser pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Purchaser is a party or by which Parent or Purchaser or any of their respective properties are bound or affected, except, in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which are not, individually or in the aggregate, reasonably likely to prevent or materially delay the consummation of the Merger. (b) The execution, delivery and performance of this Agreement by Parent and Purchaser do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any governmental or regulatory authority, except (i) for applicable requirements, if any, of the Exchange Act and the rules and regulations promulgated thereunder, the HSR Act, state securities, takeover and "blue sky" laws, (ii) the filing and recordation of appropriate merger or other documents as required by the DGCL, and (iii) such consents, approvals, authorizations, permits, actions, filings or notifications the failure of which to make or obtain are not, individually or in the aggregate, reasonably likely to prevent the consummation of the Merger. SECTION 3.4 Brokers. No broker, finder or investment banker (other than Morgan Stanley & Co. Incorporated) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Parent or Purchaser. SECTION 3.5 Funds. Parent or Purchaser, at the expiration date of the Offer and at the Effective Time, will have the funds necessary to consummate the Merger. ARTICLE IV CONDUCT PENDING THE CLOSING; ADDITIONAL AGREEMENTS SECTION 4.1 Conduct of Business of the Company Pending the Merger. The Company covenants and agrees that, during the period from the date hereof to the Effective Time, unless Parent shall otherwise agree in writing and except as otherwise expressly contemplated by this Agreement, the Company shall not (i) engage in any business activities of any type or kind whatsoever or enter into any agreements or arrangements with any person, except as otherwise contemplated pursuant to this Agreement and (ii) incur, directly or indirectly, any liabilities, commitments, or obligations of any kind whatsoever, whether or not accrued and whether or not contingent or absolute. By way of amplification and not limitation, the Company shall not, between the date of this Agreement and the Effective Time, directly or indirectly do, or commit to do, any of the following without the prior written consent of Parent: (a) Amend or otherwise change its certificate of incorporation or by-laws; 12 (b) Issue, deliver, sell, pledge, dispose of or encumber, or authorize or commit to the issuance, sale, pledge, disposition or encumbrance of, (i) any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including but not limited to stock appreciation rights or phantom stock), of the Company or (ii) any assets of the Company; (c) Declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock; (d) Reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) Acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof, or otherwise form or commit to form any subsidiary; (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans, advances or capital contributions to, or investments in, any other person; (iii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice; or (iv) authorize any capital expenditures of any nature whatsoever; (f) Hire, appoint or engage, or commit to hire, appoint or engage, any director, officer, employee, consultant or other advisor, or otherwise pay or commit to pay any compensation, fringe benefits or severance or other termination benefits to any such persons, other than the engagement of any agent by the Company in connection with the liquidation and/or sale of the Company's assets and investments in the manner contemplated herein; (g) Make any Tax election, change any method of Tax accounting or settle or compromise any federal, state, local or foreign Tax liability; (h) Settle or compromise any pending or threatened suit, action or claim; (i) Adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company (other than the Merger); or (j) Take, or offer or propose to take, or agree to take in writing or otherwise, any of the actions described in Sections 4.1(a) through 4.1(i) or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue and incorrect as of the date when made if such action had then been taken. Notwithstanding anything contained in this Section 4.1, the Company shall be entitled to liquidate and/or sell all or any of its investments and other assets (other than its MSC 13 Common Stock and MMC common stock) and/or declare and pay dividends to its stockholders (other than of its MSC Common Stock or MMC common stock), so long as the Closing Balance Sheet accurately reflects the results of any such liquidation, sale and/or dividend. SECTION 4.2 Stockholders Meeting. Promptly following the date hereof, the Company, acting through its Board of Directors, shall in accordance with and subject to applicable law and the Company's Certificate of Incorporation and By-Laws, duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of adopting this Agreement and the transactions contemplated hereby (the "Stockholders Meeting"). The Company's Board of Directors shall include, in any notice to stockholders of the Stockholders Meeting, the unanimous recommendation of the Board of Directors that the stockholders of the Company vote in favor of the adoption of this Agreement and use its reasonable best efforts to obtain the necessary adoption of this Agreement. At the Stockholders Meeting, Parent and Purchaser shall cause all Shares subject to the WMI Stockholders' proxy under the Proxy and Indemnification Agreement to be voted in favor of adoption of this Agreement. SECTION 4.3 No Solicitation; Affirmation of Covenants in Stockholders' Agreement. (a) The Company shall not, and the Company shall cause all of its directors, agents, affiliates and associates to not, directly or indirectly, solicit, encourage, participate in or initiate any inquiries or the making of any proposal by any person or entity (other than Parent or any affiliate of Parent) which constitutes, or may reasonably be expected to lead to, (i) any sale of the Shares or (ii) any acquisition or purchase of any of the Company's assets or any equity interest in, or any merger, consolidation or business combination with, the Company. If the Company receives an inquiry or proposal with respect to the sale of Shares, then the Company shall promptly inform Parent of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. The Company and its directors, agents, affiliates and associates will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. (b) The Company affirms and agrees that it shall comply in all respects with the covenants set forth in its Stockholders' Agreement, including without limitation the covenants set forth in Section 5 thereof. SECTION 4.4 Access to Information; Confidentiality. From the date hereof to the Effective Time, the Company shall, and shall cause its officers, directors and other agents to, afford the officers, employees, auditors and other agents of Parent, and financing sources who shall agree to be bound by the provisions of this Section 4.4 as though a party hereto, complete access, consistent with applicable law, at all reasonable times to all books and records of the Company, and shall furnish Parent and such financing sources with all financial, operating and other data and information as Parent, through its officers, employees or agents, or such financing sources may from time to time reasonably request. All information obtained by Parent and Purchaser pursuant to this Section 4.4 shall be kept confidential in accordance with the Confidentiality Agreement, dated on or about May 7, 1998 (the "Parent Confidentiality Agreement"), between Parent and MSC. No investigation pursuant to this Section 4.4 shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. 14 SECTION 4.5 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of the occurrence or non-occurrence of (i) any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 4.5 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. SECTION 4.6 Further Action; Reasonable Best Efforts. (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as soon as practicable, including but not limited to (i) cooperation in the preparation and filing of any required filings under the HSR Act and any amendments to any thereof and (ii) using its reasonable best efforts to promptly make all required regulatory filings and applications including, without limitation, responding promptly to requests for further information and to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and any other third parties as are necessary for the consummation of the transactions contemplated by this Agreement and to fulfill the conditions to the Merger. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their reasonable best efforts to take all such necessary action. (b) The Company and Parent each shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the other with copies of notices or other communications received by Parent or the Company, as the case may be, or any of their subsidiaries, from any governmental authority with respect to the Merger or any of the other transactions contemplated by this Agreement. The parties hereto will consult and cooperate with one another, and consider in good faith the views of one another in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto in connection with proceedings under or relating to the HSR Act or any other antitrust law. SECTION 4.7 Public Announcements. Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the Merger and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with its securities exchange. 15 ARTICLE V CONDITIONS OF MERGER SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction (or, in the case of Section 5.1(d) below, the waiver, to the extent available, by Parent) at or prior to the Effective Time of the following conditions: (a) This Agreement shall have been adopted by the affirmative vote of the stockholders of the Company by the requisite vote in accordance with the Company's Certificate of Incorporation and the DGCL (which the Company has represented shall be solely the affirmative vote of a majority of the outstanding Shares). (b) No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any United States, foreign, federal or state court or governmental authority which prohibits, restrains, enjoins or restricts the consummation of the Merger, the Offer or the MSC Merger. (c) Any waiting period applicable to the Merger under the HSR Act shall have terminated or expired. (d) All of the Offer Conditions, other than the consummation of the Merger, shall have been satisfied and MSC MergerSub shall have determined to purchase the shares of MSC Common Stock pursuant to the Offer; provided that, if the MSC Merger Agreement is terminated under circumstances in which Parent is entitled to the payment of the fees set forth in Section 8.3(a)(ii) of the MSC Merger Agreement, Parent (in its sole and absolute discretion) shall be entitled to waive the satisfaction of the conditions in this Section 5.1(d). SECTION 5.2 Additional Conditions to Obligation of Parent and Purchaser to Effect the Merger. The obligations of Parent and Purchaser to effect the Merger shall be subject to the satisfaction (or waiver) at or prior to the Effective Time of the following conditions: (a) The Company shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date. (b) The representations and warranties made herein by the Company shall have been true and correct in all material respects on the date of this Agreement and as of the Effective Time, except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. 16 (c) Each of (i) the Stockholder's Agreement of the Company (and the Stockholder's Agreements for each other Related Seller), and (ii) the Proxy and Indemnification Agreement shall continue to be in full force and effect, with no amendments or other changes thereto. SECTION 5.3 Additional Conditions to Obligation of the Company to Effect the Merger. The obligations of the Company to effect the Merger shall be subject to the satisfaction (or waiver) at or prior to the Effective Time of the following conditions: (a) Parent and Purchaser shall have performed in all material respects all of their respective covenants and agreements required to be performed by them under this Agreement at or prior to the Closing Date. (b) The representations and warranties made herein by Parent and Purchaser shall have been true and correct in all material respects on the date of this Agreement and as of the Effective Time, except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. ARTICLE VI TERMINATION, AMENDMENT AND WAIVER SECTION 6.1 Termination. This Agreement may be terminated and the Merger contemplated hereby may be abandoned at any time prior to the Effective Time: (a) By mutual written consent of Parent, Purchaser and the Company; (b) By Parent or the Company if any court of competent jurisdiction or other governmental body located or having jurisdiction within the United States shall have issued a final order, injunction, decree, judgment or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Merger, the Offer or the MSC Merger and such order, injunction, decree, judgment, ruling or other action is or shall have become final and nonappealable; (c) By Parent if due to an occurrence or circumstance which resulted in a failure to satisfy any of the Offer Conditions (other than as a result of a breach by Parent or MSC MergerSub of its obligations under the MSC Merger Agreement), MSC MergerSub shall have (i) terminated the Offer or (ii) failed to pay for shares of MSC Common Stock pursuant to the Offer on or prior to the Outside Date (as defined in the MSC Merger Agreement); (d) By the Company if (i) the MSC Merger Agreement is terminated and (ii) Parent is no longer entitled to the payment of the fees set forth in Section 8.3(a)(ii) of the MSC Merger Agreement; or 17 (e) By Parent prior to the purchase of shares of MSC Common Stock pursuant to the Offer, if (i) there shall have been a breach of any representation, warranty, covenant or agreement on the part of the Company contained in this Agreement which is reasonably likely to have a Material Adverse Effect, which shall not have been cured prior to the earlier of (A) 10 business days following notice of such breach and (B) two business days prior to the date on which the Offer expires, or (ii) the MSC Merger Agreement is terminated. SECTION 6.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except as set forth in Section 7.1; provided, however, that nothing herein shall relieve any party from liability for any wilful breach hereof. SECTION 6.3 Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that no amendment may be made which would reduce the amount or change the type of consideration into which each Share shall be converted upon consummation of the Merger without the redelivery by the Company's stockholders of a stockholders' consent thereto. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 6.4 Waiver. At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. ARTICLE VII GENERAL PROVISIONS SECTION 7.1 Survival of Representations, Warranties and Agreements. (a) Except as set forth in Section 7.1(b), all representations, warranties and agreements contained in this Agreement shall terminate and be extinguished at the Effective Time or the earlier date of termination of this Agreement pursuant to Section 6.1. (b) Notwithstanding Section 7.1(a), (i) the covenants and agreements made by the parties in this Agreement which by their terms contemplate performance after the Effective Time (or after termination) shall survive the Effective Time (or such termination) until fully performed, and (ii) the representations and warranties of the Company contained herein shall survive the Effective Time indefinitely. SECTION 7.2 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have 18 been duly given upon receipt) by delivery in person, by cable, telecopy, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice): if to Parent or Purchaser: Dillard's, Inc. 1600 Cantrell Road Little Rock, Arkansas 72201 Attention: James I. Freeman with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Alan G. Schwartz, Esq. if to the Company: c/o Ivins Phillips & Barker 1700 Pennslyvania Avenue Washington, D.C. 20006 Attention: Stuart Dunn, Esq. with a copy to: King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 Attention: Russell B. Richards, Esq. with a further copy to: Morris, Nichols, Arsht & Tunnel 1201 N. Market Street Wilminton, Delaware 19801 Attention: Andrew M. Johnston, Esq. 19 SECTION 7.3 Certain Definitions. For purposes of this Agreement, the term: "affiliate" of a person means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise; "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Exchange Act); and "subsidiary" or "subsidiaries" of any person means any corporation, partnership, joint venture or other legal entity of which such person (either alone or through or together with any other subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holder of which is generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. SECTION 7.4 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 7.5 Entire Agreement; Assignment. This Agreement, together with the Stockholders Agreements, Parent Confidentiality Agreement, the MSC Merger Agreement, the MMC Merger Agreement and the Proxy and Indemnification Agreement, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned by operation of law or otherwise, except that Parent and Purchaser may assign all or any of their respective rights and obligations hereunder to any direct or indirect wholly owned subsidiary or subsidiaries of Parent, provided that no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations. SECTION 7.6 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 20 SECTION 7.7 Fees and Expenses. Except as otherwise specifically provided herein, in the MSC Merger Agreement and in the Proxy and Indemnification Agreement, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the party incurring such costs and expenses. SECTION 7.8 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 7.9 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 7.10 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 21 IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. DILLARD'S, INC. By: /s/ James I. Freeman --------------------------------- Name: James I. Freeman Title: Chief Financial Officer WMI ACQUISITION, INC. By: /s/ James I. Freeman --------------------------------- Name: James I. Freeman Title: WOODBANK MILLS, INC. By: /s/ Roger Milliken --------------------------------- Name: Roger Milliken Title: Chairman EX-7.12 13 AGMT PLAN OF MERGER DILLARD'S MMC ACQUISITIONS Exhibit 7.12 ---------------------------------------------------------- AGREEMENT AND PLAN OF MERGER Among DILLARD'S, INC. MMC ACQUISITION, INC. and MINOT MERCANTILE CORPORATION Dated as of May 16, 1998 ---------------------------------------------------------- TABLE OF CONTENTS ----------------- ARTICLE I THE MERGER .......................... 2 SECTION 1.1 The Merger ................................................ 2 SECTION 1.2 Closing; Effective Time ................................... 2 SECTION 1.3 Effects of the Merger ..................................... 2 SECTION 1.4 Certificate of Incorporation; By-Laws ..................... 3 SECTION 1.5 Directors and Officers .................................... 3 SECTION 1.6 Conversion of Securities .................................. 3 SECTION 1.7 Dissenting Shares and Section 262 Shares .................. 4 SECTION 1.8 Surrender of Shares; Stock Transfer Books ................. 5 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............. 6 SECTION 2.1 Corporate Organization; Subsidiaries and Employees ........ 6 SECTION 2.2 Certificate of Incorporation and By-Laws .................. 6 SECTION 2.3 Capitalization ............................................ 7 SECTION 2.4 Authority Relative to This Agreement ...................... 7 SECTION 2.5 No Conflict; Required Filings and Consents ................ 7 SECTION 2.6 Compliance ................................................ 8 SECTION 2.7 Limited Operations; Financial Statements; No Undisclosed Liabilities ............................................... 8 SECTION 2.8 Absence of Litigation ..................................... 9 SECTION 2.9 Tax Matters ............................................... 9 SECTION 2.10 Investment Company ........................................ 9 SECTION 2.11 Brokers ................................................... 10 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER ............................... 10 SECTION 3.1 Corporate Organization .................................... 10 SECTION 3.2 Authority Relative to This Agreement ...................... 10 SECTION 3.3 No Conflict; Required Filings and Consents ................ 10 SECTION 3.4 Brokers ................................................... 11 SECTION 3.5 Funds ..................................................... 11 ARTICLE IV CONDUCT PENDING THE CLOSING; ADDITIONAL AGREEMENTS ........ 11 SECTION 4.1 Conduct of Business of the Company Pending the Merger ..... 11 SECTION 4.2 Stockholders Meeting ...................................... 13
-i- SECTION 4.3 No Solicitation; Affirmation of Covenants in Stockholders' Agreement ................................................. 13 SECTION 4.4 Access to Information; Confidentiality .................... 13 SECTION 4.5 Notification of Certain Matters ........................... 13 SECTION 4.6 Further Action; Reasonable Best Efforts ................... 14 SECTION 4.7 Public Announcements ...................................... 14 ARTICLE V CONDITIONS OF MERGER ............................ 14 SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger 14 SECTION 5.2 Additional Conditions to Obligation of Parent and Purchaser to Effect the Merger ..................................... 15 SECTION 5.3 Additional Conditions to Obligation of the Company to Effect the Merger ............................................... 16 ARTICLE VI TERMINATION, AMENDMENT AND WAIVER ......................... 16 SECTION 6.1 Termination ............................................... 16 SECTION 6.2 Effect of Termination ..................................... 17 SECTION 6.3 Amendment ................................................. 17 SECTION 6.4 Waiver .................................................... 17 ARTICLE VII GENERAL PROVISIONS ................................. 17 SECTION 7.1 Survival of Representations, Warranties and Agreements .... 17 SECTION 7.2 Notices ................................................... 17 SECTION 7.3 Certain Definitions ....................................... 18 SECTION 7.4 Severability .............................................. 19 SECTION 7.5 Entire Agreement; Assignment .............................. 19 SECTION 7.6 Parties in Interest ....................................... 19 SECTION 7.7 Fees and Expenses ......................................... 19 SECTION 7.8 Governing Law ............................................. 19 SECTION 7.9 Headings .................................................. 20 SECTION 7.10 Counterparts .............................................. 20 Schedule 1.6(d) - Current Schedule of Assets and Liabilities Exhibit A - Certificate of Incorporation of Surviving Corporation
-ii- AGREEMENT AND PLAN OF MERGER, dated as of May 16, 1998 (this "Agreement"), among DILLARD'S, INC., a Delaware corporation ("Parent"), MMC ACQUISITION, INC., a Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and MINOT MERCANTILE CORPORATION, a Delaware corporation (the "Company"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company and the stockholders of the Company to enter into this Agreement with Parent and Purchaser, providing for the merger (the "Merger") of Purchaser with the Company in accordance with the General Corporation Law of the State of Delaware ("DGCL"), upon the terms and subject to the conditions set forth herein; WHEREAS, the Board of Directors of Parent and Purchaser have each approved the Merger of Purchaser with the Company in accordance with the DGCL upon the terms and subject to the conditions set forth herein; WHEREAS, concurrently with the execution and delivery of this Agreement, Parent, MSC Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("MSC MergerSub"), and Mercantile Stores Company, Inc., a Delaware corporation ("MSC"), have entered into a merger agreement, dated as of the date hereof (the "MSC Merger Agreement"), pursuant to which MSC MergerSub has agreed to make a tender offer (the "Offer") for all outstanding shares of common stock, $.14 2/3 par value per share (the "MSC Common Stock"), of MSC, at $80.00 per share, or any higher price that may be paid pursuant to the Offer (the "Offer Price"), net to the seller in cash, subject to the offer condition contained therein (the "Offer Conditions"), to be followed by a merger (the "MSC Merger") of MSC MergerSub with and into MSC, with MSC as the surviving corporation; WHEREAS, concurrently with the execution and delivery of this Agreement, Parent, WMI Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("WMI MergerSub"), and Woodbank Mills, Inc., a Delaware corporation ("Woodbank"), have entered into a merger agreement, dated as of the date hereof (the "Woodbank Merger Agreement"), pursuant to which WMI MergerSub will be merged with and into Woodbank (the "Woodbank Merger"), and Woodbank shall be the surviving corporation; WHEREAS, concurrently with the execution and delivery of this Agreement, holders of not less than 70% of all of the holders (the "MMC Stockholders") of the Company's common stock, par value $5.00 per share (referred to herein as the "Shares" or "Company Common Stock"), have executed and delivered an agreement (the "Proxy and Indemnification Agreement"), pursuant to which (i) the MMC Stockholders have granted Parent an irrevocable proxy to vote their Shares in favor of the adoption of this Agreement and the Merger at the Stockholders Meeting (as defined herein), and (ii) the MMC Stockholders have agreed to indemnify Parent and Purchaser in respect of any and all claims resulting from the Merger, in each case, subject to the terms and conditions contained therein; and 2 WHEREAS, concurrently with the execution and delivery of this Agreement, Parent and each of the Company, Woodbank and certain affiliated stockholders of MSC (collectively, the "Related Sellers") have entered into a stockholders' agreement, each dated as of the date hereof (each, a "Stockholders' Agreement"), pursuant to which, among other things, each Related Seller has granted an option in favor of Parent with respect to the shares of Company Common Stock respectively held by such person, subject to the terms and conditions contained therein; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Purchaser and the Company hereby agree as follows: ARTICLE I THE MERGER SECTION 1.1 The Merger. Upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL, at the Effective Time (as defined in Section 1.2), Purchaser shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Purchaser shall cease and the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). At Parent's election, any direct or indirect subsidiary of Parent other than Purchaser may be merged with and into the Company instead of the Purchaser. In the event of such an election, the parties agree to execute an appropriate amendment to this Agreement in order to reflect such election. SECTION 1.2 Closing; Effective Time. Subject to the provisions of Article V, the closing of the Merger (the "Closing") shall take place in New York City at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, as soon as practicable but in no event later than the first business day after the satisfaction or waiver of the conditions set forth in Article V, or at such other place or at such other date as Parent and the Company may mutually agree. The date on which the Closing actually occurs is hereinafter referred to as the "Closing Date". At the Closing, the parties hereto shall cause the Merger to be consummated by filing this Agreement or a certificate of merger or a certificate of ownership and merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as required by and executed in accordance with the relevant provisions of the DGCL (the date and time of the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (or such later time as is specified in the Certificate of Merger) being the "Effective Time"). SECTION 1.3 Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of the DGCL. Without limiting the generality of the foregoing and subject thereto, at the Effective Time all the property, rights, privileges, immunities, powers and franchises of the Company and Purchaser shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Purchaser shall become the debts, liabilities and duties of the Surviving Corporation. 3 SECTION 1.4 Certificate of Incorporation; By-Laws. (a) At the Effective Time and without any further action on the part of the Company and Purchaser, the Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be amended and restated so as to read in its entirety in the form set forth in Exhibit A hereto and, as so amended, until thereafter and further amended as provided therein and under the DGCL, it shall be the Certificate of Incorporation of the Surviving Corporation following the Merger. (b) At the Effective Time and without any further action on the part of the Company and Purchaser, the By-Laws of Purchaser, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation and thereafter may be amended or repealed in accordance with their terms or the Certificate of Incorporation of the Purchaser and as provided by law. SECTION 1.5 Directors and Officers. The directors and officers of Purchaser immediately prior to the Effective Time shall be the initial directors and officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation. SECTION 1.6 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, the Company or the holders of any of the following securities: (a) Each share of the Company Common Stock, issued and outstanding immediately prior to the Effective Time (other than any Shares to be cancelled pursuant to Section 1.6(b), any Shares held by Woodbank and any Dissenting Shares (as defined in Section 1.7(a)) shall be cancelled, extinguished and converted into the right to receive an amount (the "Merger Consideration") calculated as follows: (i) the Aggregate Value of Company Assets (as defined in Section 1.6(d) below) immediately prior to the Effective Time divided by (ii) the aggregate number of shares of Company Common Stock issued and outstanding immediately prior to the Effective Time. The Merger Consideration shall be payable to the holder of each Share, without interest, upon surrender of the certificate formerly representing such Share in the manner provided in Section 1.8, less any required withholding taxes. (b) Each share of Company Common Stock held in the treasury of the Company and each Share owned by the Company, Parent, Purchaser or any other direct or indirect subsidiary of such persons, in each case immediately prior to the Effective Time, shall be cancelled and retired without any conversion thereof and no payment or distribution shall be made with respect thereto. (c) Each share of common stock of Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of identical common stock of the Surviving Corporation. 4 (d) "Aggregate Value of Company Assets" means an amount equal to (i) the product of (A) the aggregate number of outstanding shares of MSC Common Stock, directly owned by the Company immediately prior to the Effective Time, and (B) the Offer Price, plus (ii) the aggregate amount of Net Assets (as defined below). "Net Assets" means the amount by which the Company's assets exceeds its liabilities, each of which will be calculated from the Closing Balance Sheet (as defined below). Attached hereto as Schedule 1.6(d) is a list of all of assets and liabilities of the Company as of the date hereof. (e) "Closing Balance Sheet" means a balance sheet of the Company reflecting its assets and liabilities as of Closing, as prepared by the Company and delivered to Parent, for its review and consent, no later than 15 days prior to Closing. Parent shall, within five days of its receipt of the Closing Balance Sheet, complete its review thereof and identify to the Company any items with which Parent does not agree. Parent and the Company will promptly attempt to resolve in good faith any disagreement as to items contained on the Closing Balance Sheet. The Company will, as promptly as practicable after the date hereof, undertake to liquidate and/or sell all of its investments and other assets (other than its shares of MSC Common Stock) so that the Company's assets, as reflected on the Closing Balance Sheet, will consist solely of cash and short-term, highly liquid cash equivalents (with maturities of seven days or less). The Closing Balance Sheet will set forth, in reasonable detail and specificity (with notes where appropriate), all of the Company's assets and liabilities as of the Closing, including without limitation all tax liabilities incurred on account of any liquidations or sales of the Company's investments or other assets and all liabilities, fees and expenses owing to the Company's advisors. The amount of cash and cash equivalents that are held back to cover the Company's liabilities, as identified on the Closing Balance Sheet, is referred to as the "Holdback Amount". The Holdback Amount will be applied by Parent and Purchaser to pay, upon presentment of proper invoices, to any post-Closing fees, expenses, liabilities and other obligations of the Company. (f) Promptly following the date on which all of the Company's liabilities that were identified on the Closing Balance Sheet, together with all outstanding "Losses" under and as defined in the Proxy and Indemnification Agreement, have been paid in full, any remaining Holdback Amount shall be released to the Paying Agent (as hereinafter defined) for distribution to the former holders of the Shares. SECTION 1.7 Dissenting Shares and Section 262 Shares. (a) Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and which are held by stockholders who have not voted in favor of or consented to the Merger and shall have delivered a written demand for appraisal of such shares of Company Common Stock in the time and manner provided in Section 262 of the DGCL and shall not have failed to perfect or shall not have effectively withdrawn or lost their rights to appraisal and payment under the DGCL (the "Dissenting Shares") shall not be converted into the right to receive the Merger Consideration, but shall be entitled to receive the consideration as shall be determined pursuant to Section 262 of the DGCL; provided, however, that if such holder shall have failed to perfect or shall have effectively 5 withdrawn or lost his, her or its right to appraisal and payment under the DGCL, such holder's shares of Company Common Stock shall thereupon be deemed to have been converted, at the Effective Time, into the right to receive the Merger Consideration set forth in Section 1.6(a) of this Agreement, without any interest thereon. (b) The Company shall give Parent (i) prompt notice of any demands for appraisal pursuant to Section 262 received by the Company, withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of Parent or as otherwise required by applicable law, make any payment with respect to any such demands for appraisal or offer to settle or settle any such demands. Pursuant to the Proxy and Indemnification Agreement, the MMC Stockholders shall indemnify, defend and hold harmless Parent and Purchaser against any and all liabilities, damages, expenses, losses or other claims that are paid in respect of any Dissenting Shares (including reasonable attorneys' fees and expenses) in excess of the aggregate Merger Consideration that would otherwise have been payable in respect of such Dissenting Shares pursuant to Section 1.6(a). SECTION 1.8 Surrender of Shares; Stock Transfer Books. (a) Prior to the Effective Time, Purchaser shall designate a bank or trust company to act as agent for the holders of Shares in connection with the Merger (the "Paying Agent") to receive the Merger Consideration to which holders of Shares shall become entitled pursuant to Section 1.6(a). When and as needed, Parent or Purchaser will make available to the Paying Agent sufficient funds to make all payments pursuant to Section 1.8(b). Such funds shall be invested by the Paying Agent as directed by Purchaser or, after the Effective Time, the Surviving Corporation, provided that such investments shall be in obligations of or guaranteed by the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively, or in certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital exceeding $500 million. Any net profit resulting from, or interest or income produced by, such investments will be payable to the Surviving Corporation or Parent, as Parent directs. (b) Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each record holder, as of the Effective Time, of an outstanding certificate or certificates which immediately prior to the Effective Time represented Shares (the "Certificates"), a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates for payment of the Merger Consideration therefor. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each Share formerly represented by such Certificate, and such Certificate shall then be cancelled. No interest shall be paid or accrued for the benefit of holders of the Certificates on the Merger Consideration payable upon the surrender of the Certificates. If payment of the Merger Consideration is to be made to a person other than the person in whose 6 name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the person requesting such payment shall have paid any transfer and other taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such tax either has been paid or is not applicable. (c) At any time following six months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which had been made available to the Paying Agent and which have not been disbursed to holders of Certificates, and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Certificate for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (d) At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of shares of Company Common Stock on the records of the Company. From and after the Effective Time, the holders of Certificates evidencing ownership of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided for herein or by applicable law. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Purchaser that: SECTION 2.1 Corporate Organization; Subsidiaries and Employees. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority and any necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. The Company is not qualified or licensed as a foreign corporation to do business in any jurisdiction. When used in connection with the Company, the term "Material Adverse Effect" means any change or effect that would be materially adverse to the assets, liabilities, results of operations, financial condition or business of the Company. (b) The Company has no subsidiaries and no employees. SECTION 2.2 Certificate of Incorporation and By-Laws. The Company has heretofore furnished to Parent a complete and correct copy of the Certificate of Incorporation and the By-Laws of the Company as currently in effect. Such Certificate of Incorporation and By- 7 Laws are in full force and effect and no other organizational documents are applicable to or binding upon the Company. The Company is not in violation of any of the provisions of its Certificate of Incorporation or By-Laws. SECTION 2.3 Capitalization. The authorized capital stock of the Company consists of 280,300 shares of Company Common Stock, of which (a) 280,300 shares of Company Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable and have been issued free of preemptive (or similar) rights, and (b) no shares of Company Common Stock are held in the treasury of the Company. Except as set forth above, there are outstanding (i) no shares of capital stock or other voting securities of the Company, (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, (iii) no options or other rights to acquire from the Company, and no obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company and (iv) no equity equivalents, interests in the ownership or earnings of the Company or other similar rights (collectively, "Company Securities"). There are no outstanding obligations of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. There are no other options, calls, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company to which the Company is a party. There are no outstanding contractual obligations of the Company to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity and, except for the shares of MSC Common Stock, the Company has no other direct or indirect equity interests in any other person. SECTION 2.4 Authority Relative to This Agreement. The Company has all necessary corporate power and authority to execute and deliver this Agreement, 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 authorized by all necessary corporate action and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than, with respect to the Merger, the adoption of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock and the filing of appropriate merger documents as required by the DGCL). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Parent and Purchaser, constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. As a result of the foregoing actions, the only vote required to authorize the Merger is the affirmative vote of a majority of the outstanding Shares. SECTION 2.5 No Conflict; Required Filings and Consents. (a) The execution, delivery and performance of this Agreement by the Company do not and will not: (i) conflict with or violate the Certificate of Incorporation or By-Laws of the Company or the equivalent organizational documents of any of its subsidiaries; (ii) assuming that all consents, approvals and authorizations contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been obtained and all filings described in such clauses have been made, conflict with or violate any 8 law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its or any of their respective properties are bound or affected; or (iii) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both could become a default) or result in the loss of a material benefit under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of the Company or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties are bound or affected, except, in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. (b) The execution, delivery and performance of this Agreement by the Company and the consummation of the Merger by the Company do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any governmental or regulatory authority, except for (i) applicable requirements, if any, of the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), state securities, takeover and "blue sky" laws, (ii) the filing and recordation of appropriate merger or other documents as required by the DGCL and (iii) such consents, approvals, authorizations, permits, actions, filings or notifications the failure of which to make or obtain are not, individually or in the aggregate, reasonably likely to (x) prevent or materially delay the Company from performing its obligations under this Agreement or (y) have a Material Adverse Effect. SECTION 2.6 Compliance. The Company is not in conflict with, or in default or violation of, (i) any law, rule, regulation, order, judgment or decree applicable to the Company or by which its properties are bound or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company is a party or by which the Company or its properties are bound or affected, except for any such conflicts, defaults or violations which are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. SECTION 2.7 Limited Operations; Financial Statements; No Undisclosed Liabilities. (a) The Company operates solely as a "personal holding corporation" within the meaning of Section 542 of the Internal Revenue Code of 1986, as amended (the "Code"). Except for (i) this Agreement and the transactions contemplated hereby, (ii) activities related to maintaining its corporate existence and (iii) activities related to the Company's ownership of the shares of MSC Common Stock and other investments (including, without limitation, the investment and reinvestment of proceeds received on account of such investments and distributions to the Company's stockholders), the Company has not engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any person. The legal name of the Company is as set forth in this Agreement. The Company has no trade names, fictitious names, assumed names or "doing business as" names. 9 (b) The Company has not incurred, directly or indirectly, any liabilities, commitments, or obligations of any kind whatsoever, whether or not accrued and whether or not contingent or absolute, other than liabilities disclosed in Schedule 1.6(d) hereto. (c) The Company has delivered to Parent true and correct copies of the Company's audited balance sheets for the prior three fiscal years and the related statements of consolidated income and retained earnings, and statements of consolidated cash flows for each of the last three fiscal years, including any related notes thereto (collectively, the "Company Financial Statements"). The Company Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the financial position of the Company at the respective date thereof and the results of its operations and changes in cash flows for the periods indicated. SECTION 2.8 Absence of Litigation. There are no suits, claims, actions, proceedings or investigations pending or, to the best knowledge of the Company, threatened against the Company or any of its subsidiaries, or any properties or rights of the Company or any of its subsidiaries, before any court, arbitrator or administrative, governmental or regulatory authority or body. As of the date hereof, neither the Company nor any of its subsidiaries nor any of their respective properties is or are subject to any order, writ, judgment, injunction, decree, determination or award. SECTION 2.9 Tax Matters. The Company has, or will have, (i) filed all Tax Returns and reports required to be filed by it prior to the Closing Date (taking into account extensions), (ii) paid or accrued all Taxes due and payable for all taxable years or periods ending on or prior to the Closing Date, and (iii) paid or accrued all Taxes for which a notice of assessment or collection has been received (other than amounts being contested in good faith by appropriate proceedings). All such Tax Returns are complete and correct in all material respects. Neither the Internal Revenue Service (the "IRS") nor any other Taxing authority has asserted any claim for Taxes, or is threatening to assert any claims for Taxes, against the Company. The Company has withheld or collected and paid over to the appropriate Taxing authorities all Taxes required by law to be withheld or collected and paid over to such Taxing authorities. The Company has not made an election under Section 341(f) of the Code. There are no liens for Taxes upon any of the assets of the Company (other than liens for Taxes that are not yet due or that are being contested in good faith by appropriate proceedings). No extension of the statute of limitations on the assessment of any Taxes has been granted by the Company and is currently in effect. As used herein, "Taxes" shall mean any taxes of any kind, including but not limited to those on or measured by or referred to as income, gross receipts, capital, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, value added, property or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any governmental authority. As used herein, "Tax Return" shall mean any return, report or statement required to be filed with any governmental authority with respect to Taxes. 10 SECTION 2.10 Investment Company. The Company is not an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such act. SECTION 2.11 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of the Company (other than Goldman, Sachs & Co.'s engagement as financial advisor on behalf of MSC). ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER Parent and Purchaser hereby, jointly and severally, represent and warrant to the Company that: SECTION 3.1 Corporate Organization. Each of Parent and Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority and any necessary governmental authority to own, operate or lease its properties and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and governmental approvals is not, individually or in the aggregate, reasonably likely to prevent the consummation of the Merger. SECTION 3.2 Authority Relative to This Agreement. Each of Parent and Purchaser has all necessary 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 Purchaser and the consummation by each of Parent and Purchaser of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Purchaser other than filing and recordation of appropriate merger documents as required by the DGCL. This Agreement has been duly executed and delivered by Parent and Purchaser and, assuming due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of each such corporation enforceable against such corporation in accordance with its terms. SECTION 3.3 No Conflict; Required Filings and Consents. (a) The execution, delivery and performance of this Agreement by Parent and Purchaser do not and will not: (i) conflict with or violate the respective certificates of incorporation or by-laws of Parent or Purchaser; (ii) assuming that all consents, approvals and authorizations contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been obtained and all filings described in such clauses have been made, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or Purchaser or by which either of them or their respective properties are bound or affected; or (iii) result in any breach or violation of or constitute a default (or an 11 event which with notice or lapse of time or both could become a default) or result in the loss of a material benefit under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the property or assets of Parent or Purchaser pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Purchaser is a party or by which Parent or Purchaser or any of their respective properties are bound or affected, except, in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which are not, individually or in the aggregate, reasonably likely to prevent or materially delay the consummation of the Merger. (b) The execution, delivery and performance of this Agreement by Parent and Purchaser do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any governmental or regulatory authority, except (i) for applicable requirements, if any, of the Exchange Act and the rules and regulations promulgated thereunder, the HSR Act, state securities, takeover and "blue sky" laws, (ii) the filing and recordation of appropriate merger or other documents as required by the DGCL, and (iii) such consents, approvals, authorizations, permits, actions, filings or notifications the failure of which to make or obtain are not, individually or in the aggregate, reasonably likely to prevent the consummation of the Merger. SECTION 3.4 Brokers. No broker, finder or investment banker (other than Morgan Stanley & Co. Incorporated) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Parent or Purchaser. SECTION 3.5 Funds. Parent or Purchaser, at the expiration date of the Offer and at the Effective Time, will have the funds necessary to consummate the Merger. ARTICLE IV CONDUCT PENDING THE CLOSING; ADDITIONAL AGREEMENTS SECTION 4.1 Conduct of Business of the Company Pending the Merger. The Company covenants and agrees that, during the period from the date hereof to the Effective Time, unless Parent shall otherwise agree in writing and except as otherwise expressly contemplated by this Agreement, the Company shall not (i) engage in any business activities of any type or kind whatsoever or enter into any agreements or arrangements with any person, except as otherwise contemplated pursuant to this Agreement and (ii) incur, directly or indirectly, any liabilities, commitments, or obligations of any kind whatsoever, whether or not accrued and whether or not contingent or absolute. By way of amplification and not limitation, the Company shall not, between the date of this Agreement and the Effective Time, directly or indirectly do, or commit to do, any of the following without the prior written consent of Parent: (a) Amend or otherwise change its certificate of incorporation or by-laws; 12 (b) Issue, deliver, sell, pledge, dispose of or encumber, or authorize or commit to the issuance, sale, pledge, disposition or encumbrance of, (i) any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including but not limited to stock appreciation rights or phantom stock), of the Company or (ii) any assets of the Company; (c) Declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock; (d) Reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) Acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof, or otherwise form or commit to form any subsidiary; (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans, advances or capital contributions to, or investments in, any other person; (iii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice; or (iv) authorize any capital expenditures of any nature whatsoever; (f) Hire, appoint or engage, or commit to hire, appoint or engage, any director, officer, employee, consultant or other advisor, or otherwise pay or commit to pay any compensation, fringe benefits or severance or other termination benefits to any such persons, other than the engagement of any agent by the Company in connection with the liquidation and/or sale of the Company's assets and investments in the manner contemplated herein; (g) Make any Tax election, change any method of Tax accounting or settle or compromise any federal, state, local or foreign Tax liability; (h) Settle or compromise any pending or threatened suit, action or claim; (i) Adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company (other than the Merger); or (j) Take, or offer or propose to take, or agree to take in writing or otherwise, any of the actions described in Sections 4.1(a) through 4.1(i) or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue and incorrect as of the date when made if such action had then been taken. Notwithstanding anything contained in this Section 4.1, the Company shall be entitled to liquidate and/or sell all or any of its investments and other assets (other than its MSC 13 Common Stock) and/or declare and pay dividends to its stockholders (other than of its MSC Common Stock), so long as the Closing Balance Sheet accurately reflects the results of any such liquidation, sale and/or dividend. SECTION 4.2 Stockholders Meeting. Promptly following the date hereof, the Company, acting through its Board of Directors, shall in accordance with and subject to applicable law and the Company's Certificate of Incorporation and By-Laws, duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of adopting this Agreement and the transactions contemplated hereby (the "Stockholders Meeting"). The Company's Board of Directors shall include, in any notice to stockholders of the Stockholders Meeting, the unanimous recommendation of the Board of Directors that the stockholders of the Company vote in favor of the adoption of this Agreement and use its reasonable best efforts to obtain the necessary adoption of this Agreement. At the Stockholders Meeting, Parent and Purchaser shall cause all Shares subject to the MMC Stockholders' proxy under the Proxy and Indemnification Agreement to be voted in favor of adoption of this Agreement. SECTION 4.3 No Solicitation; Affirmation of Covenants in Stockholders' Agreement. (a) The Company shall not, and the Company shall cause all of its directors, agents, affiliates and associates to not, directly or indirectly, solicit, encourage, participate in or initiate any inquiries or the making of any proposal by any person or entity (other than Parent or any affiliate of Parent) which constitutes, or may reasonably be expected to lead to, (i) any sale of the Shares or (ii) any acquisition or purchase of any of the Company's assets or any equity interest in, or any merger, consolidation or business combination with, the Company. If the Company receives an inquiry or proposal with respect to the sale of Shares, then the Company shall promptly inform Parent of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. The Company and its directors, agents, affiliates and associates will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. (b) The Company affirms and agrees that it shall comply in all respects with the covenants set forth in its Stockholders' Agreement, including without limitation the covenants set forth in Section 5 thereof. SECTION 4.4 Access to Information; Confidentiality. From the date hereof to the Effective Time, the Company shall, and shall cause its officers, directors and other agents to, afford the officers, employees, auditors and other agents of Parent, and financing sources who shall agree to be bound by the provisions of this Section 4.4 as though a party hereto, complete access, consistent with applicable law, at all reasonable times to all books and records of the Company, and shall furnish Parent and such financing sources with all financial, operating and other data and information as Parent, through its officers, employees or agents, or such financing sources may from time to time reasonably request. All information obtained by Parent and Purchaser pursuant to this Section 4.4 shall be kept confidential in accordance with the Confidentiality Agreement, dated on or about May 7, 1998 (the "Parent Confidentiality Agreement"), between Parent and MSC. No investigation pursuant to this Section 4.4 shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. 14 SECTION 4.5 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of the occurrence or non-occurrence of (i) any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 4.5 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. SECTION 4.6 Further Action; Reasonable Best Efforts. (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as soon as practicable, including but not limited to (i) cooperation in the preparation and filing of any required filings under the HSR Act and any amendments to any thereof and (ii) using its reasonable best efforts to promptly make all required regulatory filings and applications including, without limitation, responding promptly to requests for further information and to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and any other third parties as are necessary for the consummation of the transactions contemplated by this Agreement and to fulfill the conditions to the Merger. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their reasonable best efforts to take all such necessary action. (b) The Company and Parent each shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the other with copies of notices or other communications received by Parent or the Company, as the case may be, or any of their subsidiaries, from any governmental authority with respect to the Merger or any of the other transactions contemplated by this Agreement. The parties hereto will consult and cooperate with one another, and consider in good faith the views of one another in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto in connection with proceedings under or relating to the HSR Act or any other antitrust law. SECTION 4.7 Public Announcements. Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the Merger and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with its securities exchange. 15 ARTICLE V CONDITIONS OF MERGER SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction (or, in the case of Section 5.1(d) below, the waiver, to the extent available, by Parent) at or prior to the Effective Time of the following conditions: (a) This Agreement shall have been adopted by the affirmative vote of the stockholders of the Company by the requisite vote in accordance with the Company's Certificate of Incorporation and the DGCL (which the Company has represented shall be solely the affirmative vote of a majority of the outstanding Shares). (b) No statute, rule, regulation, executive order, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) shall have been enacted, entered, promulgated or enforced by any United States, foreign, federal or state court or governmental authority which prohibits, restrains, enjoins or restricts the consummation of the Merger, the Offer or the MSC Merger. (c) Any waiting period applicable to the Merger under the HSR Act shall have terminated or expired. (d) All of the Offer Conditions, other than the consummation of the Merger, shall have been satisfied and MSC MergerSub shall have determined to purchase the shares of MSC Common Stock pursuant to the Offer; provided that, if the MSC Merger Agreement is terminated under circumstances in which Parent is entitled to the payment of the fees set forth in Section 8.3(a)(ii) of the MSC Merger Agreement, Parent (in its sole and absolute discretion) shall be entitled to waive the satisfaction of the conditions in this Section 5.1(d). (e) The Woodbank Merger shall have been consummated. SECTION 5.2 Additional Conditions to Obligation of Parent and Purchaser to Effect the Merger. The obligations of Parent and Purchaser to effect the Merger shall be subject to the satisfaction (or waiver) at or prior to the Effective Time of the following conditions: (a) The Company shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date. (b) The representations and warranties made herein by the Company shall have been true and correct in all material respects on the date of this Agreement and as of the Effective Time, except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. 16 (c) Each of (i) the Stockholder's Agreement of the Company (and the Stockholder's Agreements for each other Related Seller), and (ii) the Proxy and Indemnification Agreement shall continue to be in full force and effect, with no amendments or other changes thereto. SECTION 5.3 Additional Conditions to Obligation of the Company to Effect the Merger. The obligations of the Company to effect the Merger shall be subject to the satisfaction (or waiver) at or prior to the Effective Time of the following conditions: (a) Parent and Purchaser shall have performed in all material respects all of their respective covenants and agreements required to be performed by them under this Agreement at or prior to the Closing Date. (b) The representations and warranties made herein by Parent and Purchaser shall have been true and correct in all material respects on the date of this Agreement and as of the Effective Time, except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. ARTICLE VI TERMINATION, AMENDMENT AND WAIVER SECTION 6.1 Termination. This Agreement may be terminated and the Merger contemplated hereby may be abandoned at any time prior to the Effective Time: (a) By mutual written consent of Parent, Purchaser and the Company; (b) By Parent or the Company if any court of competent jurisdiction or other governmental body located or having jurisdiction within the United States shall have issued a final order, injunction, decree, judgment or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Merger, the Offer or the MSC Merger and such order, injunction, decree, judgment, ruling or other action is or shall have become final and nonappealable; (c) By Parent if due to an occurrence or circumstance which resulted in a failure to satisfy any of the Offer Conditions (other than as a result of a breach by Parent or MSC MergerSub of its obligations under the MSC Merger Agreement), MSC MergerSub shall have (i) terminated the Offer or (ii) failed to pay for shares of MSC Common Stock pursuant to the Offer on or prior to the Outside Date (as defined in the MSC Merger Agreement); (d) By the Company if (i) the MSC Merger Agreement is terminated and (ii) Parent is no longer entitled to the payment of the fees set forth in Section 8.3(a)(ii) of the MSC Merger Agreement; or 17 (e) By Parent prior to the purchase of shares of MSC Common Stock pursuant to the Offer, if (i) there shall have been a breach of any representation, warranty, covenant or agreement on the part of the Company contained in this Agreement which is reasonably likely to have a Material Adverse Effect, which shall not have been cured prior to the earlier of (A) 10 business days following notice of such breach and (B) two business days prior to the date on which the Offer expires, or (ii) the MSC Merger Agreement is terminated. SECTION 6.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except as set forth in Section 7.1; provided, however, that nothing herein shall relieve any party from liability for any wilful breach hereof. SECTION 6.3 Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that no amendment may be made which would reduce the amount or change the type of consideration into which each Share shall be converted upon consummation of the Merger without the redelivery by the Company's stockholders of a stockholders' consent thereto. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 6.4 Waiver. At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. ARTICLE VII GENERAL PROVISIONS SECTION 7.1 Survival of Representations, Warranties and Agreements. (a) Except as set forth in Section 7.1(b), all representations, warranties and agreements contained in this Agreement shall terminate and be extinguished at the Effective Time or the earlier date of termination of this Agreement pursuant to Section 6.1. (b) Notwithstanding Section 7.1(a), (i) the covenants and agreements made by the parties in this Agreement which by their terms contemplate performance after the Effective Time (or after termination) shall survive the Effective Time (or such termination) until fully performed, and (ii) the representations and warranties of the Company contained herein shall survive the Effective Time indefinitely. SECTION 7.2 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have 18 been duly given upon receipt) by delivery in person, by cable, telecopy, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice): if to Parent or Purchaser: Dillard's, Inc. 1600 Cantrell Road Little Rock, Arkansas 72201 Attention: James I. Freeman with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Alan G. Schwartz, Esq. if to the Company: c/o Ivins Phillips & Barker 1700 Pennslyvania Avenue Washington, D.C. 20006 Attention: Stuart Dunn, Esq. with a copy to: King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 Attention: Russell B. Richards, Esq. with a further copy to: Morris, Nichols, Arsht & Tunnel 1201 N. Market Street Wilminton, Delaware 19801 Attention: Andrew M. Johnston, Esq. SECTION 7.3 Certain Definitions. For purposes of this Agreement, the term: "affiliate" of a person means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise; 19 "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Exchange Act); and "subsidiary" or "subsidiaries" of any person means any corporation, partnership, joint venture or other legal entity of which such person (either alone or through or together with any other subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holder of which is generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. SECTION 7.4 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 7.5 Entire Agreement; Assignment. This Agreement, together with the Stockholders Agreements, Parent Confidentiality Agreement, the MSC Merger Agreement, the Woodbank Merger Agreement and the Proxy and Indemnification Agreement, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned by operation of law or otherwise, except that Parent and Purchaser may assign all or any of their respective rights and obligations hereunder to any direct or indirect wholly owned subsidiary or subsidiaries of Parent, provided that no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations. SECTION 7.6 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 7.7 Fees and Expenses. Except as otherwise specifically provided herein, in the MSC Merger Agreement and in the Proxy and Indemnification Agreement, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the party incurring such costs and expenses. SECTION 7.8 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 20 SECTION 7.9 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 7.10 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 21 IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. DILLARD'S, INC. By: /s/ James I. Freeman -------------------------------------- Name: James I. Freeman Title: Chief Financial Officer MMC ACQUISITION, INC. By: /s/ James I. Freeman -------------------------------------- Name: James I. Freeman Title: MINOT MERCANTILE CORPORATION By: /s/ Roger Milliken -------------------------------------- Name: Roger Milliken Title: Chairman EX-7.13 14 PROXY & INDEMNIFICATION AGMT DILLARD'S & WOODBANK Exhibit 7.13 PROXY AND INDEMNIFICATION AGREEMENT PROXY AND INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of May 16, 1998, among DILLARD'S, INC., a Delaware corporation ("Parent"), and each of the stockholders of WOODBANK MILLS, INC., a Delaware corporation (the "Company"), that are signatories hereto (each, a "WMI Stockholder"). W I T N E S S E T H : WHEREAS, concurrently with the execution and delivery of this Agreement, Parent, WMI Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and the Company have entered into a merger agreement, dated as of the date hereof (the "Merger Agreement"; capitalized terms used but not defined herein shall have the meanings set forth in the Merger Agreement), pursuant to which WMI MergerSub will be merged with and into the Company (the "Merger"), and the Company shall be the surviving corporation; and WHEREAS, as a condition to their willingness to enter into the Merger Agreement and consummate the Merger, Parent and Purchaser have required that each WMI Stockholder agree, and each WMI Stockholder has agreed, among other things, (i) to grant to Parent the irrevocable proxy with respect to all of the Company's common stock, par value $1.00 per share ("Company Common Stock"), owned by such WMI Stockholder, together with any additional shares when and if they are acquired (such shares, and any additional shares when and if they are acquired, being referred to herein as such WMI Stockholder's "Shares" and collectively as the "Shares") on the terms and conditions provided for herein, and (ii) to indemnify and hold harmless Parent and Purchaser, in the manner provided herein, on account of any Losses (as defined herein) arising out of or relating to the Merger Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent and each WMI Stockholder hereby agree as follows: 1. Irrevocable Proxy. Each WMI Stockholder hereby irrevocably appoints Parent or any designee of Parent the lawful agent, attorney and proxy of such stockholder, during the term of this Agreement, to (a) vote such WMI Stockholder's Shares in favor of the Merger; (b) vote such WMI Stockholder's Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement; and (c) vote such WMI Stockholder's Shares against any action or agreement (other than the Merger Agreement or the transactions contemplated thereby) that would impede, interfere with, delay, postpone or attempt to discourage the Merger or the Offer, including, but not limited to: (i) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company; (ii) a sale or transfer of a material amount of assets of the Company or a reorganization, recapitalization or liquidation of the Company; (iii) any change in the management or board of directors of the Company, except as otherwise agreed to in writing by Purchaser; (iv) any material change in the present capitalization or dividend policy of the 2 Company; or (v) any other material change in the Company's corporate structure or business. Each WMI Stockholder intends this proxy to be irrevocable and coupled with an interest and will take such further action or execute such other instruments as may be necessary to effectuate the intent of this proxy and hereby revokes any proxy previously granted by it with respect to the Shares. Each WMI Stockholder shall not hereafter, unless and until this Agreement terminates pursuant to Section 7.6 hereof, purport to vote (or execute a consent with respect to) his Shares (other than through this irrevocable proxy) or grant any other proxy or power of attorney with respect to such Shares, deposit any such Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of such Shares. 2. Representations and Warranties. 2.1 Representations and Warranties of Parent. Parent hereby represents and warrants to the WMI Stockholders as follows: (a) Due Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Parent, and no other corporate proceedings on the part of Parent are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and constitutes a valid and binding agreement of Parent, enforceable against Parent in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) is subject to general principles of equity. (b) No Conflicts. Except for (i) filings under the HSR Act, if applicable, (ii) the applicable requirements of the Exchange Act and the Securities Act of 1933, as amended (the "Securities Act"), (iii) the applicable requirements of state securities, takeover or Blue Sky laws and (iv) such notifications, filings, authorizing actions, orders and approvals as may be required under other laws, (A) no filing with, and no permit, authorization, consent or approval of, any state, federal or foreign public body or authority is necessary for the execution of this Agreement by Parent and the consummation by Parent of the transactions contemplated hereby and (B) neither the execution and delivery of this Agreement by Parent nor the consummation by Parent of the transactions contemplated hereby nor compliance by Parent with any of the provisions hereof shall (1) conflict with or result in any breach of any provision of the certificate of incorporation or by-laws (or similar documents) of Parent, (2) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, agreement or other instrument or obligation to which Parent is a party or by which it or any of its properties or assets may be bound or (3) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Parent or any of its properties or assets, except in the case of (2) or (3) for violations, 3 breaches or defaults which would not in the aggregate materially impair the ability of Parent to perform its obligations hereunder. (c) Good Standing. Parent is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite corporate power and authority to execute and deliver this Agreement. 2.2 Representations and Warranties of each WMI Stockholder. Each WMI Stockholder hereby represents and warrants to Parent as follows: (a) Ownership of Shares. Such WMI Stockholder is the owner of his Shares and has the power to vote and dispose of such Shares. To such WMI Stockholder's knowledge, his Shares are validly issued, fully paid and nonassessable, with no personal liability attaching to the ownership thereof. Such WMI Stockholder has good title to his Shares, free and clear of any agreements, liens, adverse claims or encumbrances whatsoever with respect to the ownership of or the right to vote such Shares. (b) Power; Binding Agreement. Such WMI Stockholder has the legal capacity, power and authority to enter into and perform all of its obligations under this Agreement. The execution, delivery and performance of this Agreement by such WMI Stockholder will not violate any other agreement to which such WMI Stockholder is a party including, without limitation, any voting agreement, stockholders agreement or voting trust. This Agreement has been duly and validly authorized, executed and delivered by such WMI Stockholder and constitutes a valid and binding agreement of such WMI Stockholder, enforceable against such WMI Stockholder in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) is subject to general principles of equity. (c) No Conflicts. Except for (i) filings under the HSR Act, if applicable, (ii) the applicable requirements of the Exchange Act and the Securities Act, (iii) the applicable requirements of state securities, takeover or Blue Sky laws, (iv) such notifications, filings, authorizing actions, orders and approvals as may be required under other laws, (A) no filing with, and no permit, authorization, consent or approval of, any state, federal or foreign public body or authority is necessary for the execution of this Agreement by such WMI Stockholder and the consummation by such WMI Stockholder of the transactions contemplated hereby and (B) neither the execution and delivery of this Agreement by such WMI Stockholder nor the consummation by such WMI Stockholder of the transactions contemplated hereby nor compliance by such WMI Stockholder with any of the provisions hereof shall (1) conflict with or result in any breach of any provision of the certificate of incorporation, by-laws, trust or charitable instruments (or similar documents) of such WMI Stockholder, (2) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, agreement or other instrument or obligation to which such WMI Stockholder is 4 a party or by which such WMI Stockholder or any of his properties or assets may be bound or (3) violate any order, writ, injunction, decree, statute, rule or regulation applicable to such WMI Stockholder or any of his properties or assets, except in the case of (2) or (3) for violations, breaches or defaults which would not in the aggregate materially impair the ability of such WMI Stockholder to perform his obligations hereunder. 3. Certain Covenants of each WMI Stockholder. Each WMI Stockholder hereby covenants and agrees as follows: 3.1 No Solicitation. Such WMI Stockholder shall not, directly or indirectly, solicit, encourage, participate in or initiate any inquiries or the making of any proposal by any person or entity (other than Parent or any affiliate of Parent) which constitutes, or may reasonably be expected to lead to, (a) any sale of the Shares or (b) any acquisition or purchase of a material portion of the Company's assets or any equity interest in, or any merger, consolidation or business combination with, the Company. If any WMI Stockholder receives an inquiry or proposal with respect to the sale of Shares, then such WMI Stockholder shall promptly inform Parent of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. Each WMI Stockholder will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. 3.2 Restriction on Transfer, Proxies and Non-Interference. Each WMI Stockholder hereby agrees, while this Agreement is in effect, and except as contemplated hereby, not to (a) sell, transfer, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, pledge, encumbrance, assignment or other disposition of, any of his Shares or (b) grant any proxies, deposit any of his Shares into a voting trust or enter into a voting agreement with respect to any of his Shares or (c) take any action that would make any representation or warranty of such WMI Stockholder contained herein untrue or incorrect or have the effect of preventing or disabling such WMI Stockholder from performing his obligations under this Agreement. 4. Further Assurances. From time to time, at the other party's request and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further action as may be necessary or desirable to consummate the transactions contemplated by this Agreement. 5. Adjustments to Prevent Dilution, Etc. In the event of a stock dividend or distribution, or any change in the Company Common Stock by reason of any stock dividend, split-up, recapitalization, combination or the exchange of shares, the term "Shares" shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares into which or for which any or all of the Shares may be changed or exchanged. 6. Indemnification. 6.1 General Indemnification. Each WMI Stockholder (collectively, the "Indemnifying Party"), jointly and severally, indemnifies, defends and holds Parent, Purchaser 5 and Surviving Corporation and their respective directors, officers, employees and affiliates (collectively, the "Indemnified Party") harmless from any and all liabilities, damages, expenses, losses or other claims (including, without limitation, reasonable attorneys' fees and expenses) ("Losses"), directly or indirectly, suffered or paid that arise out of or relate to (i) the failure of any representation or warranty made by (A) the Company under the Merger Agreement or (B) any WMI Stockholder hereunder, in each case to be true and correct in all respects as of the date of this Agreement and as of the Closing Date, (ii) any breach by (A) the Company of any of its covenants or agreements contained in the Merger Agreement and (B) any WMI Stockholder of any of its covenants or agreements contained herein, and (iii) the Company's business, operations or conduct at any time on or prior to the Closing Date, including, without limitation, any and all Taxes imposed on the Company in respect of periods on or prior to the Closing Date; provided that, the aggregate amount of the Holdback Amount (as defined in Section 1.6 of the Merger Agreement) shall be applied to the payment of any Losses prior to any recourse to any Indemnifying Party's indemnity hereunder. 6.2 Indemnification Procedures. If any indemnifiable claim is asserted by any third party against or sought to be collected from any Indemnified Party, such Indemnified Party shall promptly notify the Indemnifying Party of such claim and the amount or the estimated amount thereof to the extent then feasible (which estimate shall not be conclusive of the final amount of such claim); provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure. The Indemnifying Party shall have 20 days after receipt of such notice to assume the conduct and control, through counsel reasonably acceptable to the Indemnified Party and at the expense of the Indemnifying Party, of the settlement or defense thereof; provided that the Indemnifying Party shall permit the Indemnified Party to participate in such settlement or defense through counsel chosen by the Indemnified Party so long as the fees and expenses of such counsel are borne by the Indemnified Party. So long as the Indemnifying Party is reasonably contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim; provided that the Indemnified Party may pay or settle any such claim if the Indemnified Party waives its right to indemnification hereunder in respect of such claim. If the Indemnifying Party does not notify the Indemnified Party within 20 days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, pay or settle the claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement. The Indemnifying Party shall not, except with the consent of the Indemnified Party, enter into any settlement that does not include as an unconditional term thereof the unconditional release of the Indemnified Party from all liability with respect to the related claim. The obligations to indemnify and hold harmless pursuant to this Section 6 shall survive the consummation of the transactions contemplated hereby. 7. Miscellaneous. 7.1 Entire Agreement; Assignment. This Agreement, together with the Merger Agreement, (i) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and (ii) shall not be assigned by 6 operation of law or otherwise, provided that Parent may assign its rights and obligations hereunder to any direct or indirect wholly owned parent company or subsidiary of Parent, but no such assignment shall relieve Parent of its obligations hereunder if such assignee does not perform such obligations. 7.2 Amendments. This Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. 7.3 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if so given) by hand delivery, telegram, telex or telecopy, or by mail (registered or certified mail, postage prepaid, return receipt requested) or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at (i) in the case of any WMI Stockholder, c/o Ivins Phillips & Barker, 1700 Pennsylvania Avenue, Washington, D.C. 20006, and (ii) in the case of Parent, the following address: if to Parent: Dillard's, Inc. 1600 Cantrell Road Little Rock, Arkansas 72201 Attention: James I. Freeman with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Alan G. Schwartz, Esq. or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. 7.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 7.5 Cooperation as to Regulatory Matters. If so requested by Parent, promptly after the date hereof, each WMI Stockholder will use its reasonable best efforts to cause it and the Company (if required) to make all filings which are required under the HSR Act and applicable requirements and to seek all regulatory approvals required in connection with the transactions contemplated hereby. The parties shall furnish to each other such necessary information and reasonable assistance as may be requested in connection with the preparation of filings and submissions to any governmental agency, including, without limitation, filings under the provisions of the HSR Act. Each WMI Stockholder shall also use its reasonable best efforts 7 to cause the Company to supply Parent with copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof) between the Company and its representatives and the Federal Trade Commission, the Department of Justice and any other governmental agency or authority and members of their respective staffs with respect to this Agreement and the transactions contemplated hereby. 7.6 Termination. Except for the provisions of Section 6 which shall remain in effect indefinitely, this Agreement shall terminate on the earlier of (i) the Effective Time or (ii) the termination of the Merger Agreement in accordance with its terms. 7.7 Specific Performance. Each of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore, each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. 7.8 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same Agreement. 7.9 Descriptive Headings. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 7.10 Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. 8 IN WITNESS WHEREOF, Parent and each WMI Stockholder have caused this Agreement to be duly executed as of the day and year first above written. DILLARD'S, INC. By: /s/ James I. Freeman ---------------------------------- Name: James I. Freeman Title: Chief Financial Officer WMI STOCKHOLDERS (listed on next page) /s/ Roger Milliken - ---------------------------------- Roger Milliken Wilmington Trust Company By: /s/ Carol M. Drummond ------------------------------ Name: Carol M. Drummond Title: Assistant Vice President as the trustees of trusts holding 6,440 shares of the common stock, par value $1.00 per share, of Woodbank Mills, Inc. /s/ Roger Milliken - ---------------------------------- Roger Milliken /s/ Gerrish H. Milliken, Jr. - ---------------------------------- Gerrish H. Milliken, Jr. as a majority of the trustees of trusts holding 26,300 shares of the common stock, par value $1.00 per share, of Woodbank Mills, Inc. /s/ Roger Milliken - ---------------------------------- Roger Milliken /s/ Minot K. Milliken - ---------------------------------- Minot K. Milliken as a majority of the trustees of trusts holding 47,400 shares of the common stock, par value $1.00 per share, of Woodbank Mills, Inc. /s/ Justine VR. Milliken - ---------------------------------- Justine VR. Milliken /s/ Minot K. Milliken - ---------------------------------- Minot K. Milliken as a majority of the trustees of trusts holding 51,000 shares of the common stock, par value $1.00 per share, of Woodbank Mills, Inc. /s/ Roger Milliken - ---------------------------------- Roger Milliken /s/ Gerrish H. Milliken - ---------------------------------- Gerrish H. Milliken, Jr. /s/ Minot K. Milliken - ---------------------------------- Minot K. Milliken as a majority of the trustees of trusts holding 16,300 shares of the common stock, par value $1.00 per share, of Woodbank Mills, Inc. EX-7.14 15 PROXY & INDEMNIFICATION AGMT DILLARD'S & MIN0T Exhibit 7.14 PROXY AND INDEMNIFICATION AGREEMENT PROXY AND INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of May 16, 1998, among DILLARD'S, INC., a Delaware corporation ("Parent"), and each of the stockholders of MINOT MERCANTILE CORPORATION, a Delaware corporation (the "Company"), that are signatories hereto (each, a "MMC Stockholder"). W I T N E S S E T H : - - - - - - - - - - - WHEREAS, concurrently with the execution and delivery of this Agreement, Parent, MMC Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and the Company have entered into a merger agreement, dated as of the date hereof (the "Merger Agreement"; capitalized terms used but not defined herein shall have the meanings set forth in the Merger Agreement), pursuant to which MMC MergerSub will be merged with and into the Company (the "Merger"), and the Company shall be the surviving corporation; and WHEREAS, as a condition to their willingness to enter into the Merger Agreement and consummate the Merger, Parent and Purchaser have required that each MMC Stockholder agree, and each MMC Stockholder has agreed, among other things, (i) to grant to Parent the irrevocable proxy with respect to all of the Company's common stock, par value $5.00 per share ("Company Common Stock"), owned by such MMC Stockholder, together with any additional shares when and if they are acquired (such shares, and any additional shares when and if they are acquired, being referred to herein as such MMC Stockholder's "Shares" and collectively as the "Shares") on the terms and conditions provided for herein, and (ii) to indemnify and hold harmless Parent and Purchaser, in the manner provided herein, on account of any Losses (as defined herein) arising out of or relating to the Merger Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent and each MMC Stockholder hereby agree as follows: 1. Irrevocable Proxy. Each MMC Stockholder hereby irrevocably appoints Parent or any designee of Parent the lawful agent, attorney and proxy of such stockholder, during the term of this Agreement, to (a) vote such MMC Stockholder's Shares in favor of the Merger and, if applicable, in favor of Parent's exercise of its option under the Company's Stockholder's Agreement; (b) vote such MMC Stockholder's Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement; and (c) vote such MMC Stockholder's Shares against any action or agreement (other than the Merger Agreement or the transactions contemplated thereby) that would impede, interfere with, delay, postpone or attempt to discourage the Merger or the Offer, including, but not limited to: (i) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company; (ii) a sale or transfer of a material amount of assets of the Company or a reorganization, recapitalization or liquidation of the Company; (iii) any change in the management or board of directors of the Company, except as otherwise agreed to in writing by 2 Purchaser; (iv) any material change in the present capitalization or dividend policy of the Company; or (v) any other material change in the Company's corporate structure or business. Each MMC Stockholder intends this proxy to be irrevocable and coupled with an interest and will take such further action or execute such other instruments as may be necessary to effectuate the intent of this proxy and hereby revokes any proxy previously granted by it with respect to the Shares. Each MMC Stockholder shall not hereafter, unless and until this Agreement terminates pursuant to Section 7.6 hereof, purport to vote (or execute a consent with respect to) his Shares (other than through this irrevocable proxy) or grant any other proxy or power of attorney with respect to such Shares, deposit any such Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of such Shares. 2. Representations and Warranties. 2.1 Representations and Warranties of Parent. Parent hereby represents and warrants to the MMC Stockholders as follows: (a) Due Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Parent, and no other corporate proceedings on the part of Parent are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and constitutes a valid and binding agreement of Parent, enforceable against Parent in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) is subject to general principles of equity. (b) No Conflicts. Except for (i) filings under the HSR Act, if applicable, (ii) the applicable requirements of the Exchange Act and the Securities Act of 1933, as amended (the "Securities Act"), (iii) the applicable requirements of state securities, takeover or Blue Sky laws and (iv) such notifications, filings, authorizing actions, orders and approvals as may be required under other laws, (A) no filing with, and no permit, authorization, consent or approval of, any state, federal or foreign public body or authority is necessary for the execution of this Agreement by Parent and the consummation by Parent of the transactions contemplated hereby and (B) neither the execution and delivery of this Agreement by Parent nor the consummation by Parent of the transactions contemplated hereby nor compliance by Parent with any of the provisions hereof shall (1) conflict with or result in any breach of any provision of the certificate of incorporation or by-laws (or similar documents) of Parent, (2) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, agreement or other instrument or obligation to which Parent is a party or by which it or any of its properties or assets may be bound or 3 (3) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Parent or any of its properties or assets, except in the case of (2) or (3) for violations, breaches or defaults which would not in the aggregate materially impair the ability of Parent to perform its obligations hereunder. (c) Good Standing. Parent is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite corporate power and authority to execute and deliver this Agreement. 2.2 Representations and Warranties of each MMC Stockholder. Each MMC Stockholder hereby represents and warrants to Parent as follows: (a) Ownership of Shares. Such MMC Stockholder is the owner of his Shares and has the power to vote and dispose of such Shares. To such MMC Stockholder's knowledge, his Shares are validly issued, fully paid and nonassessable, with no personal liability attaching to the ownership thereof. Such MMC Stockholder has good title to his Shares, free and clear of any agreements, liens, adverse claims or encumbrances whatsoever with respect to the ownership of or the right to vote such Shares. (b) Power; Binding Agreement. Such MMC Stockholder has the legal capacity, power and authority to enter into and perform all of its obligations under this Agreement. The execution, delivery and performance of this Agreement by such MMC Stockholder will not violate any other agreement to which such MMC Stockholder is a party including, without limitation, any voting agreement, stockholders agreement or voting trust. This Agreement has been duly and validly authorized, executed and delivered by such MMC Stockholder and constitutes a valid and binding agreement of such MMC Stockholder, enforceable against such MMC Stockholder in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) is subject to general principles of equity. (c) No Conflicts. Except for (i) filings under the HSR Act, if applicable, (ii) the applicable requirements of the Exchange Act and the Securities Act, (iii) the applicable requirements of state securities, takeover or Blue Sky laws, (iv) such notifications, filings, authorizing actions, orders and approvals as may be required under other laws, (A) no filing with, and no permit, authorization, consent or approval of, any state, federal or foreign public body or authority is necessary for the execution of this Agreement by such MMC Stockholder and the consummation by such MMC Stockholder of the transactions contemplated hereby and (B) neither the execution and delivery of this Agreement by such MMC Stockholder nor the consummation by such MMC Stockholder of the transactions contemplated hereby nor compliance by such MMC Stockholder with any of the provisions hereof shall (1) conflict with or result in any breach of any provision of the certificate of incorporation, by-laws, trust or charitable instruments (or similar documents) of such MMC Stockholder, (2) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under 4 any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, agreement or other instrument or obligation to which such MMC Stockholder is a party or by which such MMC Stockholder or any of his properties or assets may be bound or (3) violate any order, writ, injunction, decree, statute, rule or regulation applicable to such MMC Stockholder or any of his properties or assets, except in the case of (2) or (3) for violations, breaches or defaults which would not in the aggregate materially impair the ability of such MMC Stockholder to perform his obligations hereunder. 3. Certain Covenants of each MMC Stockholder. Each MMC Stockholder hereby covenants and agrees as follows: 3.1 No Solicitation. Such MMC Stockholder shall not, directly or indirectly, solicit, encourage, participate in or initiate any inquiries or the making of any proposal by any person or entity (other than Parent or any affiliate of Parent) which constitutes, or may reasonably be expected to lead to, (a) any sale of the Shares or (b) any acquisition or purchase of a material portion of the Company's assets or any equity interest in, or any merger, consolidation or business combination with, the Company. If any MMC Stockholder receives an inquiry or proposal with respect to the sale of Shares, then such MMC Stockholder shall promptly inform Parent of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. Each MMC Stockholder will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. 3.2 Restriction on Transfer, Proxies and Non-Interference. Each MMC Stockholder hereby agrees, while this Agreement is in effect, and except as contemplated hereby, not to (a) sell, transfer, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, pledge, encumbrance, assignment or other disposition of, any of his Shares or (b) grant any proxies, deposit any of his Shares into a voting trust or enter into a voting agreement with respect to any of his Shares or (c) take any action that would make any representation or warranty of such MMC Stockholder contained herein untrue or incorrect or have the effect of preventing or disabling such MMC Stockholder from performing his obligations under this Agreement. 4. Further Assurances. From time to time, at the other party's request and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further action as may be necessary or desirable to consummate the transactions contemplated by this Agreement. 5. Adjustments to Prevent Dilution, Etc. In the event of a stock dividend or distribution, or any change in the Company Common Stock by reason of any stock dividend, split-up, recapitalization, combination or the exchange of shares, the term "Shares" shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares into which or for which any or all of the Shares may be changed or exchanged. 6. Indemnification. 5 6.1 General Indemnification. Each MMC Stockholder (collectively, the "Indemnifying Party"), jointly and severally, indemnifies, defends and holds Parent, Purchaser and Surviving Corporation and their respective directors, officers, employees and affiliates (collectively, the "Indemnified Party") harmless from any and all liabilities, damages, expenses, losses or other claims (including, without limitation, reasonable attorneys' fees and expenses) ("Losses"), directly or indirectly, suffered or paid that arise out of or relate to (i) the failure of any representation or warranty made by (A) the Company under the Merger Agreement or (B) any MMC Stockholder hereunder, in each case to be true and correct in all respects as of the date of this Agreement and as of the Closing Date, (ii) any breach by (A) the Company of any of its covenants or agreements contained in the Merger Agreement and (B) any MMC Stockholder of any of its covenants or agreements contained herein, and (iii) the Company's business, operations or conduct at any time on or prior to the Closing Date, including, without limitation, any and all Taxes imposed on the Company in respect of periods on or prior to the Closing Date; provided that, the aggregate amount of the Holdback Amount (as defined in Section 1.6 of the Merger Agreement) shall be applied to the payment of any Losses prior to any recourse to any Indemnifying Party's indemnity hereunder. 6.2 Indemnification Procedures. If any indemnifiable claim is asserted by any third party against or sought to be collected from any Indemnified Party, such Indemnified Party shall promptly notify the Indemnifying Party of such claim and the amount or the estimated amount thereof to the extent then feasible (which estimate shall not be conclusive of the final amount of such claim); provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure. The Indemnifying Party shall have 20 days after receipt of such notice to assume the conduct and control, through counsel reasonably acceptable to the Indemnified Party and at the expense of the Indemnifying Party, of the settlement or defense thereof; provided that the Indemnifying Party shall permit the Indemnified Party to participate in such settlement or defense through counsel chosen by the Indemnified Party so long as the fees and expenses of such counsel are borne by the Indemnified Party. So long as the Indemnifying Party is reasonably contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim; provided that the Indemnified Party may pay or settle any such claim if the Indemnified Party waives its right to indemnification hereunder in respect of such claim. If the Indemnifying Party does not notify the Indemnified Party within 20 days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, pay or settle the claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement. The Indemnifying Party shall not, except with the consent of the Indemnified Party, enter into any settlement that does not include as an unconditional term thereof the unconditional release of the Indemnified Party from all liability with respect to the related claim. The obligations to indemnify and hold harmless pursuant to this Section 6 shall survive the consummation of the transactions contemplated hereby. 6 7. Miscellaneous. 7.1 Entire Agreement; Assignment. This Agreement, together with the Merger Agreement, (i) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and (ii) shall not be assigned by operation of law or otherwise, provided that Parent may assign its rights and obligations hereunder to any direct or indirect wholly owned parent company or subsidiary of Parent, but no such assignment shall relieve Parent of its obligations hereunder if such assignee does not perform such obligations. 7.2 Amendments. This Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. 7.3 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if so given) by hand delivery, telegram, telex or telecopy, or by mail (registered or certified mail, postage prepaid, return receipt requested) or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at (i) in the case of any MMC Stockholder, c/o Ivins Phillips & Barker, 1700 Pennsylvania Avenue, Washington, D.C. 20006, and (ii) in the case of Parent, the following address: if to Parent: Dillard's, Inc. 1600 Cantrell Road Little Rock, Arkansas 72201 Attention: James I. Freeman with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Alan G. Schwartz, Esq. or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. 7.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 7 7.5 Cooperation as to Regulatory Matters. If so requested by Parent, promptly after the date hereof, each MMC Stockholder will use its reasonable best efforts to cause it and the Company (if required) to make all filings which are required under the HSR Act and applicable requirements and to seek all regulatory approvals required in connection with the transactions contemplated hereby. The parties shall furnish to each other such necessary information and reasonable assistance as may be requested in connection with the preparation of filings and submissions to any governmental agency, including, without limitation, filings under the provisions of the HSR Act. Each MMC Stockholder shall also use its reasonable best efforts to cause the Company to supply Parent with copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof) between the Company and its representatives and the Federal Trade Commission, the Department of Justice and any other governmental agency or authority and members of their respective staffs with respect to this Agreement and the transactions contemplated hereby. 7.6 Termination. Except for the provisions of Section 6 which shall remain in effect indefinitely, this Agreement shall terminate on the earlier of (i) the Effective Time or (ii) the termination of the Merger Agreement in accordance with its terms. 7.7 Specific Performance. Each of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore, each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. 7.8 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same Agreement. 7.9 Descriptive Headings. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 7.10 Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. 8 IN WITNESS WHEREOF, Parent and each MMC Stockholder have caused this Agreement to be duly executed as of the day and year first above written. DILLARD'S, INC. By: /s/ James I. Freeman --------------------------------------- Name: James I. Freeman Title: Chief Financial Officer MMC STOCKHOLDERS (listed on next page) Woodbank Mills, Inc. By: /s/ Roger Milliken ------------------ Name: Roger Milliken Title: Chairman as the holder of 139,000 shares of the common stock, par value $5.00 per share, of Minot Mercantile Corporation /s/ Roger Milliken ------------------ Roger Milliken /s/ Gerrish H. Milliken, Jr. ------------------------ Gerrish H. Milliken, Jr. /s/ Minot K. Milliken ----------------- Minot K. Milliken as a majority of the trustees of trusts holding 32,646 shares of the common stock, par value $5.00 per share, of Minot Mercantile Corporation /s/ Roger Milliken ------------------ Roger Milliken /s/ Gerrish H. Milliken, Jr. ------------------------ Gerrish H. Milliken, Jr. as a majority of the trustees of trusts holding 43,680 shares of the common stock, par value $5.00 per share, of Minot Mercantile Corporation /s/ Roger Milliken ------------------ Roger Milliken /s/ Minot K. Milliken ----------------- Minot K. Milliken as a majority of the trustees of trusts holding 5,660 shares of the common stock, par value $5.00 per share, of Minot Mercantile Corporation EX-7.15 16 STOCKHOLDERS AGREEMENT Exhibit 7.15 STOCKHOLDERS' AGREEMENT STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of May 16, 1998, by and between Dillard's, Inc., a company organized under the laws of Delaware ("Purchaser"), and each of the parties listed on the signature page hereto (individually a "Seller" and collectively, the "Sellers"). RECITALS Concurrently herewith, Purchaser, MSC Acquisitions, Inc., a Delaware corporation and a wholly-owned subsidiary of Purchaser, and Mercantile Stores Company (the "Company"), a Delaware corporation, are entering into an Agreement and Plan of Merger of even date herewith attached hereto (the "Merger Agreement"; capitalized terms used but not defined herein shall have the meanings set forth in the Merger Agreement), pursuant to which Sub agrees to make a tender offer (the "Offer") for all outstanding shares of common stock, $.14 2/3 par value per share (the "Common Stock"), of the Company, at $80 per share (the "Offer Price"), net to the seller in cash, to be followed by a merger (the "Merger") of Sub with and into the Company. As a condition to their willingness to enter into the Merger Agreement and make the Offer, Purchaser and Sub have required that each of the Sellers agree, and each Seller has agreed, among other things, to grant to Purchaser the Option and irrevocable proxy with respect to the number of shares of Common Stock of such Seller set forth opposite such Seller's name on the signature page hereto, together with any additional shares when and if they are acquired (such shares, and any additional shares when and if they are acquired, being referred to herein as the "Shares") on the terms and conditions provided for herein. The Board of Directors of the Company has approved the Purchaser becoming an "interested shareholder" for purposes of Section 203 of the Delaware General Corporation Law and for all purposed under Article Eighth of the Company's Certificate of Incorporation. AGREEMENT To implement the foregoing and in consideration of the mutual agreements contained herein, the parties agree as follows: 1. Option to Purchase Shares. 1.1 Grant of Option. Each Seller hereby grants to Purchaser an irrevocable option (the "Option") to purchase all of the Shares set forth below such Seller's name on the signature page hereto at a purchase price of $80 per share (the "Exercise 2 Price") in cash (subject to adjustment pursuant to Section 7 below) for each Share purchased. 1.2 Exercise of Option. (a) Subject to applicable law (including Rule 10b- 13 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), the Option may be exercised by Purchaser, in whole or in part, at any time, or from time to time, commencing upon the Exercise Date and prior to the Expiration Date (as hereinafter defined). As used herein, the term "Exercise Date" means the first to occur of any of the following dates: (i) Seller fails to perform any agreement or covenant of Seller contained herein in any material respect; or (ii) the Merger Agreement is terminated and Purchaser is entitled to the payment of a termination fee pursuant to any of the provisions set forth in Section 8.3(a)(ii) of the Merger Agreement. As used herein, the term "Expiration Date" means the first to occur of any of the following dates: (1) the Effective Time (as defined in the Merger Agreement); (2) 12 months after the date of the termination of the Merger Agreement; or (3) written notice of termination of this Agreement by Purchaser to the Seller. (b) In the event Purchaser wishes to exercise the Option, Purchaser shall send a written notice to Seller of its intention to so exercise the Option (a "Notice"), specifying the place, time and date of the closing of such purchase (the "Closing"), which date shall not be less than two business days nor more than five business days from the date on which a Notice is delivered; provided, that the Closing shall be held only if such purchase would not otherwise then violate or cause the violation of, any applicable law or regulations (including, without limitation, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")) or any decree, order or injunction of any governmental agency, authority or court, whether temporary, preliminary or permanent. If the Closing shall be violative of any such laws or rules or any such decree, order or injunction, then such Notice shall be deemed rescinded and of no effect and Purchaser shall send a new Notice at such time as the Closing is not violative of such laws, rules, decrees, orders or injunctions. Notwithstanding the occurrence of such rescission, this Agreement shall remain in full force and effect. 3 (c) At the Closing, Seller shall deliver to Purchaser all of the Shares to be purchased by delivery of a certificate or certificates evidencing such Shares so purchased by Purchaser duly endorsed or with executed blank stock power attached, in either event with signature guaranteed such that registered ownership of the Shares may be registered for transfer on the books of the Company and Purchaser will make payment to Seller of the aggregate Exercise Price for the Shares being purchased upon exercise of the Option in immediately available funds in the amount equal to the Exercise Price multiplied by the number of Shares purchased pursuant to this Section 1. (d) Notwithstanding any of the foregoing, with respect to the Shares held by Minot Mercantile Corporation and Woodbank Mills, Inc. (collectively, the "C Corps"), Purchaser shall form an acquisition subsidiary to acquire such Shares in the form of a merger pursuant to a form of merger agreement reasonably acceptable to the parties, and each party will use its best efforts to consummate the acquisition of such Shares pursuant to the Option by merger. 2. Agreement to Tender. Each Seller hereby agrees to validly tender pursuant to the Offer and not withdraw all Shares; provided, however, the C Corps shall not be obligated to tender the Shares held by each of them because such Shares will be acquired by Merger as contemplated by the Merger Agreement. 3. Irrevocable Proxy. Each Seller hereby irrevocably appoints Purchaser or any designee of Purchaser the lawful agent, attorney and proxy of such shareholder, during the term of this Agreement, to (a) vote the Shares in favor adoption of the Merger Agreement; (b) vote the Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement; and (c) vote the Shares against any action or agreement (other than the Merger Agreement or the transactions contemplated thereby) that would impede, interfere with, delay, postpone or attempt to discourage the Merger or the Offer, including, but not limited to: (i) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company and its subsidiaries; (ii) a sale or transfer of a material amount of assets of the Company and its subsidiaries or a reorganization, recapitalization or liquidation of the Company and its subsidiaries; (iii) any change in the management or board of directors of the Company, except as otherwise agreed to in writing by Purchaser; (iv) any material change in the present capitalization or dividend policy of the Company; or (v) any other material change in the Company's corporate structure or business. Each Seller intends this proxy to be irrevocable and coupled with an interest and will take such further action or execute such other instruments as may be necessary to effectuate the intent of this proxy and hereby revokes any proxy previously 4 granted by it with respect to the Shares. Each Seller shall not hereafter, unless and until this Agreement terminates pursuant to Section 8.6 hereof, purport to vote (or execute a consent with respect to) such Shares (other than through this irrevocable proxy) or grant any other proxy or power of attorney with respect to any Shares, deposit any Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of such Shares. Notwithstanding anything herein to the contrary, the Sellers may transfer as charitable gifts up to an aggregate of 300,000 Shares. 4. Representations and Warranties. 4.1 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to each Seller as follows: (a) Due Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Purchaser, and no other corporate proceedings on the part of Purchaser are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Purchaser and constitutes a valid and binding agreement of Purchaser, enforceable against Purchaser in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) is subject to general principles of equity. (b) No Conflicts. Except for (i) filings under the HSR Act, if applicable, (ii) the applicable requirements of the Exchange Act and the Securities Act of 1933, as amended (the "Securities Act"), (iii) the applicable requirements of state securities, takeover or Blue Sky laws and (iv) such notifications, filings, authorizing actions, orders and approvals as may be required under other laws, (A) no filing with, and no permit, authorization, consent or approval of, any state, federal or foreign public body or authority is necessary for the execution of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby and (B) neither the execution and delivery of this Agreement by Purchaser nor the consummation by Purchaser of the transactions contemplated hereby nor compliance by Purchaser with any of the provisions hereof shall (1) conflict with or result in any breach of any provision of the certificate of incorporation or by-laws (or similar documents) of 5 Purchaser, (2) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, agreement or other instrument or obligation to which Purchaser is a party or by which it or any of its properties or assets may be bound or (3) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Purchaser or any of its properties or assets, except in the case of (2) or (3) for violations, breaches or defaults which would not in the aggregate materially impair the ability of Purchaser to perform its obligations hereunder. (c) Good Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite corporate power and authority to execute and deliver this Agreement. 4.2 Representations and Warranties of Sellers. Each Seller hereby severally and not jointly represents and warrants to Purchaser as follows: (a) Ownership of Shares. Subject to Section 5.3, such Seller is the owner of the Shares set forth below its name and has the power to vote and dispose of such Shares. To Seller's knowledge, such Shares are validly issued, fully paid and nonassessable, with no personal liability attaching to the ownership thereof. Such Seller has good title to the Shares, free and clear of any agreements, liens, adverse claims or encumbrances whatsoever with respect to the ownership of or the right to vote such Shares. (b) Power; Binding Agreement. Such Seller has the legal capacity, power and authority to enter into and perform all of its obligations under this Agreement, except for the approval of the holders of a majority of the stockholders of Minot Mercantile Corporation is required with respect to their obligations under Section 1. The execution, delivery and performance of this Agreement by such Seller will not violate any other agreement to which such Seller is a party including, without limitation, any voting agreement, stockholders agreement or voting trust. This Agreement has been duly and validly authorized, executed and delivered by such Seller and constitutes a valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or 6 relating to enforcement of creditors' rights generally and (ii) is subject to general principles of equity. (c) No Conflicts. Except for (i) filings under the HSR Act, if applicable, (ii) the applicable requirements of the Exchange Act and the Securities Act, (iii) the applicable requirements of state securities, takeover or Blue Sky laws, (iv) such notifications, filings, authorizing actions, orders and approvals as may be required under other laws, (A) no filing with, and no permit, authorization, consent or approval of, any state, federal or foreign public body or authority is necessary for the execution of this Agreement by such Seller and the consummation by such Seller of the transactions contemplated hereby and (B) neither the execution and delivery of this Agreement by such Seller nor the consummation by such Seller of the transactions contemplated hereby nor compliance by such Seller with any of the provisions hereof shall (1) conflict with or result in any breach of any provision of the certificate of incorporation, by-laws, trust or charitable instruments (or similar documents) of such Seller, (2) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, agreement or other instrument or obligation to which such Seller is a party or by which he or any of his properties or assets may be bound or (3) violate any order, writ, injunction, decree, statute, rule or regulation applicable to such Seller or any of his properties or assets, except in the case of (2) or (3) for violations, breaches or defaults which would not in the aggregate materially impair the ability of such Seller to perform his obligations hereunder. 5. Certain Covenants of Sellers. Each Seller hereby covenants and agrees as follows: 5.1 No Solicitation. Such Seller shall not, directly or indirectly, solicit, encourage, participate in or initiate any inquiries or the making of any proposal by any person or entity (other than Purchaser or any affiliate of Purchaser) which constitutes, or may reasonably be expected to lead to, (a) any sale of the Shares or (b) any acquisition or purchase of a material portion of the Company's assets or any equity interest in, or any merger, consolidation or business combination with, the Company or any of its subsidiaries. If such Seller receives an inquiry or proposal with respect to the sale of Shares, then such Seller shall promptly inform Purchaser of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. Each Seller will immediately cease and cause to be terminated any existing activities, discussions or 7 negotiations with any parties conducted heretofore with respect to any of the foregoing. 5.2 Restriction on Transfer, Proxies and NonInterference. Each Seller hereby agrees, while this Agreement is in effect, and except as contemplated hereby, not to (a) sell, transfer, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, pledge, encumbrance, assignment or other disposition of, any of the Shares or (b) grant any proxies, deposit any Shares into a voting trust or enter into a voting agreement with respect to any Shares or (c) take any action that would make any representation or warranty of such Seller contained herein untrue or incorrect or have the effect of preventing or disabling such Seller from performing his obligations under this Agreement. 5.3 Legending of Certificates; Nominees Shares. If requested by Purchaser, each Seller agrees to submit to Purchaser contemporaneously with or promptly following execution of this Agreement all certificates representing the Shares so that Purchaser may note thereon a legend referring to the option, proxy and other rights granted to it by this Agreement. If any of the Shares beneficially owned by such Seller are held of record by a brokerage firm in "street name" or in the name of any other nominee (a "Nominee," and, as to such Shares, "Nominee Shares"), each Seller agrees that, upon written notice by Purchaser requesting it, such Seller will within five days of the giving of such notice execute and deliver to Purchaser a limited power of attorney in such form as shall be reasonably satisfactory to Purchaser enabling Purchaser to require the Nominee to (i) grant to Purchaser an option and irrevocable proxy to the same effect as Sections 1 and 3 hereof with respect to the Nominee Shares held by such Nominee, (ii) tender such Nominee Shares in the Offer pursuant to Section 2 hereof and (iii) submit to Purchaser the certificates representing such Nominee Shares for notation of the above-referenced legend thereon. 5.4 Stop Transfer Order. In furtherance of this Agreement, concurrently herewith, each Seller shall and hereby does authorize the Company's counsel to notify the Company's transfer agent that there is a stop transfer order with respect to all of the Shares (and that this Agreement places limits on the voting and transfer of such shares). 6. Further Assurances. From time to time, at the other party's request and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further action as may be necessary or desirable to consummate the transactions contemplated by this Agreement, including, without limitation, to vest in Purchaser good title to any Shares purchased hereunder. 8 7. Adjustments to Prevent Dilution, Etc. In the event of a stock dividend or distribution, or any change in the Company's Common Stock by reason of any stock dividend, split-up, reclassification, recapitalization, combination or the exchange of shares, the term "Shares" shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares into which or for which any or all of the Shares may be changed or exchanged. In such event, the amount to be paid per share by Purchaser shall be proportionately adjusted. 8. Miscellaneous. 8.1 Entire Agreement; Assignment. This Agreement (i) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and (ii) shall not be assigned by operation of law or otherwise, provided that Purchaser may assign its rights and obligations hereunder to any direct or indirect wholly owned parent company or subsidiary of Purchaser, but no such assignment shall relieve Purchaser of its obligations hereunder if such assignee does not perform such obligations. 8.2 Amendments. This Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. 8.3 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if so given) by hand delivery, telegram, telex or telecopy, or by mail (registered or certified mail, postage prepaid, return receipt requested) or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: If to the Sellers: c/o Ivins Phillips & Barker 1700 Pennsylvania Avenue Washington, D.C. 20006 If to Purchaser: Dillard's, Inc. 1600 Cantrell Road Little Rock, Arkansas 72201 Attention: James Freeman copy to: Simpson Thacher & Bartlett 9 425 Lexington Avenue New York, New York 10017 Attention: Alan G. Schwartz, Esq. or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. 8.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 8.5 Cooperation as to Regulatory Matters. If so requested by Purchaser, promptly after the date hereof, the Seller will use its reasonable best efforts to cause it and the Company (if required) to make all filings which are required under the HSR Act and applicable requirements and to seek all regulatory approvals required in connection with the transactions contemplated hereby. The parties shall furnish to each other such necessary information and reasonable assistance as may be requested in connection with the preparation of filings and submissions to any governmental agency, including, without limitation, filings under the provisions of the HSR Act. The Seller shall also use its reasonable best efforts to cause the Company to supply Purchaser with copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof) between the Company and its representatives and the Federal Trade Commission, the Department of Justice and any other governmental agency or authority and members of their respective staffs with respect to this Agreement and the transactions contemplated hereby. 8.6 Termination. Except for the provisions of Sections 1 and 5.2 which shall expire on the Expiration Date, this Agreement shall terminate on the earlier of (i) the Effective Time or (ii) the termination of the Merger Agreement in accordance with its terms. 8.7 Specific Performance. Each of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore, each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. 8.8 Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed to be an 10 original, but both of which shall constitute one and the same Agreement. 8.9 Descriptive Headings. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 8.10 Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. 11 IN WITNESS WHEREOF, the Sellers and Purchaser have caused this Agreement to be duly executed as of the day and year first above written. DILLARD'S, INC. By: /s/ James I. Freeman ------------------------------- Name: James I. Freeman Title: Senior Vice President and Chief Financial Officer [The Sellers listed on the attached signature pages] /s/ Roger Milliken - ------------------------------- Roger Milliken Wilmington Trust Company By: /s/ Carol M. Drummond ------------------------------- Name: Carol M. Drummond Title: Assistant Vice President as the trustees of trusts holding 2,120,485 shares of the common stock, par value $.14 2/3 per share, of Mercantile Stores Company, Inc. Wilmington Trust Company By: /s/ Carol M. Drummond ------------------------------- Name: Carol M. Drummond Title: Assistant Vice President as the trustee of trusts holding 1,654,311 shares of the common stock, par value $.14 2/3 per share, of Mercantile Stores Company, Inc. /s/ Justine VR. Milliken - ------------------------------- Justine VR. Milliken /s/ Minot K. Milliken - ------------------------------- Minot K. Milliken as a majority of the trustees of trusts holding 27,645 shares of the common stock, par value of $.14 2/3 per share, of Mercantile Stores Company, Inc. /s/ Justine VR. Milliken - ------------------------------- Justine VR. Milliken /s/ Gerrish H. Milliken, Jr. - ------------------------------- Gerrish H. Milliken, Jr. /s/ Minot K. Milliken - ------------------------------- Minot K. Milliken as a majority of the trustees of trusts holding 25,065 shares of the common stock, par value $.14 2/3 per share, of Mercantile Stores Company, Inc. Woodbank Mills, Inc. By: /s/ Roger Milliken ------------------------------- Name: Roger Milliken Title: Chairman as the holder of 27,413 shares of the common stock, par value $.14 2/3 per share, of Mercantile Stores Company, Inc. Minot Mercantile Corporation By: /s/ Roger Milliken ------------------------------- Name: Roger Milliken Title: Chairman as the holder of 10,484,875 shares of the common stock, par value $.14 2/3 per share, of Mercantile Stores Company, Inc. /s/ Roger Milliken - ------------------------------- Roger Milliken /s/ Gerrish H. Milliken, Jr. - ------------------------------- Gerrish H. Milliken, Jr. as a majority of the trustees of trusts holding 56,848 shares of the common stock, par value $.14 2/3 per share, of Mercantile Stores Company, Inc. /s/ Roger Milliken - ------------------------------- Roger Milliken /s/ Gerrish H. Milliken, Jr. - ------------------------------- Gerrish H. Milliken, Jr. /s/ Minot K. Milliken - ------------------------------- Minot K. Milliken as a majority of the trustees of trusts holding 258,178 shares of the common stock, par value $.14 2/3 per share, of Mercantile Stores Company, Inc. /s/ Roger Milliken - ------------------------------- Roger Milliken /s/ Minot K. Milliken - ------------------------------- Minot K. Milliken as a majority of the trustees of trusts holding 22,104 shares of the common stock, par value $.14 2/3 per share, of Mercantile Stores Company, Inc. /s/ Gerrish H. Milliken, Jr. - ------------------------------- Gerrish H. Milliken, Jr. /s/ Minot K. Milliken - ------------------------------- Minot K. Milliken as a majority of the trustees of trusts holding 32,419 shares of the common stock, par value $.14 2/3 per share, of Mercantile Stores Company, Inc. -----END PRIVACY-ENHANCED MESSAGE-----