STANDSTILL AGREEMENT
This Standstill Agreement (this "Agreement") is entered
into as of August 20, 1998 between El Corte Ingles,
S.A., a Spanish corporation ("ECI"), and Gottschalks
Inc., a Delaware corporation ("Gottschalks").
RECITALS
WHEREAS, pursuant to that certain Asset Purchase
Agreement dated as of July 21, 1998 (the "Asset
Purchase Agreement"; all capitalized terms used herein
and not otherwise defined shall have the meanings given
to such terms therein) by and among Gottschalks, ECI
and The Xxxxxx Company, a California corporation and a
wholly-owned subsidiary of ECI ("Xxxxxx"), Gottschalks
has agreed to acquire from Xxxxxx substantially all of
the assets and certain liabilities of Xxxxxx for
certain consideration, including, but not limited to,
certain shares of Common Stock, par value $0.01 per
share, of Gottschalks (the "Gottschalks Common Stock"),
all as more fully set forth in the Asset Purchase
Agreement; and
WHEREAS, pursuant to the Asset Purchase Agreement,
Xxxxxx shall acquire as of the date hereof, 2,095,900
shares of Gottschalks Common Stock (such shares,
together with all Gottschalks Common Stock subsequently
acquired by Xxxxxx, ECI, or its Affiliates or
Associates, the "ECI Shares");
WHEREAS, ECI and Gottschalks are entering into this
Agreement to define certain rights between ECI and
Gottschalks in respect of the ECI Shares and certain
other matters in consideration of the mutual covenants
contained herein; and
WHEREAS, execution and delivery of this Agreement by
the parties hereto is a condition precedent to the
closing of the Asset Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises
contained herein and for other good and valuable
consideration, Gottschalks and ECI hereby agree as
follows:
ARTICLE 1. DEFINITIONS
As used in this Agreement, the following terms shall
have the following respective meanings:
Section 1.1 "8% Subordinated Note" means that certain
$22,179,598.00 principal amount of 8% Non-Negotiable,
Extendable Subordinated Note of Gottschalks in favor of
Xxxxxx due 2003.
Section 1.2 "Affiliate" has the meaning ascribed
thereto in Rule 12b-2 promulgated under the Exchange
Act, and as in effect on the date hereof.
Section 1.3 "Associate" of a person means
(a) a corporation or organization
(other than a party to this Agreement) of which such
person is a director, an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities;
(b) any trust or other estate in
which such person has a substantial beneficial interest
or as to which such person serves as trustee or in a
similar capacity;
(c) any relative or spouse of such
person or any relative of such spouse; and
(d) a director or officer of such
person, or a person that directly or indirectly, is the
beneficial owner of 10% or more of any class of equity
securities of such person or any relative or spouse of
such director, officer or beneficial owner or any
relative of such spouse.
Section 1.4 "Beneficially Own" means, with respect to
any security, having direct or indirect (including
through any Subsidiary or Affiliate) "beneficial
ownership" of such security, as determined pursuant to
Rule 13d-3 under the Exchange Act, including pursuant
to any agreement, arrangement or understanding, whether
or not in writing.
Section 1.5 "Gottschalks Common Stock" has the meaning
set forth in the recitals of this Agreement.
Section 1.6 "Covered Transaction" means any merger,
consolidation, other business combination, liquidation,
sale of Gottschalks or all or substantially all of the
assets of Gottschalks or any other change of control of
Gottschalks or similar extraordinary transaction but
excluding an acquisition by Gottschalks involving an
amount which is less than 50% of the Pro Forma Value of
Gottschalks after the acquisition and in which
Gottschalks remains in control following the
acquisition.
Section 1.7 "Director" means a member of the Board of
Directors of Gottschalks.
Section 1.8 "Early Standstill Termination Event" has
the meaning set forth in Section 3.6.
Section 1.9 "Exchange Act" means the Securities
Exchange Act of 1934, as amended.
Section 1.10 "Gottschalks" has the meaning set
forth in the recitals of this Agreement.
Section 1.11 "Governmental Entity" means any
government or any agency, bureau, board, commission,
court, department, official, political subdivision,
tribunal or other instrumentality of any government,
whether federal, state or local, domestic or foreign.
Section 1.12 "person" means any individual,
corporation, partnership, limited liability company,
joint venture, trust, unincorporated organization,
other form of business or legal entity or Governmental
Entity.
Section 1.13 "Pro Forma Value" means the market
value of outstanding equity securities of Gottschalks
(based upon a 20 trading day average closing price for
publicly traded equity securities), plus the debt
reflected on Gottschalks' balance sheet, less any cash
on such balance sheet, immediately following the
consummation of the acquisition, merger or other
business combination transaction.
Section 1.14 "Standstill Extension Term" has the
meaning set forth in Section 3.6(a).
Section 1.15 "Standstill Period" has the meaning
set forth in Section 3.6(a).
Section 1.16 "Stockholders' Agreement" means that
certain Stockholders' Agreement among ECI, Gottschalks,
Xxxxxx Xxxx and Xxxx Xxxx dated the date hereof.
Section 1.17 "Asset Purchase Agreement" has the
meaning set forth in the recitals of this Agreement.
Section 1.18 "Subsidiary" means any corporation,
partnership limited liability company, joint venture,
business trust or other entity of which the specified
person, directly or indirectly, owns or controls 50% or
more of the securities or other interests entitled to
vote in the election of directors (or others performing
similar functions) with respect to such corporation or
other organization, or otherwise has the ability to
control such corporation, partnership, limited
liability company, joint venture, business trust or
other entity.
ARTICLE 2. STANDSTILL PROVISIONS
Section 2.1 Standstill Provisions. ECI agrees that,
during the term of this Agreement, without Gottschalks'
prior written consent, ECI will not and will cause its
Affiliates and Associates not to, directly or
indirectly:
(a) purchase or otherwise acquire shares of
Gottschalks Common Stock (or options, rights or
warrants or other commitments to purchase and
securities convertible into (or exchangeable or
redeemable for) shares of Gottschalks Common Stock) as
a result of which, after giving effect to such purchase
or acquisition, ECI and its Affiliates and Associates
would Beneficially Own in the aggregate more than 33(%
of the outstanding shares of Gottschalks Common Stock;
(b) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the Exchange
Act) with respect to any securities of Gottschalks;
(c) participate in or solicit, encourage or propose
to effect or negotiate any Covered Transaction (other
than pursuant to the Asset Purchase Agreement);
(d) initiate or propose any stockholder proposal with
respect to a Covered Transaction other than with the
consent of Gottschalks' Board of Directors or induce or
attempt to induce any other person to initiate any
stockholder proposal with respect to a Covered
Transaction other than with the consent of Gottschalks'
Board of Directors or make any statement or proposal,
whether written or oral, to the Board of Directors of
Gottschalks with respect to a Covered Transaction, or
to any director, officer or agent of Gottschalks, or
make any public announcement or proposal whatsoever
with respect to a Covered Transaction or solicit or
encourage any other person to make any such statement
or proposal;
(e) solicit, initiate, encourage or in any way
participate, directly or indirectly, in any
"solicitation" of "proxies" or become a "participant"
in any "election contest" (as such terms are defined or
used in Regulation 14A under the Exchange Act,
disregarding clause (iv) of Rule 14a-1(l)(2) and
including an exempt solicitation pursuant to Rule
14a-2(b)(1)); call, or in any way encourage or
participate in a call for, any special meeting of
stockholders of Gottschalks (or take any action with
respect to acting by written consent of the
stockholders of Gottschalks); request, or take any
action to obtain or retain any list of holders of any
securities of Gottschalks; or initiate or propose any
stockholder proposal or participate in or encourage the
making of, or solicit stockholders of Gottschalks for
the approval of, one or more stockholder proposals;
(f) propose a nominee for director, or express
support or opposition for any nominee for director or
seek a change in the composition or size of
Gottschalks' Board of Directors other than as provided
in the Stockholders' Agreement; or
(g) make a request to Gottschalks (or its directors,
officers, stockholders, employees or agents) to amend
or waive any provisions of this Agreement, the
Certificate of Incorporation or Bylaws of Gottschalks
or seek to challenge the legality or effect thereof,
including without limitation any public request to
permit ECI or any other person to take any action in
respect of the matters referred to in this Section 2.1;
(h) assist, advise, encourage or act in concert with
any person with respect to, or seek to do, any of the
foregoing; or
(i) disclose any intention, plan or arrangement
inconsistent with the foregoing.
Without limiting the foregoing, but for clarification
purposes only, the above restrictions are not intended
to limit the performance by the ECI Directors of their
fiduciary duties as directors acting solely in that
cacacity.
ARTICLE 3. GENERAL
Section 3.1 Notification as to Certain Matters. ECI
will notify Gottschalks of any change in the Beneficial
Ownership of ECI and its Affiliates and Associates
involving in the aggregate not less than 50,000 shares
of Gottschalks Common Stock not later than two business
days after such change and from time to time, upon
request, will notify Gottschalks of the number of
shares of Gottschalks Common Stock Beneficially Owned
by ECI and its Affiliates and Associates and of the
names and addresses of all such persons, including,
without limitation, Affiliates to whom ECI Shares have
been transferred in accordance with the Stockholders'
Agreement. Gottschalks will notify ECI from time to
time, upon request, of the number of shares of
Gottschalks Common Stock outstanding.
Section 3.2 Specific Performance. ECI and Gottschalks
each acknowledge that, in view of the uniqueness of
arrangements contemplated by this Agreement, each party
would not have an adequate remedy at law for money
damages in the event that this Agreement has not been
performed in accordance with its terms, and therefore
agrees that the other party shall be entitled to
specific enforcement of the terms hereof in addition to
any other remedy to which it may be entitled, at law or
in equity.
Section 3.3 Amendments; Waiver. This Agreement may be
amended only by agreement in writing of all parties.
No waiver of any provision nor consent to any exception
to the terms of this Agreement or any agreement
contemplated hereby shall be effective unless in
writing and signed by the party to be bound and then
only to the specific purpose, extent and instance so
provided.
Section 3.4 Entire Agreement. This Agreement,
together with the Asset Purchase Agreement and the
other agreements of the parties of even date herewith,
contains the entire understanding of the parties with
respect to the subject matter of this Agreement.
Except as specifically provided herein, this Agreement
is not assignable by either of the parties. This
Agreement is binding upon the respective successors of
the parties and upon the Affiliates of ECI to whom any
of the ECI Shares have been transferred in accordance
with the Stockholders' Agreement.
Section 3.5 Severability. In the event that any one
or more of the provisions contained herein, or the
application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in
every other respect and of the remaining provisions
contained herein shall not be affected or impaired
thereby.
Section 3.6 Notices. All notices, requests, consents
and other communications hereunder shall be in writing
and shall be deemed to have been made (i) when
delivered personally or by telecopier, (ii) if to a
party in the same country as the mailing party, when
mailed first class registered or certified mail,
postage prepaid, or (iii) if to a party in a different
country from the sending party, on the second day
following deposit with a reputable commercial air
courier, charges prepaid, to each respective party as
shown below:
(a) If to Gottschalks:
Gottschalks Inc.
0 Xxxxx Xxxx Xxxxx
Xxxxxx, XX 00000
Attention: General Counsel
Telecopier: (000) 000-0000
with copies to:
O'Melveny & Xxxxx LLP
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attention: D. Xxxxxxx Xxxxxx, Esq.
Telecopier: (000) 000-0000
(b) If to ECI:
El Corte Ingles, X.X.
Xxxxxxxxxx, 000
00000 Xxxxxx XXXXX
Attention: Xxxxx Xxxx
Telecopier: 011-34-91-402-1567
With copies to:
McPeters, McAlearney, Shimoff & Xxxx
0 X. Xxxxxxxx Xxxxxxxxx, 0xx Xxxxx
X.X. Xxx 0000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. XxXxxxxx, Esq.
Telecopier: (000) 000-0000
Section 3.7 Term.
(a) This Agreement shall be effective from the date
hereof through August 20, 2003 (the "Standstill
Period"), provided, however, that the Standstill Period
shall be automatically extended for successive one-year
periods (each such period, a "Standstill Extension
Term") unless ECI shall have given Gottschalks
120-days' notice prior to the commencement of a
Standstill Extension Term that ECI elects that such
Standstill Extension Term not commence.
(b) Notwithstanding the above, the Standstill Period
(or the Standstill Extension Term, as applicable) shall
terminate upon the occurrence of any of the following
events:
(i) any default (not cured within the applicable cure
period) by Gottschalks under any of Gottschalks'
material debt agreements which default would result in
a material adverse effect on Gottschalks and its
Subsidiaries taken as a whole;
(ii) approval by the Board of Directors of
Gottschalks (without ECI's or its Affiliates' approval)
of a Covered Transaction;
(iii) material breach by Gottschalks, Xxxxxx Xxxx or
Xxxx Xxxx of the Stockholders' Agreement which is
neither cured nor desisted from within 30 days of
receipt of written notice from ECI of such breach; or
(iv) material breach by Gottschalks of the 8%
Subordinated Note, which is neither cured nor desisted
from within 30 days of receipt of written notice from
ECI of such breach.
Any event set forth in paragraph (b) of this Section
3.7 shall be an "Early Standstill Termination Event."
Section 3.8 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws
of the State of California without regard to principles
of conflict of law. Each party hereby irrevocably
submits to and accepts for itself and its properties,
generally and unconditionally, the exclusive
jurisdiction of and service of process pursuant to the
laws of the State of California and the rules of its
courts, waives any defense of forum non conveniens and
agrees to be bound by any judgment rendered thereby
arising under or out of in respect of or in connection
with this Agreement or any related document or
obligation. Each party further irrevocably designates
and appoints the individual identified in or pursuant
to Section 3.6 hereof to receive notices on its behalf,
as its agent to receive on its behalf service of all
process in any such Action before any body, such
service being hereby acknowledged to be effective and
binding service in every respect. A copy of any such
process so served shall be mailed by registered mail to
each party at its address provided in Section 3.6;
provided that, unless otherwise provided by applicable
law, any failure to mail such copy shall not affect the
validity of the service of such process. If any agent
so appointed refuses to accept service, the designating
party hereby agrees that service of process sufficient
for personal jurisdiction in any action against it in
the applicable jurisdiction may be made by registered
or certified mail, return receipt requested, to its
address provided in Section 3.6. Each party hereby
acknowledges that such service shall be effective and
binding in every respect. Nothing herein shall affect
the right to serve process in any other manner
permitted by law.
Section 3.9 Attorney's Fees. In the event of any
action, complaint, petition or other proceeding,
("Action") by any party arising under or out of, in
connection with or in respect of, this Agreement, the
prevailing party shall be entitled to reasonable
attorney's fees, costs and expenses incurred in such
Action. Attorney's fees incurred in enforcing any
judgment in respect of this Agreement are recoverable
as a separate item. The parties intend that the
preceding sentences be severable from the other
provisions of this Agreement, survive any judgment and,
to the maximum extent permitted by law, not be deemed
merged into such judgment.
Section 3.10 Counterparts. This Agreement may be
executed in any number of counterparts and by different
parties in separate counterparts, each of which when so
executed shall be deemed to be an original and all of
which taken together shall constitute one and the same
agreement.
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IN WITNESS WHEREOF, the undersigned have caused this
Agreement to be duly executed and delivered by their
respective officers thereunto duly authorized as of the
date provided first written above.
EL CORTE INGLES, S.A.
/S/ XXXXX XXXX
GOTTSCHALKS INC.
/S/ XXXXX XXXXXXXXX