AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 7, 1996
BY AND AMONG
FRED'S, INC.,
FR ACQUISITION CORP.
AND
ROSE'S STORES, INC.
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . 1
Section 1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Effective Time. . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Effects of the Merger . . . . . . . . . . . . . . . . . 1
Section 1.4 Charter and By-laws . . . . . . . . . . . . . . . . . . 1
Section 1.5 Conversion of Securities. . . . . . . . . . . . . . . . 2
Section 1.6 Fred's to Make Certificates Available . . . . . . . . . 3
Section 1.7 Dividends; Transfer Taxes; Withholding. . . . . . . . . 4
Section 1.8 No Fractional Securities. . . . . . . . . . . . . . . . 4
Section 1.9 Return of Exchange Fund . . . . . . . . . . . . . . . . 4
Section 1.10 Adjustment of Conversion Number. . . . . . . . . . . . 5
Section 1.11 No Further Ownership Rights in Rose's
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.12 Closing of Rose's Transfer Books . . . . . . . . . . . 5
Section 1.13 Lost Certificates. . . . . . . . . . . . . . . . . . . 5
Section 1.14 Affiliates . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.15 Dissenters' Rights . . . . . . . . . . . . . . . . . . 5
Section 1.16 Further Assurances . . . . . . . . . . . . . . . . . . 6
Section 1.17 Closing. . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FRED'S AND SUB. . . . . . 6
Section 2.1 Organization, Standing and Power. . . . . . . . . . . . 6
Section 2.2 Capital Structure . . . . . . . . . . . . . . . . . . . 7
Section 2.3 Authority . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.4 Consents and Approvals; No Violation. . . . . . . . . . 8
Section 2.5 SEC Documents and Other Reports . . . . . . . . . . . . 8
Section 2.6 Registration Statement and Joint Proxy
Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.7 Absence of Certain Changes or Events. . . . . . . . . . 9
Section 2.8 Permits and Compliance. . . . . . . . . . . . . . . . . 10
Section 2.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.10 Actions and Proceedings. . . . . . . . . . . . . . . . 10
Section 2.11 Certain Agreements . . . . . . . . . . . . . . . . . . 11
Section 2.12 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.13 Compliance with Certain Laws . . . . . . . . . . . . . 12
Section 2.14 Liabilities. . . . . . . . . . . . . . . . . . . . . . 12
Section 2.15 Labor Matters. . . . . . . . . . . . . . . . . . . . . 12
Section 2.16 Intellectual Property. . . . . . . . . . . . . . . . . 12
Section 2.17 Reorganization . . . . . . . . . . . . . . . . . . . . 12
Section 2.18 Required Vote of Fred's Stockholders . . . . . . . . . 12
Section 2.19 Ownership of Shares. . . . . . . . . . . . . . . . . . 13
Section 2.20 Operations of Sub. . . . . . . . . . . . . . . . . . . 13
Section 2.21 Brokers. . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.22 Disclosure . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.23 Opinion of Investment banker . . . . . . . . . . . . . 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ROSE'S. . . . . . . . 13
Section 3.1 Organization, Standing and Power. . . . . . . . . . . . 13
Section 3.2 Capital Structure . . . . . . . . . . . . . . . . . . . 14
Section 3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.4 Consents and Approvals; No Violation. . . . . . . . . . 14
Section 3.5 SEC Documents and Other Reports . . . . . . . . . . . . 15
Section 3.6 Registration Statement and Joint Proxy
Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.7 Absence of Certain Changes or Events. . . . . . . . . . 16
Section 3.8 Permits and Compliance. . . . . . . . . . . . . . . . . 16
Section 3.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.10 Actions and Proceedings. . . . . . . . . . . . . . . . 17
Section 3.11 Certain Agreements . . . . . . . . . . . . . . . . . . 18
Section 3.12 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.13 Compliance with Certain Laws . . . . . . . . . . . . . 19
Section 3.14 Liabilities. . . . . . . . . . . . . . . . . . . . . . 19
Section 3.15 Labor Matters. . . . . . . . . . . . . . . . . . . . . 19
Section 3.16 Intellectual Property. . . . . . . . . . . . . . . . . 19
Section 3.17 State Takeover Statutes. . . . . . . . . . . . . . . . 19
Section 3.18 Required Vote of Rose's Stockholders . . . . . . . . . 20
Section 3.19 Reorganization . . . . . . . . . . . . . . . . . . . . 20
Section 3.20 Brokers. . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.21 Disclosure . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.22 Opinion of Investment Banker . . . . . . . . . . . . . 20
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS . . . . . . . 20
Section 4.1 Conduct of Business Pending the Merger. . . . . . . . . 20
Section 4.2 No Solicitation . . . . . . . . . . . . . . . . . . . . 24
Section 4.3 Third Party Standstill Agreements . . . . . . . . . . . 24
Section 4.4 Reorganization. . . . . . . . . . . . . . . . . . . . . 24
ARTICLE V
ADDITIONAL AGREEMENT'S . . . . . . . . . . . . 25
Section 5.1 Stockholder Meetings. . . . . . . . . . . . . . . . . . 25
Section 5.2 Preparation of the Registration Statement
and the Joint Proxy Statement. . . . . . . . . . . . . . . . . 25
Section 5.3 Access to Information . . . . . . . . . . . . . . . . . 25
Section 5.4 Compliance with the Securities Act. . . . . . . . . . . 26
Section 5.5 NASDAQ Listing. . . . . . . . . . . . . . . . . . . . . 27
Section 5.6 Fees and Expenses . . . . . . . . . . . . . . . . . . . 27
Section 5.7 Rose's Stock Options; Rose's Warrants . . . . . . . . . 28
Section 5.8 Reasonable Best Efforts . . . . . . . . . . . . . . . . 29
Section 5.9 Public Announcements. . . . . . . . . . . . . . . . . . 29
Section 5.10 Real Estate Transfer and Gains Tax . . . . . . . . . . 29
Section 5.11 State Takeover Laws. . . . . . . . . . . . . . . . . . 30
Section 5.12 Notification of Certain Matters. . . . . . . . . . . . 30
Section 5.13 Directors and Officers . . . . . . . . . . . . . . . . 30
Section 5.14 Executive and Employee Agreements. . . . . . . . . . . 30
Section 5.15 Designation of Director. . . . . . . . . . . . . . . . 30
Section 5.16 Indemnification. . . . . . . . . . . . . . . . . . . . 30
Section 5.17 Lending and Credit Arrangements. . . . . . . . . . . . 31
Section 5.18 Tax Representations. . . . . . . . . . . . . . . . . . 31
Section 5.19 Reverse Stock Split. . . . . . . . . . . . . . . . . . 31
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER . . . . . . . . . 32
Section 6.1 Conditions to Each Party's Obligation to
Effect the Merger. . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.2 Conditions to Obligation of Rose's to
Effect the Merger. . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.3 Conditions to Obligations of Fred's and Sub
to Effect the Merger . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . 35
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.2 Effect of Termination . . . . . . . . . . . . . . . . . 36
ARTICLE VIII
GENERAL PROVISIONS . . . . . . . . . . . . . 37
Section 8.1 Non-Survival of Representations, Warranties
and Agreements . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.3 Interpretation. . . . . . . . . . . . . . . . . . . . . 38
Section 8.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . 38
Section 8.5 Entire Agreement; No Third-Party
Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.6 Governing Law . . . . . . . . . . . . . . . . . . . . . 38
Section 8.7 Assignment. . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.8 Severability. . . . . . . . . . . . . . . . . . . . . . 38
Section 8.9 Enforcement of this Agreement . . . . . . . . . . . . . 38
Section 8.10 Amendment. . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.11 Waiver . . . . . . . . . . . . . . . . . . . . . . . . 39
TABLE OF DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 7, 1996 (this
"Agreement"), among FRED'S, INC., a Tennessee corporation
("Fred's"), FR ACQUISITION CORP., a Delaware corporation and a
wholly-owned subsidiary of Fred's ("Sub"), and ROSE'S, INC., a
Delaware corporation ("Rose's") (Sub and Rose's being hereinafter
collectively referred to as the "Constituent Corporations").
RECITALS
A. The respective Boards of Directors of Fred's, Sub and
Rose's have approved and declared advisable the merger of Sub and
Rose's (the "Merger"), upon the terms and subject to the conditions
set forth herein, whereby each issued and outstanding share of
Common Stock, no par value, of Rose's ("Rose's Common Stock") not
owned directly or indirectly by Fred's or Rose's will be converted
into shares of Class A Voting Common Stock, no par value, of Fred's
("Fred's Common Stock");
B. The respective Boards of Directors of Fred's and Rose's
have determined that the Merger is in the best interests of their
respective stockholders (the holders of Rose's Common Stock, the
"Rose's Stockholders"); and
C. For federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the premises,
representations, warranties and agreements herein contained, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions hereof and in accordance with the Delaware General
Corporation Law (the "Del.C."), Sub shall be merged with and into
Rose's at the Effective Time (as defined herein). Following the
Merger, the separate corporate existence of Sub shall cease and
Rose's shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the Del.C.
Section 1.2 Effective Time. The Merger shall become
effective when a Certificate of Merger (the "Certificate of
Merger"), executed in accordance with the relevant provisions of
the Del.C., is filed with the Secretary of State of the State of
Delaware; provided, however, that, upon mutual consent of the
Constituent Corporations, the Certificate of Merger may provide for
a later date of effectiveness of the Merger not more than 30 days
after the date the Certificate of Merger is filed. When used in
this Agreement, the term "Effective Time" shall mean the later of
the date and time at which the Certificate of Merger is filed or
such later time established by the Certificate of Merger. The
filing of the Certificate of Merger shall be made on the date of
the Closing (as defined in Section 1.17), or as promptly thereafter
as practicable.
Section 1.3 Effects of the Merger. The Merger shall have the
effects set forth in the Del.C.
Section 1.4 Charter and By-laws. At the Effective Time, the
Certificate of Incorporation and Bylaws of Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate
of Incorporation and Bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable
law.
Section 1.5 Conversion of Securities. As of the Effective
Time, by virtue of the Merger and without any action on the part of
Sub, Rose's or the holders of any securities of the Constituent
Corporations:
(a) Each issued and outstanding share of common stock, no par
value per share, of Sub shall be converted into one validly issued,
fully paid and nonassessable share of common stock of the Surviving
Corporation.
(b) (i) Subject to the provisions of Sections 1.10 and 5.19
hereof, each whole share of Rose's Common Stock issued and
outstanding immediately prior to the Effective Time (other than
shares to be canceled in accordance with Section 1.5(c) and other
than Dissenting Shares (as defined herein)) shall be converted into
and become, by virtue of the Merger, automatically and without any
action on the part of Rose's Stockholders, the Conversion Number
(as defined herein) of validly issued, fully paid and nonassessable
shares of Fred's Common Stock. All shares of Rose's Common Stock,
when so converted into shares of Fred's Common Stock pursuant to
this Section 1.5(b)(i) or the right to receive cash pursuant to
Section 1.8 or 5.19, shall no longer be outstanding and shall
automatically be canceled and retired and each holder of a
certificate formerly representing any such shares shall cease to
have any rights with respect thereto, except (x) in the case of the
shares converted into Fred's Common Stock pursuant to this Section
1(b)(i), the right to receive any dividends and other distributions
in accordance with Section 1.7, and certificates representing the
shares of Fred's Common Stock into which such shares are converted,
(y) any cash, without interest, in lieu of fractional shares of
Fred's Common Stock to be issued or paid in consideration therefor
pursuant to Section 1.8, and (z), in the case of the fractional
shares of Rose's Common Stock, the right to receive cash pursuant
to Section 5.19, in each case, upon the surrender of such
certificate in accordance with Section 1.6. Each certificate
shall, from and after the Effective Time until surrendered in
exchange for Fred's Common Stock, for all purposes be deemed to
represent (A) the number of shares of Fred's Common Stock
calculated by taking the number of shares represented by the
certificate times the Conversion Number (in the case of whole
shares of Rose's Common Stock so converted pursuant to this Section
1(b)(i)) or (B) the right to receive cash to which the holder is
entitled pursuant to Section 1.8 or 5.19. No Dissenting Shares
shall be converted into or represent a right to receive Fred's
Common Stock under this Section 1.5 or cash pursuant to Section 1.8
or 5.19, but such Dissenting Shares shall be subject to the
provisions of Section 1.15.
(ii) The shares of Rose's Common Stock (the "Escrow
Shares") held in escrow at the Effective Date by First Union
National Bank of North Carolina ("FUNB") as Escrow Agent pursuant
to the Modified and First Restated Amended Joint Plan of
Reorganization confirmed by order of the United States Bankruptcy
Court for the Eastern District of North Carolina dated December 14,
1994 and April 24, 1995 (the "Plan of Reorganization"), shall be
converted into shares of Fred's Common Stock as provided in
Section 1(b)(i) or the right to receive cash as provided in Section
1.8 or 5.19, and shall be subject to (x) distribution in accordance
with the Plan of Reorganization or (y) return to the Surviving
Corporation also in accordance with the Plan of Reorganization.
(iii) The "Conversion Number" shall be determined by
dividing $2.15 by the Fred's Average Price (as defined herein).
The "Fred's Average Price" shall mean an amount equal to the
average of the daily high and low prices for a share of Fred's
Stock on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), as printed in The Wall Street Journal,
for the 10 days during which Fred's Common Stock was actually
traded immediately preceding the day before the printing of the
Joint Proxy Statement (as defined herein).
(c) All shares of Rose's Common Stock that are held in the
treasury of Rose's or by any Subsidiary (as defined herein) of
Rose's shall be canceled at the Effective Time, and no capital
stock of Fred's or other consideration shall be delivered in
exchange therefor.
(d) Without any further action on the part of the holders
thereof, each unexpired and unexercised right to purchase shares of
Rose's Common Stock under any (i) option (a "Rose's Stock Option")
under Rose's Stock Option Plan (as defined herein) and (ii) warrant
(a "Rose's Warrant") issued pursuant to the Plan of Reorganization,
will be assumed by Fred's as hereinafter provided. At the
Effective Time, by virtue of the Merger and without any further
action on the part of Fred's, Sub, Rose's or the holder thereof,
each Rose's Stock Option and each Rose's Warrant will be
automatically converted into an option (a "Fred's Stock Option") or
a warrant (a "Fred's Warrant"), respectively, to purchase a number
of shares of Fred's Common Stock equal to the number of shares of
Rose's Common Stock that could have been purchased under such
Rose's Stock Option or Rose's Warrant multiplied by the Conversion
Number, at a price per share of Fred's Common Stock equal to the
per share exercise price specified in the Rose's Stock Option or
Rose's Warrant, divided by the Conversion Number. Such Fred's
Stock Option and Fred's Warrant shall otherwise be subject to the
same terms and conditions as such Rose's Stock Option or Rose's
Warrant, except that at the Effective Time, (i) all references in
the Rose's Stock Option Plan (as defined herein), the applicable
stock option or other awards agreements issued thereunder and in
any other Rose's Stock Options and in all Rose's Warrants and
documents relating thereto to Rose's shall be deemed to refer to
Fred's; (ii) Fred's shall assume the Rose's Stock Options Plans and
all of Rose's obligations with respect to the Rose's Stock Options;
(iii) Fred's shall assume all of Rose's obligations with respect to
the Rose's Warrants under the agreements relating thereto; and (iv)
Fred's shall issue to each holder of any outstanding Rose's Stock
Option or Rose' Warrant a document evidencing the foregoing
assumption by Fred's. It is the intention of the parties that,
subject to applicable law, the Rose's Stock Options assumed by
Fred's qualify, following the Effective Time, as incentive stock
options, as defined in Section 422 of the Code, to the extent that
the Rose's Stock Options qualified as incentive stock options prior
to the Effective Time, and the adjustments referred to in this
Section 1.5(d) shall be effected in a manner which is consistent
with Section 424(a) of the Code.
Section 1.6 Fred's to Make Certificates Available.
(a) Exchange of Certificates. Fred's shall authorize
Union Planters National Bank, N.A., Memphis, or some other
commercial bank reasonably acceptable to Rose's (or such other
person or persons as shall be acceptable to Fred's and Rose's), to
act as Exchange Agent hereunder (the "Exchange Agent"). As soon as
practicable after the Effective Time, Fred's shall deposit with the
Exchange Agent in trust for the holders of shares of Rose's Common
Stock converted in the Merger, certificates representing the shares
of Fred's Common Stock issued pursuant to Section 1.5(b) in
exchange for outstanding certificates representing shares of Rose's
Common Stock and cash, as required to make payments in lieu of any
fractional shares pursuant to Section 1.8 or cash payable pursuant
to Section 5.19 (such cash and shares of Fred's Common Stock,
together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions, deliver
the certificates representing the Fred's Common Stock contemplated
to be delivered pursuant to Section 1.5(b) out of the Exchange
Fund. Except as contemplated by this Section 1.6 and Sections 1.8,
1.9 and 5.19, the Exchange Fund shall not be used for any other
purpose.
(b) Exchange Procedures. As soon as practicable after
the Effective Time, Fred's shall cause the Exchange Agent to mail
to each record holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding
shares of Rose's Common Stock converted in the Merger (the
"Certificates") a letter of transmittal (which shall be in
customary form, shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon
actual delivery of the Certificates to the Exchange Agent, and
shall contain instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares
of Fred's Common Stock and cash in lieu of fractional shares or
cash payable pursuant to Section 5.19). Upon surrender for
cancellation to the Exchange Agent of a Certificate, together with
such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Fred's
Common Stock into which the shares represented by the surrendered
Certificate shall have been converted at the Effective Time
pursuant to this Article I, cash in lieu of any fractional share in
accordance with Section 1.8, cash payable pursuant to Section 5.19
and certain dividends and other distributions in accordance with
Section 1.7, and any Certificate so surrendered shall forthwith be
canceled.
Section 1.7 Dividends; Transfer Taxes; Withholding. No
dividends or other distributions that are declared on or after the
Effective Time on Fred's Common Stock, or are payable to the
holders of record thereof on or after the Effective Time, will be
paid to any person entitled by reason of the Merger to receive, a
certificate representing Fred's Common Stock and no cash payment in
lieu of fractional shares will be paid to any such person pursuant
to Section 1.8 or cash payable pursuant to Section 5.19 until such
person surrenders the related Certificate or Certificates, as
provided in Section 1.6. Subject to the effect of applicable law,
there shall be paid to each record holder of a new certificate
representing such Fred's Common Stock: (i) at the time of such
surrender or as promptly as practicable thereafter, the amount of
any dividends or other distributions theretofore paid with respect
to the shares of Fred's Common Stock represented by such new
certificate and having a record date on or after the Effective Time
and a payment date prior to such surrender; (ii) at the appropriate
payment date or as promptly as practicable thereafter, the amount
of any dividends or other distributions payable with respect to
such shares of Fred's Common Stock and having a record date on or
after the Effective Time but prior to such surrender and a payment
date on or subsequent to such surrender; and (iii) at the time of
such surrender or as promptly as practicable thereafter, the amount
of any cash payable with respect to a fractional share of Fred's
Common Stock to which such holder is entitled pursuant to Section
1.8. In no event shall the person entitled to receive such
dividends or other distributions be entitled to receive interest on
such dividends or other distributions. If any cash or certificate
representing shares of Fred's Common Stock is to be paid to or
issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Certificate so surrendered
shall be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange shall pay to
the Exchange Agent any transfer or other taxes required by reason
of the issuance of certificates for such shares of Fred's Common
Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not
applicable. Fred's or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Rose's Common
Stock such amounts as Fred's or the Exchange Agent is required to
deduct and withhold with respect to the making of such payment
under the Code or under any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by Fred's or
the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the
shares of Rose's Common Stock in respect of which such deduction
and withholding was made by Fred's or the Exchange Agent.
Section 1.8 No Fractional Securities. No certificates or
scrip representing fractional shares of Fred's Common Stock shall
be issued upon the surrender for exchange of Certificates pursuant
to this Article I, and no Fred's dividend or other distribution or
stock split shall relate to any fractional share, and no fractional
share shall entitle the owner thereof to vote or to any other
rights of a security holder of Fred's. In lieu of any such
fractional share, each holder of Rose's Common Stock who otherwise
would have been entitled to a fraction of a share of Fred's Common
Stock upon surrender of Certificates for exchange pursuant to this
Article I will be paid an amount in cash (without interest),
rounded to the nearest cent determined by multiplying (i) the
average of the high and low prices for a share of Fred's Common
Stock on NASDAQ on the date of the Effective Time (or, if the
shares of Fred's Common Stock do not trade on NASDAQ on such date,
the first date of trading of shares of Fred's Common Stock on
NASDAQ after the Effective Time) by (ii) the fractional interest to
which such holder otherwise would be entitled. As promptly as
practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional share interests, the Exchange
Agent shall so notify Fred's, and Fred's shall deposit such amount
with the Exchange Agent and shall cause the Exchange Agent to
forward payments to such holders of fractional share interests
subject to and in accordance with the terms of Section 1.7 and this
Section 1.8.
Section 1.9 Return of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the former Rose's
Stockholders for one year after the Effective Time (unless required
otherwise by law with respect to the Escrow Shares; in which case,
until such requirement lapses or is terminated) shall be delivered
to Fred's, upon demand of Fred's, and any such former stockholders
who have not theretofore complied with this Article I shall
thereafter look only to Fred's for payment of their claim for
Fred's Common Stock, any cash in lieu of fractional shares of
Fred's Common Stock and any dividends or distributions with respect
to Fred's Common Stock. Neither Fred's nor the Surviving
Corporation shall be liable to any former holder of Rose's Common
Stock for any such shares of Fred's Common Stock, cash and
dividends and distributions held in the Exchange Fund which is
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
Section 1.10 Adjustment of Conversion Number. In the event
of any reclassification, stock split or stock dividend with respect
to Fred's Common Stock, any change or conversion of Fred's Common
Stock into other securities, or any other dividend or distribution
with respect to the Fred's Common Stock other than normal quarterly
cash dividends as the same may be adjusted from time to time
pursuant to the terms of this Agreement (or if a record date with
respect to any of the foregoing should occur), and upon the Reverse
Split (as herein defined), prior to the Effective Time, appropriate
and proportionate adjustments, if any, shall be made to the
Conversion Number, and all references to the Conversion Number in
this Agreement shall be deemed to be to the Conversion Number as so
adjusted.
Section 1.11 No Further Ownership Rights in Rose's Common
Stock. All shares of Fred's Common Stock issued pursuant to the
terms hereof (including any cash paid pursuant to Section 1.8)
shall be deemed to have been issued, and cash paid pursuant to
Section 5.19 shall be deemed to have been paid, in full
satisfaction of all rights pertaining to the shares of Rose's
Common Stock represented by such Certificates.
Section 1.12 Closing of Rose's Transfer Books. At the
Effective Time, the stock transfer books of Rose's shall be closed
and no transfer of shares of Rose's Common Stock shall thereafter
be made on the records of Rose's. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, the
Exchange Agent or Fred's, such Certificates shall be canceled and
exchanged as provided in this Article I.
Section 1.13 Lost Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct (but
consistent with the practices Fred's applies to its own
stockholders), as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent (at
the stockholder's expense) will issue in exchange for such lost
stolen or destroyed Certificate the shares of Fred's Common Stock,
any cash in lieu of fractional shares of Fred's Common Stock to
which the holders thereof are entitled pursuant to Section 1.8 and
any dividends or other distributions to which the holders thereof
are entitled pursuant to Section 1.7 or cash payable pursuant to
Section 5.19.
Section 1.14 Affiliates. Certificates surrendered for
exchange by any "affiliate" (as determined pursuant to Section 5.4)
of Rose's for purposes of Rule 145(c) under the Securities Act of
1933, as amended (together with the rules and regulations
thereunder, the "Securities Act"), shall not be exchanged until
Fred's has received a written agreement from such Person as
provided in Section 5.4 hereof.
Section 1.15 Dissenters' Rights.
(a) In accordance with Section 262 of the Del.C.
("Section 262"), no appraisal rights shall be available to holders
of Rose's Common Stock converted into Fred's Common Stock in
accordance with Section 1.5(b).
(b) Holders of shares of Rose's Common Stock entitled to
receive cash pursuant to Section 5.19 shall be entitled to
appraisal rights in accordance with Section 262, and each such
outstanding share of Rose's Common Stock the holder of which has
timely filed with the Company a written demand for appraisal
pursuant to Section 262 is herein called a "Dissenting Share".
Each Dissenting Share the holder of which, at the Effective Time,
has not effectively withdrawn with the consent of Rose's, if
required, or become ineligible for (through failure to perfect or
otherwise) his dissenter's rights under Section 262 shall not be
converted into or represent the right to receive cash pursuant to
Section 5.19, but the holder thereof shall be entitled only to such
rights as are granted by Section 262. Each holder of Dissenting
Shares who becomes entitled, pursuant to the provisions of
Section 262, to receive payment for his Rose's Common Stock shall
receive payment therefor from the Surviving Corporation (but only
after the amount thereof shall have been agreed upon or finally
determined pursuant to such provisions).
(c) If any holder of Dissenting Shares shall effectively
withdraw with the consent of Rose's, if required, or become
ineligible for his dissenter's rights under Section 262, such
Dissenting Shares shall be deemed to have been converted into and
represent the right to receive, as of the later of the Effective
Time or the occurrence of such event, cash in accordance with the
provisions of Section 5.19 hereof.
(d) Rose's shall give Fred's (i) prompt notice of any
written demands for appraisal, withdrawals of demands for
appraisal, and any other instruments served pursuant to Section 262
and received by Rose's and (ii) the opportunity to direct all
negotiations and proceedings with respect to holders of Dissenting
Shares. Rose's will not voluntarily make any payment with respect
to any demands for appraisal for shares under Section 262 and will
not, except with the prior written consent of Fred's, settle or
offer to settle any such demands. Each holder of Dissenting Shares
shall have only such rights and remedies as are granted to such a
holder under Section 262.
Section 1.16 Further Assurances. If at any time after the
Effective Time the Surviving Corporation shall consider or be
advised that any deeds, bills of sale, assignments or assurances or
any other acts or things are necessary, desirable or proper (a) to
vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of
either of the Constituent Corporations, or (b) otherwise to carry
out the purposes of this Agreement, the Surviving Corporation and
its proper officers and directors or their designees shall be
authorized to execute and deliver, in the name and on behalf of
either of the Constituent Corporations, all such deeds, bills of
sale, assignments and assurances and to do, in the name and on the
behalf of either Constituent Corporation, all such other acts and
things as may be necessary, desirable or proper to vest, perfect or
confirm the Surviving Corporation's right, title or interest in, to
or under any of the rights, privileges, powers, franchises,
properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
Section 1.17 Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") and all actions
specified in this agreement to occur at the Closing shall take
place at the offices of Waring Cox PLC, 50 north Front Street,
Memphis, Tennessee, at 9:00 a.m., local time, no later than the
second business day following the day on which the last of the
conditions set forth in Article VI shall have been fulfilled or
waived or at such other time and place as Fred's and Rose's shall
agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FRED'S AND SUB
Fred's and Sub jointly and severally represent and warrant to
Rose's as follows:
Section 2.1 Organization, Standing and Power. Fred's is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Tennessee, and has the requisite
corporate power and authority to carry on its business as now being
conducted. Sub 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 to carry on its
business as now being conducted. Each Subsidiary of Fred's is duly
organized, validly existing and in good standing under the laws of
the jurisdiction in which it is organized and has the requisite
corporate power and authority to carry on its business as now being
conducted, except where the failure to be so organized, existing or
in good standing or to have such power or authority would not,
individually or in the aggregate, have a Material Adverse Effect
(as defined herein) on Fred's. Fred's and each of its Subsidiaries
are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or
held under lease or the nature of their activities makes such
qualification necessary, except where the failure to be so
qualified would not, individually or in the aggregate, have a
Material Adverse Effect on Fred's. For purposes of this Agreement
(a) "Material Adverse Change" or "Material Adverse Effect" means,
when used with respect to Fred's or Rose's, as the case may be, any
change or effect that is materially adverse to the business,
assets, liabilities, results of operation, financial condition or
prospects of Fred's and its Subsidiaries, taken as a whole, or
Rose's and its Subsidiaries, taken as a whole, as the case may be,
and (b) "Subsidiary" means any corporation, partnership, joint
venture or other legal entity of which Fred's or Rose's, 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 holders of which are generally
entitled to vote for the election of the board of directors or
other governing body of such corporation, partnership, joint
venture or other legal entity.
Section 2.2 Capital Structure. The authorized capital stock
of Fred's consists of 30,000,000 shares of Fred's Class A Voting
Common Stock, 11,500,000 shares of Class B Nonvoting Common Stock,
and 10,000,000 shares of Preferred Stock (the "Fred's Preferred
Stock"). There are at the date hereof (i) 9,335,239 shares of
Fred's Common Stock issued and outstanding, all of which are
validly issued, fully paid and nonassessable and free of preemptive
rights (28,000 shares of which were issued as restricted stock
awards pursuant to Fred's 1993 Long-Term Incentive Plan and are
subject to certain restrictions), and (ii) 500,000 shares of Fred's
Common Stock are reserved for future issuance pursuant to Fred's
1993 Long-Term Incentive Plan. No shares of Fred's Class B
Nonvoting Common Stock or Preferred Stock are issued and
outstanding. All of the shares of Fred's Common Stock issuable in
exchange for Rose's Common Stock at the Effective Time in
accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and nonassessable and free
of preemptive rights. As of the date of this Agreement, except for
(a) this Agreement, (b) stock options covering 311,595 shares of
Fred's Common Stock, and (c) restricted stock awards pursuant to
Fred's 1993 Long-Term Incentive Plan for 14,000 shares of Fred's
Common Stock, which shares of restricted stock have not yet been
issued, there are no options, warrants, calls, rights or agreements
to which Fred's or any of its Subsidiaries is a party or by which
any of them is bound obligating Fred's or any of its Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Fred's or any of its
Subsidiaries or obligating Fred's or any of its Subsidiaries to
grant, extend or enter into any such option, warrant, call, right
or agreement. Each outstanding share of capital stock of each
Subsidiary of Fred's is duly authorized, validly issued, fully paid
and nonassessable and, except as disclosed in the Fred's SEC
Documents (as defined herein), each such share is owned by Fred's
or another Subsidiary of Fred's, free and clear of all security
interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on voting rights, charges and
other encumbrances of any nature whatsoever.
Section 2.3 Authority. The respective Boards of Directors of
Fred's and Sub have on or prior to the date of this Agreement
declared the Merger advisable (subject to the satisfaction of the
conditions to Closing contained herein, including receipt by Fred's
of the fairness opinion of its investment banker) and approved this
Agreement in accordance with applicable law. Each of Fred's and
Sub has all requisite corporate power and authority to enter into
this Agreement and, subject to approval by the stockholders of
Fred's (the "Fred's Stockholders") of this Agreement, the issuance
of Fred's Common Stock in connection with the Merger (the "Share
Issuance"), and the amendment of Fred's 1993 Long-Term Incentive
Plan to increase the number of authorized shares (collectively, the
"Fred's Stockholders' Approvals"), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement
by Fred's and Sub and the consummation by Fred's and Sub of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Fred's and Sub, subject
to (x) approval by the Fred's Stockholders and (y) the filing of a
Certificate of Merger as required by the Del.C. This Agreement has
been duly executed and delivered by Fred's and Sub and (assuming
the valid authorization, execution and delivery of this Agreement
by Rose's) this Agreement constitutes the valid and binding
obligation of Fred's and Sub enforceable against each of them in
accordance with its terms. The Share Issuance and the filing of a
registration statement on Form S-4 (or other appropriate form) with
the Securities and Exchange Commission (the "SEC") by Fred's under
the Securities Act, for the purpose of registering the shares of
Fred's Common Stock to be issued in the Merger (including the
Anderson Shares, as defined herein, and the shares issuable upon
exercise of the Rose's Warrants and the Rose's Stock Options to be
assumed by Fred's pursuant to Section 1.5) (together with any
amendments or supplements thereto, whether prior to or after the
effective date thereof, the "Registration Statement") have been
duly authorized by Fred's Board of Directors. The Fred's Common
Stock to be issued in the Merger (including the Anderson Shares,
and the shares issuable upon exercise of the Rose's Warrants and
the Rose's Stock Options to be assumed by Fred's pursuant to
Section 1.5), when issued, will be registered under the Securities
Act and the Securities Exchange Act of 1934, as amended (together
with the rules and regulations promulgated thereunder, the
"Exchange Act") and registered or exempt from registration under
any applicable state securities or "blue sky" laws ("Blue Sky
Laws").
Section 2.4 Consents and Approvals; No Violation. Assuming
that all consents, approvals, authorizations and other actions
described in the second sentence of this Section 2.4 have been
obtained and all filings and obligations described in this Section
2.4 have been made, and subject to Section 5.17, the execution and
delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions
hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give to others
a right of termination, cancellation or acceleration of any
obligation or the loss of a material benefit under, or result in
the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of Fred's or any of its
Subsidiaries under, any provision of (i) the Charter or By-laws of
Fred's, (ii) any provision of the comparable charter or
organization documents of any of Fred's Subsidiaries, (iii) any
loan or credit agreement note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or
license applicable to Fred's or any of its Subsidiaries or (iv) any
judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Fred's or any of its Subsidiaries or any
of their respective properties or assets, other than, in the case
of clauses (ii), (iii) or (iv), any such violations, defaults,
rights, liens, security interests, charges or encumbrances that,
individually or in the aggregate, would not have a Material Adverse
Effect on Fred's, or prevent or materially delay the consummation
of any of the transactions contemplated hereby. No filing or
registration with, or authorization, consent or approval of, any
domestic (federal and state), foreign or supranational court,
commission, governmental body, regulatory agency, authority or
tribunal (a "Governmental Entity") is required by or with respect
to Fred's or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by Fred's or Sub or is
necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement, except for (i) in
connection, or in compliance, with the provisions of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Securities Act and the Exchange Act, (ii) the
filing of the Certificate of Merger with the Secretary of State of
the State of Delaware and appropriate documents with the relevant
authorities of other states in which Rose's or any of its
Subsidiaries is qualified to do business, (iii) such filings and
consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure
or required approval triggered by the Merger or by the transactions
contemplated by this Agreement, (iv) such filings, authorizations,
orders and approvals as may be required by state takeover laws (the
"State Takeover Approvals"), (v) such filings as may be required in
connection with the taxes described in Section 5.10, (vi) such
consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the laws of any
foreign country in which Rose's or any of its Subsidiaries conducts
any business or owns any property or assets, (vii) such filings and
consents as may be required under any state or foreign laws
pertaining to debt collection, the issuance of payment instruments
or money transmission, (viii) applicable requirements, if any, of
Blue Sky Laws and NASDAQ, and (ix) such other consents, orders,
authorizations, registrations, declarations and filings the failure
of which to be obtained or made would not, individually or in the
aggregate, have a Material Adverse Effect on Fred's, or prevent or
materially delay the consummation of any of the transactions
contemplated hereby.
Section 2.5 SEC Documents and Other Reports. Fred's has
filed all required documents with the SEC since January 1, 1993
(including the Fred's Annual Report, as defined herein, the "Fred's
SEC Documents"). As of their respective dates, the Fred's SEC
Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be and,
at the respective times they were filed, none of the Fred's SEC
Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
consolidated financial statements (including, in each case, any
notes thereto) of Fred's included in the Fred's SEC Documents
complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles ("GAAP") (except, in the
case of the unaudited statements, as permitted by the Securities
Act or the Exchange Act) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the
notes thereto) and fairly presented in all material respects the
consolidated financial position of Fred's and its consolidated
Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated
cash flows for the periods then ended (subject, in the case of
unaudited statements, to any other adjustments described therein
and normal year-end audit adjustments). Except as disclosed in the
Fred's SEC Documents or as required by GAAP, Fred's has not since
January 28, 1995, made any change in the accounting practices or
policies applied in the preparation of financial statements. As
used herein, the term "Fred's Annual Report" refers to Fred's
Annual Report on Form 10-K most recently filed with the SEC. As
to Fred's SEC Documents and financial statements filed or to be
filed with the SEC, all representations and warranties of Fred's in
this Agreement relating to such as have been filed prior to the
date hereof (i.e., as to periods already ended) are hereby made by
Fred's as to all such SEC Documents to be filed on or after the
date hereof (i.e., as to periods subsequent to the periods
reflected in the documents already filed) as of the date such
documents are filed in the future.
Section 2.6 Registration Statement and Joint Proxy Statement.
None of the information to be supplied by Fred's or Sub for
inclusion or incorporation by reference in the Registration
Statement or the joint proxy statement/prospectus included therein
(together with any amendments or supplements thereto, the "Joint
Proxy Statement") relating to the Stockholder Meetings (as defined
in Section 5.1) will (i) in the case of the Registration Statement,
at the time it becomes effective, 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
not misleading or (ii) in the case of the Joint Proxy Statement, at
the time of the mailing of the Joint Proxy Statement, the time of
each of the Stockholder Meetings and at the Effective Time, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under
which they are made, not misleading. If at any time prior to the
Effective Time any event with respect to Fred's, its officers and
directors or any of its Subsidiaries shall occur which is required
to be described in the Joint Proxy Statement or the Registration
Statement, such event shall be so described, and an appropriate
amendment or supplement shall be promptly filed with the SEC and,
as required by law, disseminated to the Fred's Stockholders and
Rose's. The Registration Statement will comply (with respect to
Fred's) as to form in all material respects with the provisions of
the Securities Act, and the Joint Proxy Statement will comply (with
respect to Fred's) as to form in all material respects with the
provisions of the Exchange Act.
Section 2.7 Absence of Certain Changes or Events. Except as
disclosed in Fred's SEC Documents filed with the SEC prior to the
date of this Agreement, since January 28, 1995, (A) Fred's and its
Subsidiaries have not incurred any material liability or obligation
(indirect, direct or contingent), or entered into any material oral
or written agreement or other transaction, that is not in the
ordinary course of business or that would reasonably be foreseen to
result in a Material Adverse Effect on Fred's, excluding any
changes and effects resulting from changes in economic, regulatory
or political conditions or changes in conditions generally
applicable to the industries in which Fred's and Subsidiaries of
Fred's are involved and except for any such changes or effects
resulting from this Agreement the transactions contemplated hereby
or the announcement thereof; (B) Fred's and its Subsidiaries have
not sustained any loss or interference with their business or
properties from fire, flood, windstorm, accident or other calamity
(whether or not covered by insurance) that has had a Material
Adverse Effect on Fred's; (C) other than any indebtedness incurred
by Fred's after the date hereof as permitted by Section 4.1(a)(vi),
there has been no material change in the consolidated indebtedness
of Fred's and its Subsidiaries, and no dividend or distribution of
any kind declared, paid or made by Fred's on any class of its
stock, except for regular quarterly dividends of not more than
$0.05 per share of Fred's Common Stock; and (D) there has been no
event having a Material Adverse Effect on Fred's, excluding any
changes and effects resulting from changes in economic, regulatory
or political conditions or changes in conditions generally
applicable to the industries in which Fred's and Subsidiaries of
Fred's are involved and except for any such changes or effects
resulting from this Agreement, the transactions contemplated hereby
or the announcement thereof. Fred's has not amended since June 30,
1995 its Charter or Bylaws with respect to the indemnification of
its officers and directors.
Section 2.8 Permits and Compliance. Each of Fred's and its
Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any
Governmental Entity necessary for Fred's or any of its Subsidiaries
to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Fred's Permits"),
except where the failure to have any of the Fred's Permits would
not, individually or in the aggregate, have a Material Adverse
Effect on Fred's and, as of the date of this Agreement, no
suspension or cancellation of any of the Fred's Permits is pending
or, to the Knowledge of Fred's (as defined herein), threatened,
except where the suspension or cancellation of any of the Fred's
Permits would not, individually or in the aggregate, have a
Material Adverse Effect on Fred's. Neither Fred's nor any of its
Subsidiaries is in violation of (A) its charter, by-laws or other
organizational documents, (B) any applicable law, ordinance,
administrative or governmental rule or regulation or (C) any order,
decree or judgment of any Governmental Entity having jurisdiction
over Fred's or any of its Subsidiaries, except in the case of
clauses (A), (B) and (C), for any violations that, individually or
in the aggregate, would not have a Material Adverse Effect on
Fred's. Except as disclosed in the Fred's SEC Documents filed
prior to the date of this Agreement, there is no contract or
agreement that is material to the business, financial condition or
results of operations of Fred's and its Subsidiaries, taken as a
whole. Except as set forth in the Fred's SEC Documents, prior to
the date of this Agreement no event of default or event that, but
for the giving of notice or the lapse of time or both, would
constitute an event of default exists or, upon the consummation by
Fred's of the transactions contemplated by this Agreement, will
exist under any indenture, mortgage, loan agreement, note or other
agreement or instrument for borrowed money, any guarantee of any
agreement or instrument for borrowed money or any lease,
contractual license or other agreement or instrument to which
Fred's or any of its Subsidiaries is a party or by which Fred's or
any such Subsidiary is bound or to which any of the properties,
assets or operations of Fred's or any such Subsidiary is subject,
other than any defaults that, individually or in the aggregate,
would not have a Material Adverse Effect on Fred's. "Knowledge of
Fred's" means the actual knowledge of the Chief Executive Officer
and Chief Financial Officer of Fred's.
Section 2.9 Tax Matters. Each of Fred's and its Subsidiaries
has filed all Tax Returns required to have been filed (or
extensions have been duly obtained) and has paid all Taxes required
to have been paid by it, except where failure to file such Tax
Returns or pay such Taxes would not, in the aggregate, have a
Material Adverse Effect on Fred's. For purposes of this Agreement:
(i) "Tax" (and, with correlative meaning, "Taxes") means any
federal, state, local or foreign income, gross receipts, property,
sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or added minimum, ad valorem, transfer or
excise tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together
with any interest or penalty, imposed by any governmental authority
and (ii) "Tax Return" means any return, report or similar statement
required to be filed with respect to any Tax (including any
attached schedules), including, without limitation, any information
return, claim for refund, amended return or declaration of
estimated Tax.
Section 2.10 Actions and Proceedings. Except as set forth in
the Fred's SEC Documents, there are no outstanding orders,
judgments, injunctions, awards or decrees of any Governmental
Entity against or involving Fred's or any of its Subsidiaries, or
against or involving any of the present or former directors,
officers, employees, consultants, agents or Fred's Stockholders or
any of its Subsidiaries, as such, any of its or their properties,
assets or business or any Fred's Plan (as defined herein) that,
individually or in the aggregate, would have a Material Adverse
Effect on Fred's. As of the date of this Agreement, there are no
actions, suits or claims or legal, administrative or arbitrative
proceedings or investigations pending or, to the Knowledge of
Fred's, threatened against or involving Fred's or any of its
Subsidiaries or any of its or their present or former directors,
officers, employees, consultants, agents or stockholders, as such,
any of its or their properties, assets or business or any Fred's
Plan that, individually or in the aggregate, are reasonably likely
to have a Material Adverse Effect on Fred's. As of the date hereof
there are no actions, suits, labor disputes or other litigation,
legal or administrative proceedings or governmental investigations
pending or, to the Knowledge of Fred's, threatened against or
affecting Fred's or any of its Subsidiaries or any of its or their
present or former officers, directors, employees, consultants,
agents or stockholders, as such, or any of its or their properties,
assets or business relating to the transactions contemplated by
this Agreement.
Section 2.11 Certain Agreements. As of the date of this
Agreement, neither Fred's nor any of its Subsidiaries is a party to
any oral or written benefits agreement or plan, including any stock
option plan, stock appreciation rights plan, restricted stock plan
or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
Section 2.12 ERISA.
(a) With respect to each Fred's Plan (as defined
herein), Fred's has made (or as soon as practicable will make)
available to Rose's a true and correct copy (to the extent
applicable) of (i) the three most recent annual reports (Form 5500)
filed with the Internal Revenue Service (the "IRS"), (ii) such
Fred's Plan, (iii) each trust agreement, insurance contract or
administration agreement relating to such Fred's Plan, (iv) the
most recent summary plan description of each Fred's Plan for which
a summary plan description is required and (v) the most recent
determination letter, if any, issued by the IRS with respect to any
Fred's Plan intended to be qualified under section 401(a) of the
Code. Except as would not have a Material Adverse Effect on Fred's
and except as set forth on Schedule 2.12(a), each Fred's Plan
complies in all material respects with the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), the Code and all
other applicable statutes and governmental rules and regulations,
including but not limited to the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), and (i) neither
Fred's nor any of its ERISA Affiliates is or, within the past six
years has been, a contributing employer to a Fred's Multiemployer
Plan (as defined herein), (ii) no Fred's Plan is, or has ever been,
subject to Title IV of ERISA, and (iii) Fred's and its ERISA
Affiliates have complied in all material respects with the
continued medical coverage requirements of COBRA.
(b) With respect to Fred's Plans, no event has occurred
in connection with which Fred's or any of its ERISA Affiliates
would be subject to any liability under the terms of such Fred's
Plans, ERISA, the Code or any other applicable law which would have
a Material Adverse Effect on Fred's. All Fred's Plans that are
intended to be qualified under Section 401(a) of the Code have been
determined by the Internal Revenue Service to be so qualified, or
a timely application (under Revenue Procedure 93-39 or any
subsequent Revenue Procedure with respect to ruling and
determination letters) for such determination is now pending, and
to the Knowledge of Fred's, no event has occurred and no fact
exists that would adversely affect such determination. Except as
set forth on Schedule 2.12(b) or as disclosed in Fred's SEC
Documents, neither Fred's nor any of its ERISA Affiliates has any
liability or obligation under any welfare plan to provide benefits
after termination of employment to any employee or dependent other
than as required by ERISA or as disclosed in Fred's Annual Report.
As used herein, (i) "Fred's Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA (other than a Fred's Multiemployer
Plan)) or a "welfare plan" (as defined in Section 3(1) of ERISA)
established or maintained by Fred's or any of its ERISA Affiliates
or as to which Fred's or any of its ERISA Affiliates has
contributed or otherwise may have any liability, (ii) "Fred's
Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which Fred's or any of its ERISA
Affiliates is or has been obligated to contribute or otherwise may
have any liability, and (iii) with respect to any person, "ERISA
Affiliate" means any trade or business (whether or not
incorporated) which is under common control or would be considered
a single employer with such person pursuant to Section 414(b), (c),
(m) or (o) of the Code and the regulations promulgated under those
sections or pursuant to Section 4001(b) of ERISA and the
regulations promulgated thereunder.
(c) A copy of each bonus, deferred compensation,
pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock,
stock option, employment, termination, severance, compensation,
medical, health or other plan, agreement, policy or arrangement
that covers employees, directors, former employees or former
directors of Fred's and its Subsidiaries (the "Compensation and
Benefit Plans") and any trust agreements or insurance contracts
forming a part of such Compensation and Benefit Plans has been
provided or made available to Rose's prior to the date hereof.
Fred's has no current plans to modify or terminate any of the
Compensation and Benefit Plans, except as set forth on Schedule
2.12(c); the effect of any such modification or termination is also
set forth on Schedule 2.12(c).
Section 2.13 Compliance with Certain Laws. The properties,
assets and operations of Fred's and its Subsidiaries are in
compliance in all material respects with all applicable federal,
state, local and foreign laws, rules and regulations, orders,
decrees, judgments, permits and licenses relating to public and
worker health and safety (collectively, "Worker Safety Laws") and
the protection and clean-up of the environment and activities or
conditions related thereto, including, without limitation, those
relating to the generation, handling, disposal, transportation or
release of hazardous materials (collectively, "Environmental
laws"), except for any violations that, individually or in the
aggregate, would not have a Material Adverse Effect on Fred's.
With respect to such properties, assets and operations, including
any previously owned, leased or operated properties, assets or
operations, there are no past, present or reasonably anticipated
future events, conditions, circumstances, activities, practices,
incidents, actions or plans of Fred's or any of its Subsidiaries
that may interfere with or prevent compliance or continued
compliance in all material respects with applicable Worker Safety
Laws and Environmental Laws, other than any such interference or
prevention as would not, individually or in the aggregate with any
such other interference or prevention, have a Material Adverse
Effect on Fred's. The term "hazardous materials" shall mean those
substances that are regulated by or form the basis for liability
under any applicable Environmental Laws.
Section 2.14 Liabilities. Except as fully reflected or
reserved against in the financial statements included in the Fred's
Annual Report, Fred's most recent report to the SEC on Form 10-Q ,
or disclosed in the footnotes thereto, Fred's and its Subsidiaries
had no liabilities (including, without limitation, tax liabilities)
at the date of such financial statements, absolute or contingent,
liquidated or unliquidated, other than liabilities that,
individually or in the aggregate, would not have a Material Adverse
Effect on Fred's, and had no liabilities (including, without
limitation, tax liabilities) that were not incurred in the ordinary
course of business. Except as so reflected, reserved or disclosed,
Fred's and its Subsidiaries have no commitments, other than any
commitments which, individually or in the aggregate, would not have
a Material Adverse Effect on Fred's.
Section 2.15 Labor Matters. Neither Fred's nor any of its
Subsidiaries is a party to any collective bargaining agreement or
labor contract. Neither Fred's nor any of its Subsidiaries has
engaged in any unfair labor practice with respect to any persons
employed by or otherwise performing services primarily for Fred's
or any of its Subsidiaries (the "Fred's Business Personnel"), and
there is no unfair labor practice complaint or grievance against
Fred's or any of its Subsidiaries by the National Labor Relations
Board or any comparable state agency pending or threatened in
writing with respect to the Fred's Business Personnel, except where
such unfair labor practice, complaint or grievance would not have
a Material Adverse Effect on Fred's. There is no labor strike,
dispute, slowdown or stoppage pending or, to the Knowledge of
Fred's, threatened against or affecting Fred's or any of its
Subsidiaries which may interfere with the respective business
activities of Fred's or any of its Subsidiaries, except where such
dispute, strike or work stoppage would not have a Material Adverse
Effect on Fred's.
Section 2.16 Intellectual Property. Fred's and its
Subsidiaries have all patents, trademarks, trade names, service
marks, trade secrets, copyrights and other proprietary intellectual
property rights (collectively, "Intellectual Property Rights") as
are necessary in connection with the business of Fred's and its
Subsidiaries, taken as a whole, except where the failure to have
such Intellectual Property Rights would not have a Material Adverse
Effect on Fred's. Neither Fred's nor any of its Subsidiaries has
infringed any Intellectual Property Rights of any third party other
than any infringements that, individually or in the aggregate,
would not have a Material Adverse Effect on Fred's.
Section 2.17 Reorganization. To the Knowledge of Fred's,
neither Fred's nor any of its Subsidiaries has taken, or will have
taken, any action or failed to take any action which action or
failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
Section 2.18 Required Vote of Fred's Stockholders. The
affirmative vote of a majority of the votes eligible to be cast on
the approval of this Agreement is required to approve this
Agreement. The affirmative vote of a majority of the votes cast on
the Share Issuance is required to approve the Share Issuance and to
amend Fred's 1993 Long-Term Incentive Plan, provided that the total
votes cast on each proposal represents a majority of the
outstanding shares of Fred's Common Stock. No other vote of the
Fred's Stockholders is required by law, the Charter or By-laws of
Fred's or otherwise in order for Fred's to consummate the Merger
and the transactions contemplated hereby.
Section 2.19 Ownership of Shares. Neither Fred's nor any of
its Subsidiaries (i) "beneficially owns" or is the "beneficial
owner" of (as such terms are defined by reference to Section 13(d)
of the Exchange Act), or (ii) "owns", as such term is defined in
Section 203 of the Del.C., any shares of Rose's Common Stock.
Section 2.20 Operations of Sub. Sub is a direct, wholly-
owned subsidiary of Fred's, was formed solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as
contemplated hereby.
Section 2.21 Brokers. No broker, investment banker or other
person, is entitled to any brokers, finder's or other similar fee
or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of
Fred's.
Section 2.22 Disclosure. No representation or warranty by
Fred's contained in this Agreement and no written statement,
certificate, or document furnished by or on behalf of Fred's to
Rose's in connection with this Agreement or any transaction
contemplated hereby, contains, as of the date on which made or
reaffirmed, any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under
which such statements were made, not misleading, or necessary in
order to provide Rose's with full information as to Fred's and its
affairs. None of this Agreement, the financial statements or any
schedule, exhibit, or certificate delivered in accordance with the
terms hereof or any document or statement in writing which has been
supplied by or on behalf of Fred's, or by any of Fred's directors
or officers, in connection with the transactions contemplated
hereby, contains, or will contain, any untrue statement of a
material fact, or omits, or will omit, any statement of a material
fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to Fred's which
materially and adversely affects the business, prospects, working
capital or financial condition of Fred's or its properties or
assets, which has not been set forth in this Agreement or in the
schedules, exhibits or certificates or statements in writing
furnished in connection with the transactions contemplated by this
Agreement.
Section 2.23 Opinion of Investment banker. Fred's has
engaged Morgan Keegan & Co., Inc. as its investment banker to
render a written opinion, as of the day before the printing of the
Joint Proxy Statement, to the effect that the Conversion Number is
fair to Fred's Stockholders from a financial point of view, a copy
of which opinion will be delivered to Rose's promptly upon receipt
by Fred's.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ROSE'S
Rose's represents and warrants to Fred's and Sub as follows:
Section 3.1 Organization, Standing and Power. Rose's 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 to carry on its business as now being
conducted. Each Subsidiary of Rose's is duly organized, validly
existing and in good standing under the laws of the jurisdiction in
which it is organized and has the requisite corporate (in the case
of a Subsidiary that is a corporation) or other power and authority
to carry on its business as now being conducted, except where the
failure to be so organized, existing or in good standing or to have
such power or authority would not, individually or in the
aggregate, have a Material Adverse Effect on Rose's. Rose's and
each of its Subsidiaries are duly qualified to do business, and are
in good standing, in each jurisdiction where the character of their
properties owned or held under lease or the nature of their
activities makes such qualification necessary, except where the
failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect on Rose's.
Section 3.2 Capital Structure. The authorized capital stock
of Rose's consists of 50,000,000 shares of Rose's Common Stock, no
par value, and 10,000,000 shares of Preferred Stock, no par value.
At the date hereof (i) 8,233,951 shares of Rose's Common Stock are
issued and outstanding, all of which are validly issued, fully paid
and nonassessable and free of preemptive rights, (ii) 976,910
shares of Rose's Common Stock are held in the treasury of Rose's,
(iii) the Escrow Shares (789,139 shares) are held by the FUNB, (iv)
not more than 700,000 shares of Rose's Common Stock are reserved
for future issuance pursuant to Rose's New Equity Compensation Plan
(the "Rose's Stock Option Plan"), and (v) 4,285,714 shares are
issuable pursuant to the Rose's Warrants. No shares of Rose's
Preferred Stock are outstanding. As of the date of this Agreement,
except for Rose's Stock Options granted under Rose's Stock Option
Plan for the issuance upon exercise of 388,000 shares of Rose's
Common Stock, and Rose's Warrants for the issuance upon exercise of
4,285,714 shares of Rose's Common Stock, there are no options,
warrants, calls, rights or agreements to which Rose's or any of its
Subsidiaries is a party or by which any of them is bound obligating
Rose's or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital
stock of Rose's or any of its Subsidiaries or obligating Rose's or
any of its Subsidiaries to grant, extend or enter into any such
option, warrant, call, right or agreement. Rose's has furnished to
Fred's a specimen copy of every form of Rose's Stock Option and
Rose's Warrant granted and in effect at the date hereof or to
become effective after the date hereof, together with a list of the
grantees and of the actual variable terms and conditions (e.g.,
date of grant, number of shares as to which granted, exercise
price, etc.) contained in the Rose's Stock Options and Rose's
Warrants so granted and effective. Schedule 3.2 lists the holders,
date of grant and exercise price of all Rose's Stock Options. Each
outstanding share of capital stock of each Subsidiary of Rose's
that is a corporation is duly authorized, validly issued, fully
paid and nonassessable and, except as disclosed in Rose's SEC
Documents (as defined herein), each such share is owned by Rose's
or another Subsidiary of Rose's, free and clear of all security
interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on voting rights, charges and
other encumbrances of any nature whatsoever.
Section 3.3 Authority. The Board of Directors of Rose's has
on or prior to the date of this Agreement (a) declared the Merger
advisable and fair to and in the best interest of Rose's and Rose's
Stockholders (subject to the satisfaction of the conditions to
Closing contained herein, including receipt by Rose's of the
fairness opinion of its investment banker), (b) approved this
Agreement in accordance with the Del.C., (c) resolved to
recommend the approval of this Agreement by Rose's Stockholders and
(d) directed that this Agreement be submitted to Rose's
Stockholders for approval. Rose's has all requisite corporate
power and authority to enter into this Agreement and, subject to
approval by the Rose's Stockholders of this Agreement (which, for
all purposes in this Agreement, shall be deemed to include any
necessary approval of amendments to Rose's stock plans), to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Rose's and the consummation by Rose's
of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Rose's, subject to
(x) approval of this Agreement by Rose's Stockholders and (y) the
filing of a Certificate of Merger as required by the Del.C. This
Agreement has been duly executed and delivered by Rose's and
(assuming the valid authorization, execution and delivery of this
Agreement by Fred's and Sub) constitutes the valid and binding
obligation of Rose's enforceable against Rose's in accordance with
its terms. The filing of the Joint Proxy Statement with the SEC
has been duly authorized by Rose's Board of Directors.
Section 3.4 Consents and Approvals; No Violation. Assuming
that all consents, approvals, authorizations and other actions
described in this Section 3.4 have been obtained and all filings
and obligations described in this Section 3.4 have been made, and
subject to Section 5.17, the execution and delivery of this
Agreement do not and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will
not, result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the
loss of a material benefit under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the
properties or assets of Rose's or any of its Subsidiaries under,
any provision of (i) the Certificate of Incorporation or By-laws of
Rose's, (ii) any provision of the comparable charter or
organization documents of any of Rose's Subsidiaries, (iii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or
license applicable to Rose's or any of its Subsidiaries or (iv) any
judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Rose's or any of its Subsidiaries or any
of their respective properties or assets, other than, in the case
of clauses (ii), (iii) or (iv), any such violations, defaults,
rights, liens, security interests, charges or encumbrances that,
individually or in the aggregate, would not have a Material Adverse
Effect on Rose's, or prevent the consummation of any of the
transactions contemplated hereby. No filing or registration with,
or authorization, consent or approval of, any Governmental Entity
is required by or with respect to Rose's or any of its Subsidiaries
in connection with the execution and delivery of this Agreement by
Rose's or is necessary for the consummation of the Merger and the
other transactions contemplated by this Agreement, except for (i)
in connection, or in compliance, with the provisions of the HSR
Act, the Securities Act and the Exchange Act, (ii) the filing of
the Certificate of Merger with the Secretary of State of the State
of Delaware and appropriate documents with the relevant authorities
of other states in which Rose's or any of its Subsidiaries is
qualified to do business, (iii) such filings and consents as may be
required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or by the transactions
contemplated by this Agreement, (iv) such filings, authorizations,
orders and approvals as may be required to obtain the State
Takeover Approvals, (v) such filings as may be required in
connection with the taxes described in Section 5.10, (vi) such
consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the laws of any
foreign country in which Rose's or any of its Subsidiaries conducts
any business or owns any property or assets, (vii) such filings and
consents as may be required under any state or foreign laws
pertaining to debt collection, the issuance of payment instruments
or money transmission, (viii) applicable requirements, if any, of
Blue Sky Laws and NASDAQ, and (ix) such other consents, orders,
authorizations, registrations, declarations and filings the failure
of which to be obtained or made would not, individually or in the
aggregate, have a Material Adverse Effect on Rose's or prevent the
consummation of any of the transactions contemplated hereby.
Section 3.5 SEC Documents and Other Reports.
(a) SEC Documents. Rose's has filed all required
documents with the SEC since January 28, 1995 (the "Rose's SEC
Documents"). As of their respective dates, Rose's SEC Documents
complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the
regulations promulgated thereunder, and, at the respective times
they were filed, none of Rose's SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
(b) Other Reports. Rose's has furnished to Fred's
unaudited balance sheets, and related unaudited statements of
income and retained earnings and cash flows for each month and
year-to-date period subsequent to the last month and period most
recently reflected in a Rose's SEC Document (the "Period Reports").
(c) Compliance, Presentation, Absence of Changes in
Preparation. The consolidated financial statements (including, in
each case, any notes thereto) of Rose's included in Rose's SEC
Documents and in the Period Reports complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto,
were prepared in accordance with GAAP (except, in the case of the
unaudited statements, as permitted by the Securities Act or the
Exchange Act) applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes
thereto) and fairly presented in all material respects the
consolidated financial position of Rose's and its consolidated
Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated
cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to
any other adjustments described therein). Except as disclosed in
Rose's SEC Documents or as required by GAAP, Rose's has not, since
January 28, 1995, made any change in the accounting practices or
policies applied in the preparation of financial statements. As
used herein, the term "Rose's Annual Report" refers to Rose's
Annual Report on Form 10-K most recently filed with the SEC. As to
Rose's SEC Documents, Audited Financial Statements (as defined
herein), Period Reports and Management Correspondence (as defined
herein) and financial statements which have been or are to be filed
with the SEC, prepared by Rose's, or delivered to Fred's by Rose's,
all representations and warranties of Rose's in this Agreement
relating to such as have been filed, prepared or delivered prior to
the date hereof (i.e., as to periods already ended) are hereby made
by Rose's as to all such SEC Documents to be filed on or after the
date hereof (i.e., as to periods subsequent to the periods
reflected in the documents already filed, prepared or delivered) as
of the date such documents are filed, prepared or delivered in the
future.
(d) Management Correspondence. Rose's has furnished to
Fred's the letters of KPMG Peat Marwick, LLP ("Rose's Auditors") to
the management of Rose's relating to the audited financial
statements certified by Rose's Auditors contained in Rose's SEC
Documents for the fiscal years ended January 29, 1994 and January
28, 1995 (the "Audited Financial Statements") and Rose's written
responses thereto (collectively, the "Management Correspondence").
All Management Correspondence delivered and to be delivered to
Fred's reflects and will reflect that there is no adjustment to any
Audited Financial Statements delivered to Fred's that Rose's
Auditors waived.
Section 3.6 Registration Statement and Joint Proxy Statement.
None of the information to be supplied by Rose's for inclusion or
incorporation by reference in the Registration Statement or the
Joint Proxy Statement will (i) in the case of the Registration
Statement, at the time it becomes effective, 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 not misleading or (ii) in the case of the Joint
Proxy Statement, at the time of the mailing of the Joint Proxy
Statement, the time of each of the Stockholder Meetings and at the
Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event with respect to Rose's,
its officers and directors or any of its Subsidiaries shall occur
which is required to be described in the Joint Proxy Statement or
the Registration Statement, such event shall be so described, and
an appropriate amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to the Fred's
Stockholders and Rose's. The Joint Proxy Statement will comply
(with respect to Rose's) as to form in all material respects with
the Exchange Act.
Section 3.7 Absence of Certain Changes or Events. Except as
disclosed in Rose's SEC Documents filed with the SEC prior to the
date of this Agreement or in Schedule 3.7, since January 28, 1995,
(A) Rose's and its Subsidiaries have not incurred any material
liability or obligation (indirect, direct or contingent), or
entered into any material oral or written agreement or other
transaction, that is not in the ordinary course of business or that
would reasonably be foreseen to result in a Material Adverse Effect
on Rose's, excluding any changes and effects resulting from changes
in economic, regulatory or political conditions or changes in
conditions generally applicable to the industries in which Rose's
and Subsidiaries of Rose's are involved and except for any such
changes or effects resulting from this Agreement, the transactions
contemplated hereby or the announcement thereof, (B) Rose's and its
Subsidiaries have not sustained any loss or interference with their
business or properties from fire, flood, windstorm, accident or
other calamity (whether or not covered by insurance) that has had
a Material Adverse Effect on Rose's; (C) other than any
indebtedness incurred by Rose's after the date hereof as permitted
by Section 4.1(b)(vi), there has been no material change in the
consolidated indebtedness of Rose's and its Subsidiaries, and no
dividend or distribution of any kind declared, paid or made by
Rose's on any class of its stock; and (D) there has been no event
causing a Material Adverse Effect on Rose's, excluding any changes
and effects resulting from changes in economic, regulatory or
political conditions or changes in conditions generally applicable
to the industries in which Rose's and Subsidiaries of Rose's are
involved and except for any such changes or effects resulting from
this Agreement, the transactions contemplated hereby or the
announcement thereof. Rose's has not amended since prior to June
30, 1995 its Certificate of Incorporation or Bylaws with respect to
the indemnification of its officers and directors.
Section 3.8 Permits and Compliance. Each of Rose's and its
Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any
Governmental Entity necessary for Rose's or any of its Subsidiaries
to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Rose's Permits"),
except where the failure to have any of Rose's Permits would not,
individually or in the aggregate, have a Material Adverse Effect on
Rose's, and, as of the date of this Agreement, no suspension or
cancellation of any of Rose's Permits is pending or, to the
knowledge of Rose's (as defined herein), threatened, except where
the suspension or cancellation of any of Rose's Permits would not,
individually or in the aggregate, have a Material Adverse Effect on
Rose's. Neither Rose's nor any of its Subsidiaries is in violation
of (A) its charter, by-laws or other organizational documents, (B)
any applicable law, ordinance, administrative or governmental rule
or regulation or (C) any order, decree or judgment of any
Governmental Entity having jurisdiction over Rose's or any of its
Subsidiaries, except, in the case of clauses (A), (B) and (C), for
any violations that, individually or in the aggregate, would not
have a Material Adverse Effect on Rose's. Except as disclosed in
Rose's SEC Documents filed with the SEC prior to the date of this
Agreement, as of the date hereof there is no contract or agreement
that is material to the business, financial condition or results of
operations of Rose's and its Subsidiaries, taken as a whole.
Except as set forth in Rose's SEC Documents filed with the SEC
prior to the date of this Agreement, no event of default or event
that, but for the giving of notice or the lapse of time or both,
would constitute an event of default exists or, upon the
consummation by Rose's of the transactions contemplated by this
Agreement, will exist under any indenture, mortgage, loan
agreement, note or other agreement or instrument for borrowed
money, any guarantee of any agreement or instrument for borrowed
money or any lease, contractual license or other agreement or
instrument to which Rose's or any of its Subsidiaries is a party or
by which Rose's or any such Subsidiary is bound or to which any of
the properties, assets or operations of Rose's or any such
Subsidiary is subject, other than any defaults that, individually
or in the aggregate, would not have a Material Adverse Effect on
Rose's. Set forth in Schedule 3.8 to this Agreement is a
description of (i) all material leases to which Rose's or any of
its Subsidiaries is a party or by which Rose's or any such
Subsidiary is bound or to which any of the properties, assets or
operations of Rose's or any such Subsidiary is subject and all
amendments thereto (including, as to real property leased, its
location by street address, city or township, county and state),
(ii) all material contracts, licenses or other agreements or
instruments (including, but not limited to, security agreements and
evidences of indebtedness) to which Rose's or any of its
Subsidiaries is a party or by which Rose's or any such Subsidiary
is bound or to which any of the properties, assets or operations of
Rose's or any such Subsidiary is bound or to which any of the
properties, assets or operations of Rose's or any such Subsidiary
is subject and all amendments thereto, and (iii) any material
changes to the amount and terms of the indebtedness for borrowed
money of Rose's and its Subsidiaries as described in Rose's Annual
Report. "Knowledge of Rose's" means the actual knowledge of the
Chief Executive Officer and the Chief Financial Officer.
Section 3.9 Tax Matters. Each of Rose's and its Subsidiaries
has filed all Tax Returns required to have been filed (or
extensions have been duly obtained) and has paid all Taxes required
to have been paid by it, except where failure to file such Tax
Returns or pay such Taxes would not, in the aggregate, have a
Material Adverse Effect on Rose's or as set forth on Schedule 3.9.
Section 3.10 Actions and Proceedings. Except as set forth in
Rose's SEC Documents or in Schedule 3.10, there are no outstanding
orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving Rose's or any of its
Subsidiaries, or against or involving any of the present or former
directors, officers, employees, consultants, agents or Rose's
Stockholders or any of its Subsidiaries, as such, any of its or
their properties, assets or business or any Rose's Plan (as defined
herein) that, individually or in the aggregate, would have a
Material Adverse Effect on Rose's. Except as set forth in Rose's
SEC Documents, as of the date of this Agreement, there are no
actions, suits or claims or legal, administrative or arbitrative
proceedings or investigations pending or, to the Knowledge of
Rose's, threatened against or involving Rose's or any of its
Subsidiaries or any of its or their present or former directors,
officers, employees, consultants, agents or stockholders, as such,
or any of its or their properties, assets or business or any Rose's
Plan that, individually or in the aggregate, would have a Material
Adverse Effect on Rose's. As of the date hereof, there are no
actions, suits, labor disputes or other litigation, legal or
administrative proceedings or governmental investigations pending
or, to the Knowledge of Rose's, threatened against or affecting
Rose's of any of its Subsidiaries or any of its or their present or
former officers, directors, employees, consultants, agents or
stockholders, as such, or any of its or their properties, assets or
business relating to the transactions contemplated by this
Agreement.
Section 3.11 Certain Agreements. As of the date of this
Agreement, except as set forth on Schedule 3.11, neither Rose's nor
any of its Subsidiaries is a party to any oral or written benefits
agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase
plan (other than pursuant to the New Equity Compensation Plan), any
of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any
of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value
of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement. No holder
of any option to purchase shares of Rose's Common Stock, or shares
of Rose's Common Stock granted in connection with the performance
of services for Rose's or its Subsidiaries, is or will be entitled
to receive cash from Rose's or any Subsidiary in lieu of or in
exchange for such option or shares as a result of the transactions
contemplated by this Agreement (provided that a cashless exercise
currently permitted with no other authorization under the terms of
a Rose's Stock Option shall not be considered such a prohibited
cash payment). Neither Rose's nor any Subsidiary is a party to any
termination benefits agreement or severance agreement or employment
agreement one trigger of which would be the consummation of the
transactions contemplated by this Agreement, except as set forth in
Schedule 3.11.
Section 3.12 ERISA.
(a) With respect to each Rose's Plan (as defined
herein), Rose's has made (or as soon as practicable will make)
available to Fred's a true and correct copy (to the extent
applicable) of (i) the three most recent annual reports (Form 5500)
filed with the Internal Revenue Service (the "IRS"), (ii) such
Rose's Plan, (iii) each trust agreement, insurance contract or
administration agreement relating to such Rose's Plan, (iv) the
most recent summary plan description of each Rose's Plan for which
a summary plan description is required and (v) the most recent
determination letter, if any, issued by the IRS with respect to any
Rose's Plan intended to be qualified under section 401(a) of the
Code. Except as would not have a Material Adverse Effect on Rose's
and except as set forth on Schedule 3.12(a), each Rose's Plan
complies in all material respects with ERISA, the Code and all
other applicable statutes and governmental rules and regulations,
including but not limited to COBRA, and (i) neither Rose's nor any
of its ERISA Affiliates is or, within the past six years has been,
a contributing employer to a Rose's Multiemployer Plan (as defined
herein), (ii) no Rose's Plan is, or has ever been, subject to Title
IV of ERISA, and (iii) Rose's and its ERISA Affiliates have
complied in all material respects with the continued medical
coverage requirements of COBRA.
(b) With respect to Rose's Plans, except as set forth on
Schedule 3.12(b)no event has occurred in connection with which
Rose's or any of its ERISA Affiliates would be subject to any
liability under the terms of such Rose's Plans, ERISA, the Code or
any other applicable law which would have a Material Adverse Effect
on Rose's. All Rose's Plans that are intended to be qualified
under Section 401(a) of the Code have been determined by the
Internal Revenue Service to be so qualified, or a timely
application (under Revenue Procedure 93-39 or any subsequent
Revenue Procedure with respect to ruling and determination letters)
for such determination is now pending, and to the Knowledge of
Rose's, no event has occurred and no fact exists that would
adversely affect such determination. Except as set forth on
Schedule 3.12(b) or as disclosed in Rose's SEC Documents, neither
Rose's nor any of its ERISA Affiliates has any liability or
obligation under any welfare plan to provide benefits after
termination of employment to any employee or dependent other than
as required by ERISA or as disclosed in Rose's Annual Report. As
used herein, (i) "Rose's Plan" means a "pension plan" (as defined
in Section 3(2) of ERISA (other than a Rose's Multiemployer Plan))
or a "welfare plan" (as defined in Section 3(1) of ERISA)
established or maintained by Rose's or any of its ERISA Affiliates
or as to which Rose's or any of its ERISA Affiliates has
contributed or otherwise may have any liability, and (ii) "Rose's
Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which Rose's or any of its ERISA
Affiliates is or has been obligated to contribute or otherwise may
have any liability.
(c) A copy of each bonus, deferred compensation,
pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock,
stock option, employment, termination, severance, compensation,
medical, health or other plan, agreement, policy or arrangement
that covers employees, directors, former employees or former
directors of Rose's and its Subsidiaries (the "Compensation and
Benefit Plans") and any trust agreements or insurance contracts
forming a part of such Compensation and Benefit Plans has been
provided or made available to Fred's prior to the date hereof.
Rose's has no current plans to modify or terminate any of the
Compensation and Benefit Plans, except as set forth on Schedule
3.12(c); the effect of any such modification or termination is also
set forth on Schedule 3.12(c).
Section 3.13 Compliance with Certain Laws. The properties,
assets and operations of Rose's and its Subsidiaries are in
compliance in all material respects with all applicable Worker
Safety Laws, Environmental Laws and consumer credit laws, except
for any violations that, individually or in the aggregate, would
not have a Material Adverse Effect on Rose's or as set forth on
Schedule 3.13. With respect to such properties, assets and
operations, including any previously owned, leased or operated
properties, assets or operations, there are no past, present or
reasonably anticipated future events, conditions, circumstances,
activities, practices, incidents, actions or plans of Rose's or any
of its Subsidiaries that may interfere with or prevent compliance
or continued compliance in all material respects with applicable
Worker Safety Laws and Environmental Laws, other than any such
interference or prevention as would not, individually or in the
aggregate with any such other interference or prevention, have a
Material Adverse Effect on Rose's. Rose's will provide such
certificates and environmental studies as Fred's may reasonably
request.
Section 3.14 Liabilities. Except as fully reflected or
reserved against in the financial statements included in Rose's
Annual Report, Rose's most recent report to the SEC on Form 10-Q
and in the most recent Period Report, or disclosed in the footnotes
thereto, and except as set forth on Schedule 3.14, Rose's and its
Subsidiaries had no liabilities (including, without limitation, tax
liabilities and workmen's compensation liabilities) at the date of
such financial statements, absolute or contingent, liquidated or
unliquidated, other than liabilities that, individually or in the
aggregate, would not have a Material Adverse Effect on Rose's, and
had no liabilities (including, without limitation, tax liabilities)
that were not incurred in the ordinary course of business. Except
as so reflected, reserved or disclosed, Rose's and its Subsidiaries
have no commitments, other than any commitments which, individually
or in the aggregate, would not have a Material Adverse Effect on
Rose's.
Section 3.15 Labor Matters. Neither Rose's nor any of its
Subsidiaries is a party to any collective bargaining agreement or
labor contract, except as set forth in Schedule 3.15. Neither
Rose's nor any of its Subsidiaries has engaged in any unfair labor
practice with respect to any persons employed by or otherwise
performing services primarily for Rose's or any of its Subsidiaries
(the "Rose's Business Personnel"), and there is no unfair labor
practice complaint or grievance against Rose's or any of its
Subsidiaries by the National Labor Relations Board or any
comparable state agency pending or threatened in writing with
respect to Rose's Business Personnel, except where such unfair
labor practice, complaint or grievance would not have a Material
Adverse Effect on Rose's. There is no labor strike, dispute,
slowdown or stoppage pending or, to the Knowledge of Rose's,
threatened against or affecting Rose's or any of its Subsidiaries
which may interfere with the respective business activities of
Rose's or any of its Subsidiaries, except where such dispute,
strike or work stoppage would not have a Material Adverse Effect on
Rose's.
Section 3.16 Intellectual Property. Rose's and its
Subsidiaries have all Intellectual Property Rights as are necessary
in connection with the business of Rose's and its Subsidiaries,
taken as a whole, except where the failure to have such
Intellectual Property Rights would not have a Material Adverse
Effect on Rose's. Neither Rose's nor any of its Subsidiaries has
infringed any Intellectual Property Rights of any third party other
than any infringements that, individually or in the aggregate,
would not have a Material Adverse Effect on Rose's.
Section 3.17 State Takeover Statutes. As of the date hereof,
assuming the accuracy of Fred's representations and warranties
contained in Section 2.19 (Ownership of Shares), the Board of
Directors of Rose's has taken all action so that prior to the
execution hereof, the Board of Directors has approved the Merger
pursuant to Section 203(a)(1) of the Del.C.
Section 3.18 Required Vote of Rose's Stockholders. The
affirmative vote of the holders of not less than a majority of the
outstanding shares of Rose's Common Stock is required to approve
the transactions contemplated by this Agreement. No other vote of
the Rose's Stockholders is required by law, the Certificate of
Incorporation or Bylaws of Rose's or otherwise in order for Rose's
to consummate the Merger and the transactions contemplated hereby.
Section 3.19 Reorganization. To the Knowledge of Rose's,
neither it nor any of its Subsidiaries or Affiliates has, or will
have, taken any action or failed to take any action which action or
failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
Section 3.20 Brokers. No broker, investment banker or other
person, other than Peter J. Solomon Company Limited, the fees and
expenses of which will be paid by Rose's (and are reflected in an
agreement between Peter J. Solomon Company Limited and Rose's, a
copy of which has been furnished to Fred's), is entitled to any
broker's, finder's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Rose's.
Section 3.21 Disclosure. No representation or warranty by
Rose's contained in this Agreement and no written statement,
certificate, or document furnished by or on behalf of Rose's to
Fred's in connection with this Agreement or any transaction
contemplated hereby, contains, as of the date on which made or
reaffirmed, any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under
which such statements were made, not misleading, or necessary in
order to provide Fred's with full information as to Rose's and its
affairs. None of this Agreement, the financial statements or any
schedule, exhibit, or certificate delivered in accordance with the
terms hereof or any document or statement in writing which has been
supplied by or on behalf of Rose's, or by any of Rose's directors
or officers, in connection with the transactions contemplated
hereby, contains, or will contain, any untrue statement of a
material fact, or omits, or will omit, any statement of a material
fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to Rose's which
materially and adversely affects the business, prospects, working
capital or financial condition of Rose's or its properties or
assets, which has not been set forth in this Agreement or in the
schedules, exhibits or certificates or statements in writing
furnished in connection with the transactions contemplated by this
Agreement.
Section 3.22 Opinion of Investment Banker. Rose's has
engaged Peter J. Solomon Company Limited, as its investment banker,
which investment banker (x) has advised Rose's and (y) will render
a written opinion as of the day before the printing of the Joint
Proxy Statement (a copy of which opinion which will be delivered to
Fred's promptly upon receipt by Rose's), to the effect that the
Merger is fair to Rose's Stockholders from a financial point of
view. Rose's has entered into a written agreement with its
investment banker, and has delivered a copy thereof to Fred's, to
limit such investment banker's compensation relating to the Merger
(including the delivery of a fairness opinion to Rose's) to not
more than $900,000, payable by Rose's $150,000 prior to Closing and
$750,000 at the Closing.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger.
(a) Actions by Fred's. Except as expressly permitted by
clauses (i) through (xii) of this Section 4.1(a), during the period
from the date of this Agreement through the Effective Time, Fred's
shall, and shall cause each of its Subsidiaries to, in all material
respects carry on its business in the ordinary course of its
business as currently conducted and, to the extent consistent
therewith, use reasonable best efforts to preserve intact its
current business organizations, keep available the services of its
current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to
the end that its goodwill and ongoing business shall be unimpaired
at the Effective Time. Without limiting the generality of the
foregoing, and except as otherwise expressly contemplated by this
Agreement, Fred's shall not and shall not permit any of its
Subsidiaries to, without the prior written consent of Rose's:
(i) (w) declare, set aside or pay any dividends on, or
make any other actual, constructive or deemed distributions in
respect of, any of its capital stock, or otherwise make any
payments to its stockholders in their capacity as such (other
than (A) regular quarterly dividends on Fred's Common Stock
declared and paid on dates consistent with past practice and
(B) dividends and other distributions by Subsidiaries), (x)
other than in the case of any Subsidiary, split (except for
the Reverse Split referred to herein), combine or reclassify
any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (y) purchase,
redeem or otherwise acquire any shares of capital stock of
Fred's or any other securities thereof or those of any
Subsidiary or any other securities thereof or any rights,
warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge, dispose of or
otherwise encumber any shares of its capital stock, any other
voting securities or equity equivalent or any securities
convertible into, or any rights, warrants or options to
acquire any such shares, voting securities, equity equivalent
or convertible securities, other than (A) the issuance of
stock options and shares of Fred's Common Stock to employees
of Fred's or any of its Subsidiaries in the ordinary course of
business consistent with past practice, and (B) the issuance
by any wholly-owned Subsidiary of Fred's of its capital stock
to Fred's or another wholly-owned Subsidiary of Fred's;
(iii) amend its charter or by-laws; provided,
however, that Fred's may amend its Charter to increase its
authorized capital stock;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of
the assets of or equity in, or by any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire
or agree to acquire any assets, unless the entering into a
definitive agreement relating to or the consummation of such
acquisition, merger, consolidation or purchase would not (A)
impose any material delay in the obtaining of, or
significantly increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals of
any Governmental Entity necessary to consummate the Merger or
the expiration or termination of any applicable waiting
period, (B) significantly increase the risk of any
Governmental Entity entering an order prohibiting the
consummation of the Merger or (C) significantly increase the
risk of not being able to remove any such order on appeal or
otherwise;
(v) sell, lease or otherwise dispose of, or agree to
sell, lease or otherwise dispose of, any of its assets, other
than (A) transactions that are in the ordinary course of
business consistent with past practice and not material to
Fred's and its Subsidiaries taken as a whole, (B) as may be
required by any Governmental Entity and (C) dispositions to
non-related parties involving fair consideration;
(vi) incur any indebtedness for borrowed money, guarantee
any such indebtedness or make any loans, advances or capital
contributions to, or other investments in, any other person,
other than (A) in the ordinary course of business consistent
with past practice, and (B) indebtedness, loans, advances,
capital contributions and investments between Fred's and any
of its wholly-owned Subsidiaries or between any of such
wholly-owned Subsidiaries;
(vii) knowingly violate or knowingly fail to perform
any material obligation or duty imposed upon it or any
Subsidiary by any applicable material federal, state or local
law, rule, regulation, guideline or ordinance;
(viii) take any action, other than reasonable and
usual actions in the ordinary course of business consistent
with past practice, with respect to accounting policies or
procedures (other than actions required to be taken by GAAP);
(ix) materially increase the annual level of compensation
of any employee, or increase at all the annual level of
compensation of any person whose compensation in the last
preceding fiscal year exceeded $100,000, or grant any unusual
or extraordinary bonuses, benefits or other forms of direct or
indirect compensation to any employee, officer, director or
consultant, except in amounts in keeping with past practices
by formulas or otherwise;
(x) increase, terminate, amend or otherwise modify any
plan for the benefit of employees, except for the termination
of post-retirement welfare benefits;
(xi) engage in any related party transactions; or
(xii) authorize, recommend or announce an intention
to do any of the foregoing, or enter into any contract,
agreement, commitment or arrangement to do any of the
foregoing.
(b) Actions by Rose's. Except as expressly permitted by
clauses (i) through (xv) of this Section 4.1(b), during the period
from the date of this Agreement through the Effective Time, Rose's,
subject to Section 4.2 hereof, shall, and shall cause each of its
Subsidiaries to, in all material respects, carry on its business in
the ordinary course of its business as currently conducted and, to
the extent consistent therewith, use reasonable best efforts to
preserve intact its current business organizations, keep available
the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business
shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, and except as otherwise expressly
contemplated by this Agreement, Rose's, subject to Sections 4.1(c)
and 4.2 hereof, shall not and shall not permit any of its
Subsidiaries to, without the prior written consent of Fred's:
(i) (w) declare, set aside or pay any dividends on, or
make any other actual, constructive or deemed distributions in
respect of, any of its capital stock, or otherwise make any
payments to its stockholders in their capacity as such, (x)
other than in the case of any Subsidiary, split, combine or
reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (y)
purchase, redeem or otherwise acquire any shares of capital
stock of Rose's or any other securities thereof or any rights,
warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge, dispose of or
otherwise encumber any shares of its capital stock, any other
voting securities or equity equivalent or any securities
convertible into, or any rights, warrants or options to
acquire any such shares, voting securities, equity equivalent
or convertible securities, other than the issuance of shares
of Rose's Common Stock upon the exercise of Rose's Stock
Options or Rose's Warrants outstanding on the date of this
Agreement in accordance with their current terms or the
delivery of Escrow Shares pursuant to the Plan of
Reorganization;
(iii) amend its charter or by-laws;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a portion of the assets
of or equity in, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or
agree to acquire any assets other than transactions that are
in the ordinary course of business consistent with past
practice and that are not material;
(v) sell, lease or otherwise dispose of, or agree to
sell, lease or otherwise dispose of, any of its assets, other
than (A) transactions that are in the ordinary course of
business consistent with past practice and not material to
Rose's and its Subsidiaries taken as a whole or (B) as may be
required by any Governmental Entity;
(vi) incur any indebtedness for borrowed money, guarantee
any such indebtedness or make any loans, advances or capital
contributions to, or other investments in, any other person,
other than (A) indebtedness for borrowed money incurred in the
ordinary course of business, consistent with (1) past practice
(or in accordance with Rose's 1996 Proforma Balance Sheet
dated January 13, 1996 furnished by Rose's to Fred's) or (2)
the provisions of Section 5.17 of this Agreement, and (B)
indebtedness, loans, advances, capital contributions and
investments between Rose's and any of its wholly-owned
Subsidiaries or between any of such wholly-owned Subsidiaries,
or make any payment to any lender to Rose's other than
regularly scheduled payments of principal and interest or
enter into any instrument of waiver or forebearance with any
lender to Rose's;
(vii) alter (through merger, liquidation,
reorganization, restructuring or in any other fashion) the
corporate structure or ownership of Rose's or any Subsidiary
(except for the Reverse Split referred to herein);
(viii) enter into or adopt or amend any existing
severance plan, agreement or arrangement or enter into or
amend any Rose's Plan or employment or consulting agreement,
other than as required by law, this Agreement or as set forth
on Schedule 4.1(b)(viii);
(ix) increase the compensation payable or to become
payable to its officers or employees, except for increases in
the ordinary course of business consistent with past practice
in salaries or wages of employees of Rose's or any of its
Subsidiaries who are not officers of Rose's or any of its
Subsidiaries (or increase at all the annual level of
compensation of any person whose compensation in the last
preceding fiscal year exceeded $100,000), or grant any
severance or termination pay to, or enter into any employment
or severance agreement with, any director or officer of Rose's
or any of its Subsidiaries, or establish, adopt, enter into,
or, except as may be required to comply with applicable law,
amend or take action to enhance or accelerate any rights or
benefits under, any labor, collective bargaining, 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 director, officer
or employee (except for the agreements attached hereto
pursuant to Section 5.14);
(x) increase, terminate, amend or otherwise modify any
plan for the benefit of employees generally, except for the
termination of post-retirement welfare benefits or as
otherwise required by this Agreement or by law;
(xi) knowingly violate or knowingly fail to perform any
material obligation or duty imposed upon it or any Subsidiary
by any applicable material federal, state or local law, rule,
regulation, guideline or ordinance;
(xii) take any action, other than reasonable and
usual actions in the ordinary course of business consistent
with past practice, with respect to accounting policies or
procedures (other than actions required to be taken by GAAP);
(xiii) make any tax election or settle or compromise
any material federal state, local or foreign income tax
liability except as required in connection with the Plan of
Reorganization;
(xiv) engage in any related party transactions;
(vv) amend any agreement with its investment banker to
increase such investment banker's compensation relating to the
Merger; or
(xvi) authorize, recommend, propose or announce an
intention to do any of the foregoing, or enter into any
contract agreement, commitment or arrangement to do any of the
foregoing.
(c) Interim Reporting Committee. Upon the execution and
delivery of this Agreement by each of the parties, the parties
jointly shall establish a committee (the "Interim Reporting
Committee") for the purpose of being notified, as and to the extent
provided in Schedule 4.1(c) [Certain Rose's Actions Requiring
Notice], of certain actions by Rose's and its Subsidiaries after
the date hereof and prior to the Effective Time or the earlier
termination of this Agreement in accordance with Article VII. The
members of the Interim Reporting Committee shall be Michael J.
Hayes, Bruce D. Smith (or such other natural Person as may
hereafter be designated to replace Mr. Hayes or Mr. Smith [or their
successors] from time to time by Fred's Board of Directors), R.
Edward Anderson and Jeanette R. Peters (or such other natural
Person as may hereafter be designated to replace Mr. Anderson or
Ms. Peters [or their successors] from time to time by Rose's Board
of Directors).
Section 4.2 No Solicitation. From and after the date hereof,
Rose's will not, and will use its best efforts to cause its
officers, directors, employees, attorneys, investment bankers,
agents or other representatives or those of any of its Subsidiaries
not to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) any Takeover Proposal
(as defined herein) from any person, or engage in or continue
discussions or negotiations relating thereto, or recommend, or fail
to recommend against, the same to Rose's Stockholders; provided,
however, that Rose's may engage in discussions or negotiations
with, or furnish information concerning itself and its
Subsidiaries, business, properties or assets to, any third party
which makes a Takeover Proposal if the Board of Directors of Rose's
concludes in good faith on the basis of the advice of its outside
counsel that the failure to take such action would violate the
fiduciary obligations of such Board under applicable law. Rose's
will promptly (but in no case later than 24 hours) notify Fred's of
any Takeover Proposal, including the material terms and conditions
thereof. As used in this Agreement, "Takeover Proposal" shall mean
any proposal or offer, or any expression of interest by any third
party relating to Rose's willingness or ability to receive or
discuss a proposal or offer (other than a proposal or offer by
Fred's or any of its Subsidiaries or as permitted under this
Agreement) for a tender or exchange offer, a merger, consolidation
or other business combination involving Rose's or any of its
Subsidiaries or any proposal to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of,
Rose's or any of its Subsidiaries.
Section 4.3 Third Party Standstill Agreements. During the
period from the date of this Agreement through the Effective Time,
Rose's shall not terminate, amend, modify or waive any provision of
any confidentiality or standstill agreement to which Rose's or any
of its Subsidiaries is a party (other than any involving Fred's),
unless the Board of Directors of Rose's concludes in good faith on
the basis of the advice of its outside counsel, that the failure to
terminate, amend, modify or waive any such confidentiality or
standstill agreement would violate the fiduciary obligations of the
Board under applicable law. Subject to such fiduciary duties,
during such period, Rose's agrees to enforce, to the fullest extent
permitted under applicable law, the provisions of any such
agreements, including, but not limited to, obtaining injunctions to
prevent any breaches of such agreements and to enforce specifically
the terms and provisions thereof in any court of the United States
or any state thereof having jurisdiction.
Section 4.4 Reorganization. During the period from the date
of this Agreement through the Effective Time, unless the other
party shall otherwise agree in writing, none of Fred's, Rose's or
any of their respective Subsidiaries or Affiliates shall knowingly
take or fail to take any action which action or failure would
jeopardize the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
ARTICLE V
ADDITIONAL AGREEMENT'S
Section 5.1 Stockholder Meetings. Except to the extent
legally required for the discharge by the board of directors of its
fiduciary duties as advised by counsel, Rose's and Fred's each
shall call a meeting of its stockholders (respectively, the "Rose's
Stockholder Meeting" and the "Fred's Stockholder Meeting" and,
collectively, the "Stockholder Meetings") to be held as promptly as
practicable for the purpose of considering the approval of this
Agreement (in the case of Rose's) and the Fred's Stockholders'
Approvals (in the case of Fred's). Rose's, Fred's and Sub will,
through their respective Boards of Directors, recommend to their
respective stockholders approval of such matters and shall not
withdraw such recommendation; provided, however, that a Board of
Directors shall not be required to make, and shall be entitled to
withdraw, such recommendation if such Board concludes in good faith
on the basis of the advice of Proskauer Rose Goetz & Mendelsohn LLP
("Rose's Counsel"), in the case of Rose's, and Waring Cox PLC
("Fred's Counsel"), in the case of Fred's, that the making of, or
the failure to withdraw, such recommendation would violate the
fiduciary obligations of such Board under applicable law. The
Boards of Directors of Rose's, Fred's and Sub will not rescind
their respective declarations that the Merger is advisable, fair to
and in the best interest of such company and its stockholders
unless, in any such case, any such Board concludes in good faith on
the basis of the advice of Rose's Counsel in the case of Rose's and
Fred's Counsel in the case of Fred's that the failure to rescind
such determination would violate the fiduciary obligations of such
Board under applicable law. Rose's and Fred's shall coordinate and
cooperate with respect to the timing of such meetings and shall use
their reasonable best efforts to hold such meetings on the same day
and coinciding with the Fred's annual meeting of its stockholders.
Section 5.2 Preparation of the Registration Statement and the
Joint Proxy Statement. Rose's and Fred's shall promptly prepare
and file with the SEC the Joint Proxy Statement and Fred's shall
prepare and file with the SEC the Registration Statement, in which
the Joint Proxy Statement will be included as a prospectus. Fred's
shall use its reasonable best efforts to have the Registration
Statement declared effective under the Securities Act as promptly
as practicable after such filing, and Rose's shall provide its and
Rose's Auditors' full cooperation and assistance to Fred's in
obtaining such declaration. Fred's and Rose's shall cause their
respective investment bankers to deliver copies of their written
opinions to Fred's for inclusion in the Joint Proxy Statement,
which opinions shall be dated as of the day before the printing of
the Joint Proxy Statement, to the effect that the Merger is fair to
the Fred's Stockholders and to the Rose's Stockholders,
respectively. As promptly as practicable after the Registration
Statement shall have become effective, each of Fred's and Rose's
shall mail the Joint Proxy Statement to its respective
stockholders. Fred's shall also take any action (other than
qualifying to do business in any jurisdiction in which it is now
not so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of Fred's Common
Stock in the Merger, and Rose's shall furnish all information
concerning Rose's and the holders of Rose's Common Stock as may be
reasonably requested in connection with any such action. No
amendment or supplement to the Joint Proxy Statement or the
Registration Statement will be made by Fred's or Rose's without the
prior approval of the other party. Fred's and Rose's each will
advise the other, promptly after it receives notice thereof of the
time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop
order, of the suspension of the qualification of the Fred's Common
Stock issuable in connection with the Merger for offering or sale
in any jurisdiction, or of any request by the SEC for amendment of
the Joint Proxy Statement or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional
information.
Section 5.3 Access to Information.
(a) Subject to currently existing contractual and legal
restrictions applicable to Fred's or to Rose's or any of their
Subsidiaries, each of Fred's and Rose's shall, and shall cause each
of its Subsidiaries to, afford to the accountants, counsel,
investment bankers and other representatives of the other party
hereto reasonable access to key members of management of the other
party and to, and permit them to make such inspections as they may
reasonably require of, during normal business hours during the
period from the date of this Agreement through the Effective Time,
all their respective properties, books, contracts, commitments and
records (including, without limitation, the work papers of
independent accountants, if available and subject to the consent of
such independent accountants) and, during such period, Fred's and
Rose's shall, and shall cause each of its Subsidiaries to, furnish
promptly to the other (i) a copy of each report, schedule,
registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities
laws and (ii) all other information concerning its business,
properties and personnel as the other may reasonably request. No
investigation pursuant to this Section 5.3 shall affect any
representation or warranty in this Agreement of any party hereto or
any condition to the obligations of the parties hereto.
(b) With respect to the preparation of the respective
Audited Financial Statements of Fred's and of Rose's for inclusion
in their respective Annual Reports for their respective most
recently ended fiscal years, each party shall cause its auditors:
(i) to comply with all reasonable requests from the
other party or its auditors for access to the other party's
auditor's work papers so as to permit such other auditors to
make copies of the work papers and to assess the progress of
the audit of the respective Audited Financial Statements; and
(ii) meet with representatives of the other party and its
auditors from time to time during the course of the audit to
discuss audit plans, scope, principles and procedures.
Additionally, each party's auditors will have reasonable access to
the books and records of the other party to perform such other
procedures as such party may request.
(c) Each party shall also furnish to the other party
all Period Reports for all months during the period from the date
of this Agreement until the Effective Time, as well as all
Management Correspondence generated during such period.
(d) (i) Except as and to the extent required by law,
each of Fred's and Rose's shall not disclose or use, and it shall
cause its representatives not to disclose or use, any Confidential
Information (as defined herein) with respect to the other
furnished, or to be furnished, by the other or its representatives
to it or its representatives in connection therewith at any time or
in any manner other than in connection with its evaluation of the
Merger. For purposes of this paragraph, "Confidential
Information" means any information about either signatory entity
stamped "confidential" or identified in writing as such to the
other by the affected entity; provided that it does not include
information which the entity which seeks non-confidential treatment
shall demonstrate (i) is generally available to or known by the
public other than as a result of improper disclosure by such entity
or (ii) is obtained by such entity from a source other than the
other entity, provided that such source was not bound by a duty of
confidentiality to the other entity or another party with respect
to such information. If this Agreement is terminated, each of
Fred's and Rose's shall promptly return to the other any
Confidential Information in its possession concerning the other
entity.
(ii) For a period of one year from and after any
termination of this Agreement, neither Fred's or Rose's shall
solicit or hire any employee of the other whose salary at the
termination of employment with the other was in excess of $80,000.
Section 5.4 Compliance with the Securities Act. Not later
than 10 days prior to the Rose's Stockholder's Meeting, Rose's
shall deliver to Fred's a list of names and addresses of those
persons who, in the opinion of Rose's, at the time of Rose's
Stockholder Meeting would be "affiliates" of Rose's within the
meaning of Rule 145 under the Securities Act. Rose's also shall
provide to Fred's such information and documents as Fred's shall
reasonably request for purposes of reviewing such list. There
shall be added to such list the names and addresses of any other
person (within the meaning of Rule 145) which Fred's reasonably
identifies (by written notice to Rose's not later than the time of
the Rose's Stockholder Meeting) as being a person who may be deemed
to be an affiliate of Rose's within the meaning of Rule 145;
provided, however, that no such person identified by Fred's shall
be added to the list of affiliates of Rose's if Fred's shall
receive from Rose's, on or before the Effective Time, an opinion of
counsel reasonably satisfactory to Fred's to the effect that such
person is not an affiliate. Fred's shall not be required to
maintain the effectiveness of the Registration Statement or any
other registration statement under the Securities Act for the
purposes of resale of Fred's Common Stock by such affiliates, and
the certificates representing Fred's Common Stock received in the
Merger by such affiliates shall bear a customary legend regarding
applicable Securities Act restrictions. Such legend shall be
removed from such certificates upon request by the holders thereof
to Fred's transfer agent and the subsequent delivery to such
transfer agent of an opinion of Fred's counsel (or of counsel
satisfactory to Fred's counsel) to the effect that registration is
not required under the Securities Act or that the proposed transfer
is to be made in compliance with the requirements of Rule 145
promulgated under the Securities Act or some other specified
exemption from registration under the Securities Act. Rose's shall
use its best efforts to cause each affiliate to enter into an
agreement with Fred's in the form attached hereto as Schedule 5.4.
Section 5.5 NASDAQ Listing. Fred's shall use its reasonable
best efforts to list on NASDAQ, upon official notice of issuance,
the shares of Fred's Common Stock to be issued in connection with
the Merger.
Section 5.6 Fees and Expenses.
(a) Except as provided in this Section 5.6 and Section
5.10, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby including, without limitation, the
fees and disbursements of counsel, investment bankers and
accountants, as well as printing expenses, shall be paid by the
party incurring such costs and expenses, provided that all filing
fees (e.g., SEC, HSR Act, state qualifications, etc.) shall be
divided equally between Fred's and Rose's.
(b) (i) If this Agreement is terminated:
(A) by Fred's pursuant to Section 7.1(b) or
(c);
(B) by Rose's or Fred's pursuant to Section
7.1(d);
(C) by Rose's or Fred's pursuant to Section
7.1(e);
(D) by Rose's or Fred's pursuant to Section
7.1(g); or
(E) by Rose's or Fred's pursuant to Section
7.1(h);
then, in each case, Rose's shall pay to Fred's a Termination
Fee (as defined below) in cash..
(c) (i) A "Termination Fee" consists of (x) a
"reimbursement amount" equal to Fred's actual expenses in
connection with the Merger (i.e., the actual out-of-pocket
expenses Fred's incurs in connection with negotiating,
preparing and presenting the Letter of Intent dated March 1,
1996 between Fred's and Rose's (the "Letter of Intent"), this
Agreement and related documents, conducting Fred's due
diligence of Rose's, preparing for the Closing, and resolving
issues relating to same, which expenses shall be documented by
the submission by Fred's to Rose's of the vendors' invoices
therefor) up to a maximum amount of $250,000, plus (y) if,
prior to the first anniversary of such breach, termination or
event, either Rose's or Rose's Stockholders close a Superior
Rose's Acquisition Transaction (as defined herein), a "topping
payment", equal to the sum of 25% of the excess of any
consideration in the Superior Rose's Acquisition Transaction
over the sum of the consideration to be paid by Fred's to the
Rose's Stockholders in connection with the proposed Merger
Consideration (the "Merger Consideration"). A Termination Fee
thus shall be increased in amount if a breach, termination or
event requiring payment of the reimbursement amount portion of
a Termination Fee is later followed, prior to the first
anniversary thereof, by a Superior Rose's Acquisition
Transaction. Payment of any Termination Fee shall be made
promptly, but in no event later than, in the case of the
reimbursement amount, the second business day following the
termination giving rise to such payment and the submission by
Fred's to Rose's of the aforesaid invoices, or, in the case of
a topping payment, the closing of the Superior Rose's
Transaction.
(ii) A "Superior Rose's Acquisition Transaction" means
Rose's entering into, or announcing that it proposes to enter
into, an agreement, including, without limitation, an
agreement in principle, providing for a merger or other
business combination involving Rose's or the acquisition of a
substantial interest in, or a substantial portion of the
assets, business or operations of, Rose's (other than the
transactions contemplated by this Agreement), provided that
the value of the consideration to be received by Rose's
Stockholders in the transaction referred to therein, when
considered in the aggregate, is reasonably determined by
Rose's Board of Directors (in the good faith exercise of its
fiduciary responsibilities) to be greater than the value of
the Merger Consideration; provided further, however, that in
making such determination Rose's (if Fred's so elects) shall
credit to the value of the Merger Consideration the
Termination Fee that Rose's would be required to pay Fred's
pursuant to this Section 5.6 (and there will be no minimum bid
increment required of Fred's by Rose's in excess of such
credit in comparing the terms of the Merger with any other
proposed transaction).
(iii) Notwithstanding the foregoing, no topping
payment shall be payable in the event that (x) the Merger is
not consummated by August 31, 1996 because Fred's has failed
to perform as required by Section 5.27 of this Agreement and
(y) between the date hereof and such date Rose's shall not
have received or entertained a bona fide offer to engage in
negotiations by a third party that could result in a Superior
Rose's Acquisition Transaction. If Rose's determines that it
is not required to make any topping payment based on this
provision, it shall represent to Fred's in writing that the
events recited in (y) have not occurred.
(d) Rose's acknowledges that the agreements contained in
Section 5.6(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements,
Fred's and Sub would not enter into this Agreement. Accordingly,
if Rose's fails promptly to pay the amount due pursuant to Section
5.6(b), and, to obtain such payment, Fred's or Sub commences a suit
which results in a judgment for the fee set forth in Section
5.6(b), Rose's shall pay to Fred's or Sub its costs and expenses
(including attorneys' fees) in connection with such suit together
with interest on the amount of the fee at the prime rate of Union
Planters National Bank, N.A., Memphis in effect on the date such
payment was required to be made.
(e) The payments herein contained in this Section 5.6
are the exclusive remedies of the parties hereto in the event of a
breach hereof except for a breach of Section 5.3(d).
Section 5.7 Rose's Stock Options; Rose's Warrants.
(a) In respect of each Rose's Stock Option as
converted into a Fred's Stock Option pursuant to Section 1.5(d) and
assumed by Fred's, and the shares of Fred's Stock underlying such
option, Fred's shall file as soon as practicable after the
Effective Time with the SEC, and keep current the effectiveness of,
a registration statement on Form S-8 or other appropriate form for
as long as such options remain outstanding (and maintain the
current status of the prospectus with respect thereto).
(b) Rose's agrees that it will not grant any stock
options, restricted stock, stock appreciation rights, limited stock
appreciation rights, warrants, or similar instruments or rights,
and will not permit cash payments to holders of Rose's Stock
Options or Rose's Warrants in lieu of the substitution therefor of
Fred's Stock Options and Fred's Warrants, respectively, as
described in Section 1.5(d) (provided that a cashless exercise
currently permitted with no other authorization under the terms of
a Rose's Stock Option shall not be considered such a prohibited
cash payment).
(c) Rose's agrees that it will not amend, or alter or
adjust the number of shares of Rose's Common Stock issuable under,
or the exercise price, the term or the vesting schedule of, any
Rose's Stock Option or of any Rose's Warrant, except to the extent
required by the terms thereof or as contemplated hereby.
Section 5.8 Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use
reasonable best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions
contemplated by this Agreement, including, but not limited to: (i)
the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from all Governmental Entities and the
making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all
reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any
Governmental Entity (including those in connection with the HSR Act
and State Takeover Approvals), (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, including
seeking to have any stay or temporary restraining order entered by
any court or other Governmental Entity vacated or reversed, and
(iv) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by this
Agreement. No party to this Agreement shall consent to any
voluntary delay of the consummation of the Merger at the behest of
any Governmental Entity without the consent of the other parties to
this Agreement, which consent shall not be unreasonably withheld.
(b) Each party shall use all reasonable best efforts to
not take any action, or enter into any transaction, which would
cause any of its representations or warranties contained in this
Agreement to be untrue or result in a breach of any covenant made
by it in this Agreement.
(c) Notwithstanding anything to the contrary contained
in this Agreement, (i) neither Fred's nor Rose's shall be obligated
to use its reasonable best efforts or to take any action pursuant
to this Section 5.8 if the Board of Directors of Fred's or Rose's,
as the case may be, shall conclude in good faith on the basis of
the advice of Rose's Counsel in the case of Rose's and Fred's
Counsel in the case of Fred's that such action would violate the
fiduciary obligations of such Board under applicable law, and (ii)
in connection with any filing or submission required or action to
be taken by either Fred's or Rose's to effect the Merger and to
consummate the other transactions contemplated hereby, Rose's shall
not, without Fred's prior written consent, commit to any material
divestiture transaction, and neither Fred's nor any of its
Affiliates shall be required to divest or hold separate or
otherwise take or commit to take any action that limits its freedom
of action with respect to, or its ability to retain, Rose's or any
of the material businesses, or assets of Fred's or any of its
Affiliates or that otherwise would have a Material Adverse Effect
on Fred's.
Section 5.9 Public Announcements. The initial press release
relating to the Merger dated March 1, 1996 was a joint press
release, and thereafter Rose's and Fred's each shall consult with
the other prior to issuing any press releases or otherwise making
public announcements with respect to the Merger and the other
transactions contemplated by this Agreement and prior to making any
filings with any third party and/or any Governmental Entity
(including any national securities interdealer quotation service)
with respect thereto, except as may be required by law or by
obligations pursuant to any listing agreement with or rules of
NASDAQ.
Section 5.10 Real Estate Transfer and Gains Tax. The
portion of the consideration allocable to the real property of
Rose's and its Subsidiaries shall be determined by Fred's in its
reasonable discretion. Rose's Stockholders shall be deemed to have
agreed to be bound by the allocation established pursuant to this
Section 5.10 in the preparation of any return with respect to any
state or local tax which is attributable to the transfer of the
beneficial ownership of Rose's or its Subsidiaries' real property.
Section 5.11 State Takeover Laws. If any "fair price",
"business combination" or "control share acquisition" statute or
other similar statute or regulation shall become applicable to the
transactions contemplated hereby, Fred's and Rose's and their
respective Boards of Directors shall use their reasonable best
efforts to grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated
hereby and otherwise act to minimize the effects of any such
statute or regulation on the transactions contemplated hereby.
Section 5.12 Notification of Certain Matters. Fred's shall
use its reasonable best efforts to give prompt notice to Rose's,
and Rose's shall use its reasonable best efforts to give prompt
notice to Fred's, of (i) the occurrence, or non-occurrence, of any
event the occurrence, or nonoccurrence, of which it is aware and
which would be reasonably likely to cause (x) any representation or
warranty contained in this Agreement to be untrue or inaccurate in
any material respect or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in
all material respects, (ii) any failure of Fred's or Rose's, as the
case may be, to comply in a timely manner with or satisfy any
covenant, condition or agreement to be complied with or satisfied
by it hereunder or (iii) any change or event which would be
reasonably likely to have a Material Adverse Effect on Fred's or
Rose's, as the case may be; provided, however, that the delivery of
any notice pursuant to this Section 5.12 shall not limit or
otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 5.13 Directors and Officers. The directors and
officers of Sub at the Effective Time shall, from and after the
Effective Time, be the directors and officers of the Surviving
Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation
or removal in accordance with the Charter and By-laws.
Section 5.14 Executive and Employee Agreements. On or before
the Closing, Mr. Anderson and Fred's shall enter into written
agreements in the forms attached hereto as Schedule 5.14, providing
for a limitation of compensation payable to him as a result of the
Merger and any termination of his employment, a consulting
arrangement, and the issuance to him of a number of shares of
Fred's Common Stock (the "Anderson Shares") as provided therein.
Section 5.15 Designation of Director. Fred's shall cause a
member of Rose's current Board of Directors (such person to be
designated by the present Rose's Board of Directors, subject to the
reasonable approval of such designee by the Fred's Board of
Directors) to be appointed at the Effective Time to Fred's Board of
Directors, which appointee shall serve with all other current
directors of Fred's until the next annual meeting of Fred's at
which directors are elected or until a successor director has been
duly elected or appointed and qualified or until such person's
earlier death, resignation or removal in accordance with Fred's
Charter and By-laws. Further, Fred's shall use reasonable efforts
to cause such appointee to be nominated as a director of Fred's for
three years from Closing unless the nominating committee of Fred's
Board of Directors determines in good faith that such nomination is
not in the best interest of Fred's Stockholders.
Section 5.16 Indemnification. From and after the Effective
Time, Fred's and the Surviving Corporation shall indemnify the past
and present directors and officers (the "Indemnified Parties") of
Rose's and of its Subsidiaries (including without limitation,
against all losses, expenses (including reasonable attorneys'
fees), claims damages and liabilities, as and when incurred,
arising out of the actions or omissions occurring at or prior to
the Effective Time that are in whole or in part based upon or
arising out of the fact that such person is or was a director or
officer of Rose's and arising out of or pertaining to the
transactions contemplated by this Agreement),to the fullest extent
permitted by Rose's Certificate of Incorporation and Bylaws in
effect at the time of the Merger (in the case of the Surviving
Corporation) and to the fullest extent permitted by Fred's Charter
and Bylaws at the time of the Merger (in the case of Fred's),
provided that such indemnification is permitted by applicable law.
In the event of any such loss, expense, claim, damage, or liability
(whether arising before or after the Effective Time), (i) Fred's or
the Surviving Corporation shall pay the reasonable fees and
expenses of counsel selected by it, which counsel shall be
reasonably satisfactory to the Indemnified Parties, promptly after
statements therefor are received, and (ii) Fred's or the Surviving
Corporation will cooperate in the defense of any such matter;
provided, however, that Fred's or the Surviving Corporation shall
not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld).
(b) If Fred's, the Surviving Corporation, or any of
their respective successors or assigns (i) consolidates with or
merges into any other person and shall not be the continuing or
surviving person of such consolidation or merger or (ii) transfers
all or substantially all of its properties and assets to any
person, then and in each such case, proper provision shall be made
so that such successors or assigns of Fred's or the Surviving
Corporation, as the case may be, shall assume the obligations set
forth in this Section 5.16.
Section 5.17 Lending and Credit Arrangements. Fred's (i)
hereby ratifies and reaffirms its prior consent to the execution
and delivery by Rose's of a financing commitment letter having
substantially the same form and the same substance as that certain
commitment letter draft attached hereto as Schedule 5.17(a) (the
"Financing Commitment") issued by Foothill Capital Corporation and
Jackson National Life Insurance Company (collectively, the
"Prospective Lenders") and incorporating the related list of loan
covenants attached hereto as Schedule 5.17(b) that would be
acceptable to Fred's (provided, however, that Fred's acknowledges
that the attached list of covenants is not necessarily exclusive,
and Rose's acknowledges that Fred's does not agree to accept loan
covenants not listed which are not customary and reasonable), and
to Rose's performance thereunder, and (ii) hereby acknowledges that
the Prospective Lenders have agreed therein to continue to finance
the Surviving Corporation after the Merger (subject to there being
no events of default under the relevant loan and security
documentation), without requiring Fred's to guarantee or otherwise
be liable for the Surviving Corporation's loan obligations. Rose's
and Fred's each hereby consent to, and agree to use reasonable best
efforts in accordance with Section 5.8 of this Agreement to enter
into and consummate, a financing transaction as to Rose's and the
Surviving Corporation with the Prospective Lenders, upon terms and
conditions no less favorable in all material respects to Rose's and
the Surviving Corporation, respectively, than those contained in
the Financing Commitment (a "Financing Transaction"), provided,
however, and without in any way limiting the foregoing, that
Rose's, Fred's, Sub and the Surviving Corporation, as applicable,
each shall use such reasonable best efforts to negotiate, execute,
deliver and perform such agreements, financing statements and
instruments reasonably required by the Prospective Lenders to
consummate a Financing Transaction, such that (i) the closing of
the Financing Transaction as to Rose's shall occur no later than
May 31, 1996, and (ii) the closing of the Financing Transaction as
to the Surviving Corporation shall occur simultaneously with the
Closing. Rose's shall notify Fred's in advance of Rose's seeking
or needing to seek waivers from its lenders or the payment of any
material banking fees. Rose's, on or before the Closing, shall
cause (i) repayment of all related party debt and (ii) Rose's
third-party debt to not be deemed in default or accelerated or,
except as contemplated by the Financing Commitment, be made more
costly by virtue of the Merger. Nothing contained herein shall
preclude Rose's from proceeding with the Financing Transaction
without the consent of Fred's.
Section 5.18 Tax Representations. Fred's and Rose's shall
cause their respective chief executive officers and chief financial
officers to execute representations in the respective forms set
forth on Schedule 5.18 hereto with respect to various matters
relating to the tax treatment of the Merger.
Section 5.19 Reverse Stock Split. Rose's shall take all
steps necessary or appropriate to effectuate (including presenting
to Rose's Stockholders for their approval if Rose's counsel shall
advise such is required under applicable law) a one-for-100
combination of the outstanding shares of Rose's Common Stock (the
"Reverse Split") to be effected immediately prior to the Effective
Time, so that each holder of a fractional share of Rose's Common
Stock after the Reverse Split will be paid an amount of cash
(without interest), rounded to the nearest cent, determined by
multiplying (i) the average of the high and low prices for a share
of Fred's Common Stock on NASDAQ on the date of the Effective Time
(or, if Fred's Common Stock does not trade on NASDAQ on such date,
the first date of trading of Fred's Common Stock on NASDAQ after
the Effective Time) by (ii) the number of shares of Fred's Common
Stock into which such holder's fractional share of Rose's Common
Stock would have been converted at the Effective Time pursuant to
Section 1.5(b)(i) if the Reverse Split had not occurred. Upon the
Reverse Split, the Conversion Number shall be adjusted as set forth
in Section 1.10.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect
the Merger. The respective obligations of each party to effect the
Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have
been duly approved by the requisite vote of Rose's Stockholders in
accordance with applicable law and the Restated Certificate of
Incorporation and By-laws of Rose's, and the Fred's Stockholders'
Approvals shall have been obtained by the requisite vote of the
Fred's Stockholders in accordance with applicable rules of NASDAQ,
applicable law (including the Exchange Act and the regulations
promulgated thereunder) and the Charter and By-laws of Fred's.
(b) Listing on NASDAQ. The Fred's Common Stock issuable
in the Merger shall have been authorized for listing on NASDAQ,
subject to official notice of issuance.
(c) HSR and Other Approvals. The following shall have
transpired:
(i) The waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
(ii) All authorizations, consents, orders, declarations
or approvals of, or filings with, or terminations or
expirations of waiting periods imposed by, any Governmental
Entity, which the failure to obtain, make or occur would have
the effect of making the Merger or any of the transactions
contemplated hereby illegal or would have a Material Adverse
Effect on Fred's (assuming the Merger had taken place), shall
have been obtained, shall have been made or shall have
occurred.
(d) Registration Statement. The Registration Statement
shall have become effective in accordance with the provisions of
the Securities Act. No stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or, to the
Knowledge of Fred's or Rose's, threatened by the SEC. All
necessary state securities or blue sky authorizations (including
State Takeover Approvals) shall have been received. The shares of
Fred's Stock to be issued to the Rose's Stockholders as Merger
Consideration and the Anderson Shares may be immediately resold
publicly by the Rose's Stockholders and by Mr. Anderson upon
issuance and delivery of the shares to them, subject to compliance
with applicable securities laws and regulations.
(e) No Order. No court or other Governmental Entity
having jurisdiction over Rose's or Fred's, or any of their
respective Subsidiaries, shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary
or permanent) which is then in effect and has the effect of making
the Merger or any of the transactions contemplated hereby illegal.
Section 6.2 Conditions to Obligation of Rose's to Effect the
Merger. The obligation of Rose's to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the
following additional conditions:
(a) Performance of Obligations; Representations and
Warranties. Each of Fred's and Sub shall have performed in all
material respects each of its agreements contained in this
Agreement required to be performed on or prior to the Effective
Time, each of the representations and warranties of Fred's and Sub
contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on
and as of such date (other than representations and warranties
which address matters only as of a certain date, which shall be
true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be
true and correct in all material respects on and as of the
Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a
certain date, which shall be true and correct in all material
respects as of such certain date), in each case except as
contemplated or permitted by this Agreement, and Rose's shall have
received a certificate signed on behalf of each of Fred's and Sub
by its Chief Executive Officer and its Chief Financial Officer to
such effect.
(b) Legal Opinions. Rose's shall have received an
opinion, in form and substance reasonably satisfactory to Rose's,
dated the Closing, of Fred's Counsel as to the matters set forth on
Schedule 6.2(b).
(c) Certain Executive and Employee Agreements. The
agreements required to have been entered into by Fred's or the
Surviving Corporation with Mr. Anderson on or before the Closing
shall have been entered into and remained in full force and effect
without breach thereof.
(d) Fairness Opinion. Rose's shall have received a
fairness opinion of its investment banker dated the day before the
printing of the Joint Proxy Statement to the effect that the
consideration to be received by the Rose's Stockholders in the
Merger is fair to the Rose's Stockholders from a financial point of
view.
(e) Designation of Director. Fred's shall have caused
the appointment, effective at the Effective Time, of a designated
Rose's director to the Board of Directors of Fred's as required by
Section 5.15.
(f) Material Adverse Change. There shall not have
occurred any Material Adverse Change as to Fred's since February 3,
1996.
(h) Other. Fred's shall have provided Rose's and its
counsel such other information and documents and assurances as they
may reasonably request.
(i) Tax Representations and Opinion. Rose's shall have
received the representations of Fred's in form satisfactory to
Rose's and of the substance set forth in Schedule 5.18 as to the
tax-free nature of the Merger for federal income tax purposes.
Rose's shall have received an opinion of counsel or auditors per
Section 6.3(e) in form and substance reasonably satisfactory to
Rose's, dated the Effective Time, substantially to the effect that,
on the basis of facts, representations and assumptions set forth in
such opinion which are consistent with the state of facts existing
as of the Effective Time, for federal income tax purposes:
(i) the Merger will constitute a "reorganization" within
the meaning of Section 368(a) of the Code, and Rose's, Sub and
Fred's will each be a party to that reorganization within the
meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Fred's or
Rose's as a result of the Merger;
(iii) no gain or loss will be recognized by the
Rose's Stockholders upon the conversion of their shares of
Rose's Common Stock into shares of Fred's Common Stock
pursuant to the Merger, except with respect to cash, if any,
received in lieu of fractional shares of Rose's Common Stock
or Fred's Common Stock or for Dissenting Shares;
(iv) the aggregate tax basis of the shares of Fred's
Common Stock received in exchange for shares of Rose's Common
Stock pursuant to the Merger (including fractional shares of
Fred's Common Stock for which cash is received) will be the
same as the aggregate tax basis of such shares of Rose's
Common Stock;
(v) the holding period for shares of Fred's Common Stock
received in exchange for shares of Rose's Common Stock
pursuant to the Merger will include the holder's holding
period for such shares of Rose's Common Stock, provided such
shares of Rose's Common Stock were held as capital assets by
the holder at the Effective Time; and
(vi) a stockholder of Rose's who receives cash in lieu of
a fractional share of Rose's Common Stock or Fred's Common
Stock or for Dissenting Shares will recognize gain or loss
equal to the difference, if any, between such stockholder's
basis in the fractional share or the Dissenting Shares (as
described in clause (iv) above) and the amount of cash
received.
In rendering such opinion, the opining counsel or auditors may
receive and rely upon representations from Fred's, Rose's, and
others, and the opinion shall state that Fred's may also rely on
such opinion.
Section 6.3 Conditions to Obligations of Fred's and Sub to
Effect the Merger. The obligations of Fred's and Sub to effect the
Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions:
(a) Performance of Obligations; Representations and
Warranties. Rose's shall have performed in all material respects
each of its agreements contained in this Agreement required to be
performed on or prior to the Effective Time, each of the
representations and warranties of Rose's contained in this
Agreement that is qualified by materiality shall be true and
correct on and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address
matters only as of a certain date, which shall be true and correct
as of such certain date) and each of the representations and
warranties that is not so qualified shall be true and correct in
all material respects on and as of the Effective Time as if made on
and as of such date (other than representations and warranties
which address matters only as of a certain date, which shall be
true and correct in all material respects as of such certain date),
in each case except as contemplated or permitted by this Agreement
and Fred's shall have received a certificate signed on behalf of
Rose's by its Chief Executive Officer and its Chief Financial
Officer to such effect.
(b) Legal Opinion. Fred's shall have received an
opinion of Rose's Counsel, in form and substance reasonably
satisfactory to Fred's and to Fred's lenders, dated the Closing, as
to the matters set forth on Schedule 6.3(b).
(c) Certain Executive and Employee Agreements. The
agreements required to have been entered into by Fred's with Mr.
Anderson on or before the date of the Closing shall have been
entered into and remained in full force and effect without breach
thereof and Mr. Anderson shall have resigned all offices he may
hold with Rose's, unless the failure to satisfy this condition is
due to failure, refusal or breach by Fred's to execute the forms of
agreement set forth on Schedule 5.14.
(d) Fairness Opinion. Fred's shall have received a
fairness opinion of its investment banker dated the day before the
printing of the Joint Proxy Statement to the effect that the Merger
is fair to the Fred's Stockholders.
(e) Tax Representations and Opinion. Fred's shall have
received the representations of Rose's in form satisfactory to
Fred's and of the substance set forth in Schedule 5.18 as to the
tax-free nature of the Merger for federal income tax purposes.
Fred's shall have received the opinion of counsel or auditors
satisfactory to Fred's in form satisfactory to Fred's and of the
substance set forth in Section 6.2(i) as to the tax-free nature of
the Merger for federal income tax purposes.
(f) Investment Banker Fees. The agreement of Rose's
investment banker to limit its compensation relating to the Merger
(including the delivery of a fairness opinion to Rose's) to not
more than $900,000 in the aggregate shall have been remained in
full force and effect without breach thereof by such investment
banker.
(g) Indebtedness. There shall be in effect at the
Closing (and to be effective from and after the Closing as to the
Surviving Corporation) either (i) financing with Rose's present
lenders with terms and covenants reasonably satisfactory to Fred's
or (ii) the Financing Transaction contemplated by the Financing
Commitment. The payments required to be made to lenders and
creditors of Rose's pursuant to (i) the applicable agreements
relating thereto and (ii) those required to be made pursuant to
Section 5.17, shall have been made, Rose's shall not be in default
and there shall not have occurred an event of default under any
covenants or agreements with the Prospective Lenders, and no fees
shall have been paid by Rose's to the Prospective Lenders except as
contemplated in the Financing Commitment. In addition, Rose's
shall not pay any fees or penalties of any sort to Rose's existing
lenders in connection with the termination of Rose's existing
financing arrangements, except for fees presently outlined in the
existing financing arrangements.
(h) Material Adverse Change. There shall not have
occurred any Material Adverse Change as to Rose's since January 27,
1996.
(i) Other. Rose's shall have provided Fred's and its
counsel such other information and documents and assurances as they
may reasonably request. All steps necessary to effectuate the
Reverse Split shall have been taken, including any affirmative vote
of the Rose's Stockholders which Rose's counsel may advise is
required under applicable law.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after any
approval of the matters presented in connection with the Merger by
the Rose's Stockholders or Fred's Stockholders:
(a) by mutual written consent of Fred's and Rose's;
(b) by either Fred's or Rose's if the other party shall
have failed to comply in any material respect with any of its
covenants or agreements contained in this Agreement required to be
complied with prior to the date of such termination, which failure
to comply has not been cured within five business days following
receipt by such other party of written notice of such failure to
comply; provided, however, that if any such breach is curable by
the breaching party through the exercise of the breaching party's
best efforts and for so long as the breaching party shall be so
using its best efforts to cure such breach, the non-breaching party
may not terminate this Agreement pursuant to this paragraph;
(c) by either Fred's or Rose's if there has been (i) a
breach by the other party (in the case of Fred's including any
material breach by Sub) of any representation or warranty that is
not qualified as to materiality which has the effect of making such
representation or warranty not true and correct in all material
respects or (ii) a breach by the other party (in the case of
Fred's, including any material breach by Sub) of any representation
or warranty that is qualified as to materiality, in each case which
breach has not been cured within five business days following
receipt by the breaching party of written notice of the breach;
provided, however, that if any such breach is curable by the
breaching party through the exercise of the breaching party's best
efforts and for so long as the breaching party shall be so using
its best efforts to cure such breach, the non-breaching party may
not terminate this Agreement pursuant to this paragraph;
(d) by Fred's or Rose's if the Merger has not been
effected on or prior to the close of business on August 31, 1996
(the "Termination Date"); provided, however, that the right to
terminate this Agreement pursuant to this Section 7.1(d) shall not
be available to any party whose failure to fulfill any of its
obligations contained in this Agreement has been the cause of, or
resulted in, the failure of the Merger to have occurred on or prior
to the aforesaid date;
(e) by Fred's or Rose's if the Rose's Stockholders do
not approve this Agreement at Rose's Stockholder Meeting or any
adjournment or postponement thereof;
(f) by Fred's or Rose's if the Fred's Stockholders'
Approvals are not obtained at the Fred's Stockholder Meeting or any
adjournment or postponement thereof;
(g) by Fred's or Rose's if the Board of Directors of
Rose's reasonably determines that a Takeover Proposal, if
consummated, would constitute a Superior Rose's Acquisition
Transaction; provided, however, that Rose's may not terminate this
Agreement pursuant to this Section 7.1(g) unless and until three
business days have elapsed following delivery to Fred's of a
written notice of such determination by the Board of Directors of
Rose's (which written notice shall inform Fred's of all material
terms and conditions of the Takeover Proposal, including the
identity of such third party);
(h) by Fred's if (i) the Board of Directors of Rose's
shall not have recommended, or shall have resolved not to
recommend, or shall have modified or withdrawn its recommendation
of the Merger or declaration that the Merger is advisable and fair
to and in the best interest of Rose's and its stockholders, or
shall have resolved to do so, (ii) the Board of Directors of Rose's
shall have recommended to the Rose's Stockholders any Takeover
Proposal or shall have resolved to do so, or (iii) a tender offer
or exchange offer for 20% or more of the outstanding shares of
capital stock of Rose's is commenced, and, after ten (10) business
days, the Board of Directors of Rose's fails to recommend against
acceptance of such tender offer or exchange offer by its
stockholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer by its
stockholders);
(i) by Rose's if (i) the Board of Directors of Fred's
shall not have recommended, or shall have resolved not to recommend
or shall have modified or withdrawn its recommendation of the
Fred's Stockholders' Approvals or declaration that the Merger is
advisable and fair to and in the best interests of Fred's and its
stockholders, or shall have resolved to do so, (ii) Fred's shall
have entered into, or announced that it proposes to enter into, an
agreement, including, without limitation, an agreement in
principle, providing for a merger or other business combination
involving Fred's or the acquisition of a substantial interest in,
or a substantial portion of the assets, business or operations of,
Fred's (other than the transactions contemplated by this
Agreement), or (iii) any Person shall have commenced a tender or
exchange offer for 20% or more of the then outstanding shares of
Fred's Common Stock or publicly proposed any bona fide merger,
consolidation or acquisition of all or substantially all the assets
of Fred's, or other similar business combination, and after ten
(10) business days, the Board of Directors of Fred's fails to
recommend against acceptance of such offer by its stockholders
(including taking no position with respect to the acceptance of
such offer by its stockholders); or
(j) by Rose's prior to the mailing of the Joint Proxy
Statement if the Fred's Average Price is less than $5.00.
The right of any party hereto to terminate this Agreement pursuant
to this Section 7.1 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
party hereto, any person controlling any such party or any of their
respective officers or directors, whether prior to or after this
Agreement.
Section 7.2 Effect of Termination. In the event of
termination of this Agreement by either Fred's or Rose's, as
provided in Section 7.1, this Agreement shall forthwith terminate
and there shall be no liability hereunder on the part of Rose's,
Fred's, Sub or their respective officers or directors (except for
the last sentence of Section 5.3 and the entirety of Section 5.6,
which shall survive the termination); provided, however, that
nothing contained in this Section 7.2 shall relieve any party
hereto from any liability for any willful breach of a
representation or warranty contained in this Agreement or the
breach of any covenant contained in this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement
shall terminate at the Effective Time or upon the termination of
this Agreement pursuant to Section 7.1, as the case may be, except
that the agreements set forth in Article I and Sections 4.4 and
5.12 and this Article VIII shall survive the Effective Time, and
those set forth in Sections 5.6 and 7.2 and this Article VIII and
the Letter of Intent shall survive termination.
Section 8.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given when
delivered personally, one day after being delivered to an overnight
courier or when telecopied (with a confirmatory copy sent by
overnight courier) to the parties at the following addresses (or at
such other address for a party as shall be specified by like
notice):
if to Rose's to:
R. Edward Anderson
Rose's Stores, Inc.
P.H. Rose Building
218 South Garnett Street
Henderson, North Carolina 27536
Facsimile: 919/430-2600
with a copy to:
Henry O. Smith III, Esq.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Facsimile: 212/969-2900
if to Fred's to:
Michael J. Hayes
Fred's, Inc.
4300 New Getwell Road
Memphis, Tennessee 38118
Facsimile: 901/362-3733 ext. 3777
with a copy to:
Sam D. Chafetz, Esq.
Waring Cox, PLC
50 N. Front Street, Suite 1300
Memphis, Tennessee 38103
Facsimile: 901/543-8036
Section 8.3 Interpretation. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of
this Agreement unless otherwise indicated. The table of contents,
headings and list of defined terms contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement,
they shall be deemed to be followed by the words "without
limitation."
Section 8.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other
parties.
Section 8.5 Entire Agreement; No Third-Party Beneficiaries.
This Agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof. This
Agreement is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 8.6 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
Tennessee, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law thereof. EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE ACTIONS OF FRED'S, ROSE'S, OR SUB IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
Section 8.7 Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties.
Section 8.8 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 and legal substance of the
transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated
as originally contemplated to the fullest extent possible.
Section 8.9 Enforcement of this Agreement. The parties
hereto agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, such
remedy being in addition to any other remedy to which any party is
entitled at law or in equity. Each party hereto hereby irrevocably
and unconditionally consents to submit to the exclusive
jurisdiction of the United States District Court located in the
Western District of the State of Tennessee (unless such courts
assert no jurisdiction, in which case Rose's consents to the
exclusive jurisdiction of the courts of the State of Tennessee) for
any actions, suits or proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby (and each
party hereto agrees not to commence any action, suit or proceeding
relating thereto except in such courts), and further agrees that
service of any process, summons, notice or document by U.S.
registered mail to the addresses set forth herein shall be
effective service of process for any such action, suit or
proceeding brought against the each party in such court. Each
party hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated
hereby, in the United States District Courts located in the Western
District of the State of Tennessee (unless such courts assert no
jurisdiction, in which case each party consents to the exclusive
jurisdiction of the courts of the State of Tennessee). Each party
hereby further irrevocably and unconditionally waives and agrees
not to plead or to claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an
inconvenient forum.
Section 8.10 Amendment. This Agreement may be amended by the
parties hereto, by or pursuant to action taken by their respective
Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the Fred's
Stockholders and Rose's Stockholders, but, after any such approval,
no amendment shall be made which by law requires further approval
by such stockholders without such further approval. This Agreement
may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 8.11 Waiver. At any time prior to the Effective
Time, the parties hereto may (i) extend the time for the
performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein which may legally be
waived. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
IN WITNESS WHEREOF, Fred's, Sub and Rose's have caused this
Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first above written.
FRED'S, INC. and
FR ACQUISITION CORP.
By: /s/ Michael J. Hayes
---------------------------
Michael J. Hayes, President
and Chief Executive Officer
ROSE'S STORES, INC.
By: /s/ R. Edward Anderson
---------------------------
R. Edward Anderson,
Chairman, President and
Chief Executive Officer
TABLE OF DEFINITIONS
Page
"affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"affiliates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
"Agreement". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Anderson Shares". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
"Audited Financial Statements" . . . . . . . . . . . . . . . . . . . . . . .16
"beneficial owner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
"beneficially owns". . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
"Blue Sky Laws". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"blue sky" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"business combination" . . . . . . . . . . . . . . . . . . . . . . . . . . .30
"Certificate of Merger". . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Closing". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"COBRA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Compensation and Benefit Plans" . . . . . . . . . . . . . . . . . . . .11, 19
"Constituent Corporations" . . . . . . . . . . . . . . . . . . . . . . . . . 1
"control share acquisition". . . . . . . . . . . . . . . . . . . . . . . . .30
"Conversion Number". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Creditors' Accords" . . . . . . . . . . . . . . . . . . . . . . . . . .30, 31
"Del.C." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Dissenting Share" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Effective Time" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Environmental laws" . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
"ERISA Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
"ERISA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
"Escrow Shares". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7, 8
"Exchange Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Exchange Fund". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"fair price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
"Fred's Annual Report" . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Fred's Average Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Fred's Business Personnel". . . . . . . . . . . . . . . . . . . . . . . . .12
"Fred's Common Stock". . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Fred's Counsel" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
"Fred's Permits" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
"Fred's Preferred Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Fred's SEC Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Fred's Stock Option". . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Fred's Stockholder Meeting" . . . . . . . . . . . . . . . . . . . . . . . .25
"Fred's Stockholders". . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Fred's Stockholders' Approvals" . . . . . . . . . . . . . . . . . . . . . . 7
"FUNB" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"GAAP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Governmental Entity". . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"hazardous materials". . . . . . . . . . . . . . . . . . . . . . . . . . . .12
"HSR Act". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"include". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
"includes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
"including". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
"Intellectual Property Rights" . . . . . . . . . . . . . . . . . . . . . . .12
"Interim Operations Committee" . . . . . . . . . . . . . . . . . . . . . . .24
"IRS". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 18
"Joint Proxy Statement". . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Knowledge of Fred's". . . . . . . . . . . . . . . . . . . . . . . . . . . .10
"Knowledge of Rose's". . . . . . . . . . . . . . . . . . . . . . . . . . . .17
"Letter of Intent" . . . . . . . . . . . . . . . . . . . . . . . . . . .26, 27
"Management Correspondence". . . . . . . . . . . . . . . . . . . . . . . . .16
"Material Adverse Change". . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Material Adverse Effect". . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Merger" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"multiemployer plan" . . . . . . . . . . . . . . . . . . . . . . . . . .11, 18
"NASDAQ" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"owns" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
"pension plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 18
"Period Reports" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
"Plan of Reorganization" . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Registration Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"reimbursement amount" . . . . . . . . . . . . . . . . . . . . . . . . . . .27
"reorganization" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
"Rose's Annual Report" . . . . . . . . . . . . . . . . . . . . . . . . . . .15
"Rose's Auditors". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
"Rose's Business Personnel". . . . . . . . . . . . . . . . . . . . . . . . .19
"Rose's Common Stock". . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Rose's Counsel" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
"Rose's Multiemployer Plan". . . . . . . . . . . . . . . . . . . . . . .11, 18
"Rose's Permits" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
"Rose's Plan". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 18
"Rose's SEC Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . .15
"Rose's Stock Option Plans". . . . . . . . . . . . . . . . . . . . . . . . .14
"Rose's Stock Option". . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Rose's Stock Options" . . . . . . . . . . . . . . . . . . . . . . . . . . .14
"Rose's Stockholder Meeting" . . . . . . . . . . . . . . . . . . . . . . . .25
"Rose's Stockholders". . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Rose's" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Section 262". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Share Issuance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"State Takeover Approvals" . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Stockholder Meetings" . . . . . . . . . . . . . . . . . . . . . . . . . . .25
"Sub". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Superior Rose's Acquisition Transaction". . . . . . . . . . . . . . . . . .28
"Surviving Corporation". . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Takeover Proposal". . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
"Tax Return" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
"Tax". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
"Taxes". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
"Termination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . .31, 36
"Termination Fee". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
"topping payment". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
"welfare plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 18
"without limitation.". . . . . . . . . . . . . . . . . . . . . . . . . . . .38
"Worker Safety Laws" . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
LIST OF SCHEDULES
Page
Schedule 2.12(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Schedule 2.12(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Schedule 2.12(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Schedule 3.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Schedule 3.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Schedule 3.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Schedule 3.10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Schedule 3.11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Schedule 3.12(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Schedule 3.12(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Schedule 3.12(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Schedule 3.13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Schedule 3.14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Schedule 3.15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Schedule 4.1(b)(viii). . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Schedule 4.1(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Schedule 5.4.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Schedule 5.14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Schedule 5.17(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Schedule 5.17(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Schedule 5.18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Schedule 6.2(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Schedule 6.3(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Schedule 2.12(a) Fred's Benefit Plan Matters . . . . . . . . . . . . . . . .11
Schedule 2.12(b) Fred's Benefit Plan Matters . . . . . . . . . . . . . . . .11
Schedule 2.12(c) Fred's Benefit Plan Matters . . . . . . . . . . . . . . . .12
Schedule 3.7 Rose's Changes or Events. . . . . . . . . . . . . . . . . . . .16
Schedule 3.8 Rose's Permits and Compliance . . . . . . . . . . . . . . . . .17
Schedule 3.9 Rose's Tax Matters. . . . . . . . . . . . . . . . . . . . . . .18
Schedule 3.10 Rose's Actions and Proceedings . . . . . . . . . . . . . . . .18
Schedule 3.11 Rose's Certain Agreements. . . . . . . . . . . . . . . . . . .18
Schedule 3.12(a) Rose's Benefit Plan Matters . . . . . . . . . . . . . . . .18
Schedule 3.12(b) Rose's Benefit Plan Matters . . . . . . . . . . . . . . . .19
Schedule 3.12(c) Rose's Benefit Plan Matters . . . . . . . . . . . . . . . .19
Schedule 3.13 Rose's Worker Safety and Environmental Laws. . . . . . . . . .19
Schedule 3.14 Rose's Liabilities . . . . . . . . . . . . . . . . . . . . . .19
Schedule 3.15 Rose's Labor Matters . . . . . . . . . . . . . . . . . . . . .20
Schedule 4.1(b)(viii) Rose's Actions re Compensation . . . . . . . . . . . .23
Schedule 4.1(c) Rose's Actions Requiring Notice. . . . . . . . . . . . . . .24
Schedule 5.4. Rose's Affiliates' Letter. . . . . . . . . . . . . . . . . . .27
Schedule 5.14 Anderson Agreements. . . . . . . . . . . . . . . . . . . . . .31
Schedule 5.17(a) Financing Commitment Letter . . . . . . . . . . . . . . . .31
Schedule 5.17(b) Financing Covenants . . . . . . . . . . . . . . . . . . . .31
Schedule 5.18 Tax Representations. . . . . . . . . . . . . . . . . . . . . .32
Schedule 6.2(b) Fred's Counsel's Opinion . . . . . . . . . . . . . . . . . .33
Schedule 6.3(b) Rose's Counsel's Opinion . . . . . . . . . . . . . . . . . .35