-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RmxTRZT3z8d45zFTGnTNL150zM09p+lQ8YupGgqZL3vQP8WZv0pwBYgXMxvc8k6k emlZJbL9AT4LMURr/qbm1A== 0001068985-98-000005.txt : 19980831 0001068985-98-000005.hdr.sgml : 19980831 ACCESSION NUMBER: 0001068985-98-000005 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980828 SROS: NYSE GROUP MEMBERS: BRET LEVY GROUP MEMBERS: LEVY JOSEPH GROUP MEMBERS: THE HARRIS COMPANY, EL CORTE INGLES, S.A., JOSEPH LEVY, SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GOTTSCHALKS INC CENTRAL INDEX KEY: 0000790414 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 770159791 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-38092 FILM NUMBER: 98699947 BUSINESS ADDRESS: STREET 1: 7 RIVER PARK PL E STREET 2: P O BOX 28920 CITY: FRESNO STATE: CA ZIP: 93720 BUSINESS PHONE: 2094348000 MAIL ADDRESS: STREET 1: 7 RIVER PARK PLACE EAST STREET 2: P O BOX 28920 CITY: FRESNO STATE: CA ZIP: 93720 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LEVY JOSEPH CENTRAL INDEX KEY: 0001068985 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 560400837 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 7 RIVER PARK PLACE CITY: FRESNO STATE: CA ZIP: 93720 MAIL ADDRESS: STREET 1: 7 RIVER PARK PLACE CITY: FRESNO STATE: CA ZIP: 93720 SC 13D 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. _____________) (1) Gottschalks Inc. (Name of Issuer) Common Stock, $0.01 par value per share (Title of Class of Securities) 383495109 (CUSIP Number) D. Stephen Antion, Esq. O'Melveny & Myers LLP 400 S. Hope Street, Los Angeles, CA 90071 Telephone (213) 430-6000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) August 20, 1998 (Date of Event Which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. ______ Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. (Continued on following pages) _______________ (1) The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP NO. 383495109 13D - --------------------------------------------------------------- 1. NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OR ABOVE PERSON (ENTITIES ONLY) The Harris Company 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) X (b) 3. SEC USE ONLY 4. SOURCE OF FUNDS* WC 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) 6. CITIZENSHIP OR PLACE OF ORGANIZATION California NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH: 7. SOLE VOTING POWER 2,095,900 shares 8. SHARED VOTING POWER None 9. SOLE DISPOSITIVE POWER 2,095,900 shares 10. SHARED DISPOSITIVE POWER None 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,095,900 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (1) EXCLUDES CERTAIN SHARES* 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (1) 16.7% 14. TYPE OF REPORTING PERSON CO *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP NO. 383495109 13D - ----------------------------------------------------------- 1. NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OR ABOVE PERSON (ENTITIES ONLY) El Corte Ingles, S.A. 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) X (b) 3. SEC USE ONLY 4. SOURCE OF FUNDS* N/A** 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) 6. CITIZENSHIP OR PLACE OF ORGANIZATION Spain NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH: 7. SOLE VOTING POWER 2,095,900 shares 8. SHARED VOTING POWER None 9. SOLE DISPOSITIVE POWER 2,095,900 shares 10. SHARED DISPOSITIVE POWER None 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,095,900 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (1) EXCLUDES CERTAIN SHARES* 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (1) 16.7% 14. TYPE OF REPORTING PERSON CO * SEE INSTRUCTIONS BEFORE FILLING OUT! ** All shares are beneficially owned by The Harris Company which is wholly-owned by El Corte Ingles, S.A CUSIP NO. 383495109 13D - ------------------------------------------------------------------- 1. NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OR ABOVE PERSON (ENTITIES ONLY) Joseph Levy 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) X (b) 3. SEC USE ONLY 4. SOURCE OF FUNDS* PF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) 6. CITIZENSHIP OR PLACE OF ORGANIZATION United States NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH: 7. SOLE VOTING POWER 1,377,225 shares 8. SHARED VOTING POWER None 9. SOLE DISPOSITIVE POWER 1,377,225 shares 10. SHARED DISPOSITIVE POWER None 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,377,225 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (1) EXCLUDES CERTAIN SHARES* X 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (1) 11% 14. TYPE OF REPORTING PERSON IN * SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP NO. 383495109 13D - ----------------------------------------------------------------- 1. NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OR ABOVE PERSON (ENTITIES ONLY) Bret Levy 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) X (b) 3. SEC USE ONLY 4. SOURCE OF FUNDS* PF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) 6. CITIZENSHIP OR PLACE OF ORGANIZATION United States NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH: 7. SOLE VOTING POWER 347,782 shares 8. SHARED VOTING POWER None 9. SOLE DISPOSITIVE POWER 347,782 shares 10. SHARED DISPOSITIVE POWER None 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 347,782 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (1) EXCLUDES CERTAIN SHARES* X 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (1) 2.8% 14. TYPE OF REPORTING PERSON IN * SEE INSTRUCTIONS BEFORE FILLING OUT! EXPLANATORY NOTE Joseph Levy and Bret Levy filed a Schedule 13D on February 23, 1994. This filing represents an amendment in full to that earlier filing and an original filing on behalf of the group described below. ITEM 1. SECURITY AND ISSUER This statement on Schedule 13D ("Schedule 13D") relates to the common stock, $0.01 par value per share of Gottschalks Inc., a Delaware corporation (the "Company"). The Company's principal executive offices are located at 7 River Park Place, Fresno, California 93720. ITEM 2. IDENTITY AND BACKGROUND This Schedule 13D is being filed by the following: 1. The Harris Company, a California corporation ("Harris"), whose principal business and office address is 300 North "E" Street, San Bernardino, California 92416 2. El Corte Ingles, S.A., a Spanish corporation ("ECI"), whose principal business and office address is Hermosilla 112, 28009 Madrid, SPAIN 3. Joseph Levy, an individual, whose business address is 7 River Park Place, Fresno, California 93720. 4. Bret Levy, an individual, whose business address is 7 River Park Place, Fresno, California 93720. The persons serving as directors and executive officers of Harris and ECI are set forth on Schedule A hereto. The entities listed in subparagraphs (1) through (4) above are herein collectively referred to as the "Reporting Persons" and individually as a "Reporting Person." Harris formerly operated nine department stores in Southern California but sold its business to the Registrant. ECI is a Spanish corporation that operates department stores and other retail establishments and is the owner of Harris. Joseph Levy, a citizen of the United States, is the Chairman of the Board and Chief Executive Officer of the Company. Bret Levy, a citizen of the United States, is the Vice President, Treasurer and Director of the Company and the son of Joseph Levy. During the last five years, none of the Reporting Persons nor any person listed on Schedule A has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). During the last five years, none of the Reporting Persons nor any person listed on Schedule A was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of which was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Pursuant to an Asset Purchase Agreement, dated as of July 21, 1998, by and among the Company, ECI and Harris (the "Purchase Agreement"), the Company purchased substantially all of the assets and certain of the liabilities of Harris for certain consideration, including, but not limited to 2,095,900 shares of the Company's common stock, par value $.01 per share, issued to Harris (the "Shares"). As a condition to the transactions contemplated by the Purchase Agreement, the Company and the Reporting Persons entered into a Stockholders' Agreement (as described in Item 6 below). All shares of common stock held by Joseph Levy and Bret Levy were acquired either by gift or bequest, or by purchases made with personal funds. ITEM 4. PURPOSE OF TRANSACTION The Reporting Persons are filing this statement because they have recently entered into a Stockholders' Agreement with the Company (as described in Item 6 below). This statement is also being filed because of the recent acquisition of the Shares by Harris as consideration for the sale of its business to the Company. The Reporting Persons may acquire or dispose of shares of common stock from time to time in the open market or in privately-negotiated transactions, or by gift or bequest, provided, however, that pursuant to a Standstill Agreement, dated as of August 20, 1998, between ECI and the Company (the "Standstill Agreement"), ECI and its affiliates and associates may not purchase or otherwise acquire shares of the Company's 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 1/2% of the outstanding shares of the Company's common stock: provided, further, that pursuant to the Stockholders' Agreement (as described in Item 6 below), until the earlier of (i) August 20, 2003, or (ii) approval by the Company's stockholders of a transaction which would result in a Change in Control (as defined in the Stockholders' Agreement). ECI (through Harris) will not directly or indirectly sell, transfer, pledge or otherwise dispose of any shares of the Company's common stock issued to Harris, except for specific types of transfers as set forth in the Stockholders' Agreement. The Shares have not been registered under the Securities Act of 1933 and are subject to restrictions on resale or other disposition. However, pursuant to a Registration Rights Agreement, dated as of August 20, 1998, between the Company and Harris (the "Registration Rights Agreement"), the Company granted to Harris certain rights to participate in a Company-initiated registration of securities. Pursuant to the Stockholders' Agreement (as described in Item 6 below), the Company and the Reporting Persons will take the actions described in Item 6. Such actions will result in a change in the present board of directors of the Company (the "Board"), including a change in the number of directors. Except as described herein or in Item 6, none of the Reporting Persons has any current plans or proposals which would relate to or result in: (i) An extraordinary corporate transactions, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (ii) A sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (iii) Any material change in the present capitalization or dividend policy of the Company; (iv) Any other material change in the Company's business or corporate structure; (v) Changes in the Company's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (vi) Causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (vii) A class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act; or (viii) Any action similar to any of those enumerated above. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER (a) As of August 20, 1998, the Reporting Persons identified in Item 2 of this Schedule 13D beneficially owned the number and percentage of shares of common stock of the Company indicated below:
Percentage of Name Number of Shares Outstanding Shares Harris(1) 2,095,900 16.7% Joseph Levy 1,377,225(2) 11.0%(3) Bret Levy 347,782(4) 2.8%(3)
[Except as set forth above, none of the other Reporting Persons identified in Item 2 of this Schedule 13D beneficially owned any shares of the Company's common stock as of August 20, 1998.] - -------------------- (1) All shares are beneficially owned by Harris which is wholly-owned by ECI. (2) Includes shares of common stock held in the Company's Retirement Savings Plan. Excludes (a) shares owned by Joseph Levy's adult children, over which shares he disclaims beneficial ownership, and (b) 580,000 beneficially owned as a beneficiary of the trust established by the will of Gertrude H. Klein, over which he does not exercise voting or dispositive power. (3) Assumes that only those options of Joseph Levy or Bret Levy, as applicalbe, that are exercisable within 60 days of August 20, 1998 have been exercised and no others. (4) Includes (a) shares of common stock held in the Company's Retirement Savings Plan, and (b) 61,400 shares owned by Bret Levy's children, for which he serves as custodian. Excludes 13,700 shares owned by Bret Levy's spouse. (b) Subject to the terms of the Stockholders' Agreement (as described in Item 6 below), ECI (through Harris) has sole voting and disposition power with respect to 2,095,900 shares of common stock of the Company. Joseph Levy has sole voting and disposition power with respect to 1,377,225 shares of common stock of the Company and Bret Levy has sole voting and disposition power with respect to 347,782 shares of common stock of the Company. However, the Reporting Persons will vote as a group in the election of directors of the Company and currently control 2,820,907 shares or 30.4% in the aggregate. (c) Item 3 is incorporated herein by reference. (d) No other person has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares set forth above. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIP WITH RESPECT TO SECURITIES OF THE ISSUER None of the Reporting Persons has any contracts, arrangements, understandings or relationships (legal or otherwise) with respect to any securities of the Company other than as set forth below. Pursuant to a Stockholders' Agreement with the Company dated as of August 20, 1998 (the "Stockholders Agreement"), the Reporting Persons have agreed to (i) take all action necessary to cause two designees of ECI (the "Investor Nominees") to be added to the Board, (ii) take all action required by the Stockholders' Agreement to cause the Board to be structured to consist of eleven members (the "Designated Board"), of which two members will be Investor Nominees and the remaining nine members will consist of members of management or persons affiliated with management that are designated by Joseph Levy (or Bret Levy under certain circumstances), (the "Management Nominees") and independent directors (the "Independent Nominees") and (iii) vote or consent, or cause to be voted or a consent to be given, with respect to all shares of the Company's common stock owned beneficially or of record by the Reporting Persons or of which the Reporting Persons otherwise have the power to vote in favor of the election of the Investor Nominees, the Management Nominees and the Independent Nominees. Notwithstanding the foregoing, ECI's representation on the Designated Board shall be adjusted under certain circumstances set forth in the Stockholders' Agreement. The Designated Board shall increase to 12 members, and ECI shall be entitled to a total of three representatives on the Designated Board, if an during such time as ECI, directly or indirectly, beneficially owns a number of shares of the Company's common stock equal to at least 30% of the Company's outstanding common stock, on a fully diluted basis. ECI's representation on the Designated Board will decrease to one representative, and the size of the Designated Board will decrease by the number of Investor Nominees so resigning, if (i) ECI disposes of more than 700,000 shares of the Company's common stock, or (ii) ECI and its affiliates beneficially own a number of shares of the Company's common stock equal to less than 10% of the Company's outstanding common stock, on a fully diluted basis. ECI's representation on the Board will terminate on the earlier of (x) the date ECI disposes of more than 1,350,000 shares of the Company's common stock, or (y) ECI and its affiliates beneficially own a number of shares of the Company's common stock equal to less than 5% of the Company's outstanding common stock, on a fully diluted basis. The Stockholders' Agreement restricts the transfer of any shares of the Company's common stock issued to Harris. Until the earlier of (x) August 20, 2003, or (y) the approval by the Company's stockholders of a transaction which would result in a Change in Control (as defined in the Stockholders' Agreement), ECI may not directly or indirectly transfer any shares of the Company's common stock issued to Harris except for (i) transfers made in compliance with the requirements of Rule 144 of the Securities Act of 1933, (ii) certain transfers pursuant to negotiated transactions with third parties, (iii) transfers to one or more affiliates of ECI who agree to be bound by the terms and conditions of the Standstill Agreement and the obligations of the transferor under the Stockholders' Agreement, (iv) certain pledges to bona fide financial institutions for the purpose of securing bona fide indebtedness of ECI and (v) transfers pursuant to or in accordance with the Registration Rights Agreement in a bona fide public offering. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS Exhibit 1 Joint Filing Agreement, dated as of August 20, 1998, by and among Harris, ECI, Joseph Levy and Bret Levy. Exhibit 2 Stockholders' Agreement, dated as of August 20, 1998, by and among the Company and the Reporting Persons. Exhibit 3 Standstill Agreement, dated as of August 20, 1998, between ECI and the Company. Exhibit 4 Registration Rights Agreement, dated as of August 20, 1998, between the Company and Harris. SIGNATURES After reasonable inquiry and to the best of the undersigneds' knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: August 20, 1998 THE HARRIS COMPANY, a California corporation By: /s/ Thomas H. McPeters Title: Secretary EL CORTE INGLES, S.A., a Spanish corporation By: /s/ Jorge Pont Title: International Division Director /s/ Joseph Levy /s/ Bret Levy Schedule A Directors and Executive Officers The name, present principal occupation and citizenship of each director and executive officer of The Harris Company ("Harris") and El Corte Ingles, S.A. ("ECI") are set forth below. The business address of each director and executive officer of Harris is 300 North "E" Street, San Bernardino, California 92416. The business address of each director and executive officer of ECI is Hermosilla 112, 28009 Madrid, Spain. Harris Name Position Citizenship Isidoro Alvarez Director Spain Leopoldo Del Nogal Director; United States President; Chief Executive Officer David Gonzalez Director Spain Theodore H. Grady Senior Vice United States President Of Finance; Treasurer Rudy Greer Director; United States Chairman, Board of Directors Louis Horvitz Executive Vice United States President; Chief Operating Officer Florencio Lasaga Director Spain Carlos Martinez- Echavarria Director Spain Thomas H. McPeters Director; Secretary United States Jorge Pont Director Spain ECI Name Position Citizenship Isidoro Alvarez Chairman Spain Luis Areces Rodriguez Vice-Chairman Spain Celestino Areces Rodriguez Director Spain Jose Antonio Garcia Miranda Director Spain David Gonzalez Fernandez Director Spain Florencio Lasaga Munarriz Director Spain Carlos Martinez Echavarria Director Spain Juan Manuel de Mingo y Contreras Director Spain EX-1 2 Exhibit 1 Joint Filing Agreement (Pursuant to Rule 13d-1(f)(s)) August 20, 1998 The Harris Company, a California corporation, El Corte Ingles, S.A., a Spanish corporation, Joseph Levy and Bret hereby agree that a Securities and Exchange Commission ("SEC") Schedule 13D dated August 28, 1998, and relating to the common stock, $0.01 par value, of Gottschalks Inc., a Delaware corporation (the "Issuer"), shall be jointly filed on behalf of each of them with the SEC, the New York Stock Exchange, the Pacific Stock Exchange and the Issuer. THE HARRIS COMPANY THE HARRIS COMPANY, a California corporation By: /s/ Thomas H. McPeters Title Secretary EL CORTE INGLES, S.A., a Spanish corporation By: /s/ [Jorge Pont] Title [International Division Director] /s/ Joseph Levy /s/ Bret Levy EX-2 3 STOCKHOLDERS' AGREEMENT by and among EL CORTE INGLES, S.A., GOTTSCHALKS INC., JOSEPH LEVY and BRET LEVY dated as of August 20, 1998 TABLE OF CONTENTS Page ARTICLE 1 Definitions 1 Section 1.1 "Affiliate" 1 Section 1.2 "Agreement" 1 Section 1.3 "Asset Purchase Agreement" 2 Section 1.4 "Beneficially Own" 2 Section 1.5 "Board" 2 Section 1.6 "Change in Control" 2 Section 1.7 "Closing" 3 Section 1.8 "Gottschalks Common Stock" 3 Section 1.9 "Designated Board" 3 Section 1.10 "Director" 3 Section 1.11 "Early Standstill Termination Event" 4 Section 1.12 "ECI" 4 Section 1.13 "Exchange Act" 4 Section 1.14 "fully diluted" 4 Section 1.15 "Gottschalks" 4 Section 1.16 "Harris" 4 Section 1.17 "Governmental Entity" 4 Section 1.18 "Group" 4 Section 1.19 "Independent Nominees" 4 Section 1.20 "Investor" 4 Section 1.21 "Investor Nominees" 4 Section 1.22 "Management" 4 Section 1.23 "Management Nominees" 4 Section 1.24 "Nominating Committee" 4 Section 1.25 "person" 4 Section 1.26 "Securities Act" 5 Section 1.27 "Standstill Agreement" 5 Section 1.28 "Subsidiary" 5 Section 1.29 "Transfer" 5 Section 1.30 "Transferee" 5 Section 1.31 "Voting Securities" 5 ARTICLE 2 Board of Directors 5 Section 2.1 Members of the Board 5 Section 2.2 Committee Representation 8 Section 2.3 Vacancies 8 ARTICLE 3 Voting Rights 9 Section 3.1 Gottschalks Common Stock - Voting Rights and Obligations 9 Section 3.2 Management Registration Rights 9 ARTICLE 4 Restrictions on Transfer 9 Section 4.1 Restrictions on Transfer 9 Section 4.2 Notification of Restrictions 10 Section 4.3 Notice to Gottschalks 11 Section 4.4 Compliance with Insider Trading Policy 11 Section 4.5 Compliance with Law 11 ARTICLE 5 Non-Competition 11 ARTICLE 6 Miscellaneous 11 Section 6.1 Term 11 Section 6.2 Counterparts 12 Section 6.3 Governing Law 12 Section 6.4 Entire Agreement 12 Section 6.5 Expenses 12 Section 6.6 Notices 12 Section 6.7 Successors and Assigns 14 Section 6.8 Headings 14 Section 6.9 Amendments and Waivers 14 Section 6.10 Interpretation; Absence of Presumption 14 Section 6.11 Severability 14 Section 6.12 Further Assurances 14 Section 6.13 Specific Performance 14 Section 6.14 Arbitration 15 Section 6.15 Attorney's Fees 15 THIS STOCKHOLDERS' AGREEMENT (the "Agreement"), dated as of August 20, 1998, is made by and among El Corte Ingles, S.A., a Spanish corporation ("ECI"), Gottschalks Inc., a Delaware corporation ("Gottschalks"), Joseph Levy, an individual and Bret Levy, an individual. Capitalized terms used and not defined herein have the meanings given to them in the Asset Purchase Agreement (hereinafter defined). RECITALS WHEREAS, Gottschalks, ECI and The Harris Company, a California corporation and a wholly-owned subsidiary of ECI ("Harris"), have entered into an Asset Purchase Agreement, dated as of July 21, 1998 (the "Asset Purchase Agreement"), pursuant to which Harris has agreed to sell, and Gottschalks has agreed to purchase, substantially all of the assets and certain of the liabilities of Harris for certain consideration, including, but not limited to, certain shares of Gottschalks Common Stock (hereinafter defined), upon the terms and subject to the conditions set forth therein; and WHEREAS, the shares of Gottschalks Common Stock to be issued pursuant to the Asset Purchase Agreement will be issued to Harris, ECI's wholly-owned subsidiary; and WHEREAS, it is a condition to the transactions contemplated by the Asset Purchase Agreement and the parties believe it to be in their best interests that they enter into this Agreement and provide for certain rights and restrictions with respect to the investment by ECI (through Harris) in Gottschalks, certain rights and restrictions of Joseph Levy and Bret Levy with respect to their ownership of Gottschalks Common Stock and the corporate governance of Gottschalks. AGREEMENT NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE 1 Definitions As used in this Agreement, the following terms shall have the following respective meanings: Section 1.1 "Affiliate" shall have the meaning ascribed thereto in Rule 12b-2 promulgated under the Exchange Act, and as in effect on the date hereof. Section 1.2 "Agreement" shall have the meaning set forth in the first paragraph hereof. Section 1.3 "Asset Purchase Agreement" shall have the meaning set forth in the second paragraph hereof. Section 1.4 "Beneficially Own" shall mean, 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 "Board" shall mean the board of directors of Gottschalks. Section 1.6 "Change in Control" shall mean the occurrence of any of the following events: (a) An acquisition (other than directly from Gottschalks) of any Voting Securities by any person immediately after which such person has Beneficial Ownership of fifty percent (50%) or more of the combined voting power of Gottschalks' then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (1) an employee benefit plan (or a trust forming a part thereof) maintained by (i) Gottschalks or (ii) a Subsidiary of Gottschalks, (2) Gottschalks or any Subsidiary of Gottschalks, (3) any person or Group who, immediately prior to the date hereof had Beneficial Ownership of fifteen percent (15%) or more of the Gottschalks Common Stock or (4) any person in connection with a "Non-Control Transaction" (as hereinafter defined). (b) A merger, consolidation or reorganization involving Gottschalks, unless: (i) the stockholders of Gottschalks immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least fifty percent (50%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization; and (ii) the individuals who were members of the Designated Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the Board of the Surviving Corporation; and (iii) no person (other than Gottschalks or any Subsidiary of Gottschalks, any employee benefit plan (or any trust forming a part thereof) maintained by Gottschalks, the Surviving Corporation or any Subsidiary of Gottschalks, or any person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty-five percent (25%) or more of the then outstanding Voting Securities) has Beneficial Ownership of twenty-five percent (25%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; and (iv) a transaction described in clauses (i) through (iii) of this paragraph (b) shall herein be referred to as a "Non-Control Transaction." (c) A complete liquidation or dissolution of Gottschalks. (d) An agreement for the sale or other disposition of all or substantially all of the assets of Gottschalks to any person (other than a transfer to a Subsidiary). (e) The acquisition of any Voting Securities by Joseph Levy, Sharon Levy or their lineal descendents immediately after which Joseph Levy, Sharon Levy and their lineal descendents together have a pecuniary interest in more than fifty percent (50%) of Gottschalks' then outstanding equity securities. (f) The acquisition of any Voting Securities by Gerald Blum, his spouse or his lineal descendents immediately after which Gerald Blum, his spouse and his lineal descendents together have a pecuniary interest in more than fifty percent (50%) of Gottschalks' then outstanding equity securities. (g) Buyer is no longer a reporting company under the Exchange Act. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person (the "Subject Person") acquired Beneficial Ownership or pecuniary interest of more than the permitted amount of the outstanding Voting Securities or equity securities as a result of the acquisition of Voting Securities or equity securities by Gottschalks which, by reducing the number of Voting Securities or equity securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person or in which the subject person has a pecuniary interest, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by Gottschalks, and after such share acquisition by Gottschalks, the Subject Person becomes the Beneficial Owner of the additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Section 1.7 "Closing" shall have the meaning set forth in the Stock Purchase Agreement. Section 1.8 "Gottschalks Common Stock" shall mean the common stock, par value $0.01 per share, of Gottschalks. Section 1.9 "Designated Board" shall have the meaning set forth in Section 2.1(a). Section 1.10 "Director" shall mean a member of the Board. Section 1.11 "Early Standstill Termination Event" shall have the meaning set forth in the Standstill Agreement. Section 1.12 "ECI" shall have the meaning set forth in the first paragraph hereof. Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.14 "fully diluted" shall mean, with respect to the Gottschalks Common Stock, the total number of outstanding shares of Gottschalks Common Stock (for such purposes, treating as outstanding Gottschalks Common Stock all options or warrants to purchase and securities convertible into (or exchangeable or redeemable for) the Gottschalks Common Stock as of the relevant measurement date). Section 1.15 "Gottschalks" shall have the meaning set forth in the first paragraph hereof. Section 1.16 "Harris" shall have the meaning set forth in the second paragraph hereof. Section 1.17 "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 1.18 "Group" shall mean a "group" as such term is used in Section 13(d)(3) of the Exchange Act. Section 1.19 "Independent Nominees" shall have the meaning set forth in Section 2.1(a). Section 1.20 "Investor" shall mean ECI (through Harris), together with and any Transferee, and so long as Harris and any Transferee own shares of Gottschalks Common Stock, such persons shall be treated as one entity for the purposes of this Agreement. Section 1.21 "Investor Nominees" shall have the meaning set forth in Section 2.1(a). Section 1.22 "Management" shall mean Joseph Levy and Bret Levy. Section 1.23 "Management Nominees" shall have the meaning set forth in Section 2.1(a). Section 1.24 "Nominating Committee" shall mean the nominating committee of the Board as it is constituted from time to time. Section 1.25 "person" shall mean any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, other form of business or legal entity or Governmental Entity. Section 1.26 "Securities Act" shall mean the Securities Act of 1933, as amended. Section 1.27 "Standstill Agreement" shall mean that certain Standstill Agreement by and between ECI and Gottschalks dated the date hereof. Section 1.28 "Subsidiary" shall mean 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. Section 1.29 "Transfer" shall have the meaning set forth in Section 4.1. Section 1.30 "Transferee" shall mean any Affiliate of Harris to whom Harris has transferred shares of Gottschalks Common Stock pursuant to Section 4.1(a)(iii) of this Agreement. Section 1.31 "Voting Securities" shall mean at any time shares of any class of capital stock of Gottschalks which are then entitled to vote generally in the election of Directors. ARTICLE 2 Board of Directors Section 2.1 Members of the Board. (a) Prior to the Closing, the Board is comprised of three members of management of Gottschalks, one person related to certain members of management of Gottschalks and five independent directors. Immediately following the Closing, Gottschalks, Management and ECI will take all action necessary to cause two Investor Nominees (hereinafter defined) to be added to the Board. Thereafter, subject to the terms of this Agreement, at each annual or special meeting of stockholders of Gottschalks at, or the taking of action by written consent of stockholders of Gottschalks with respect to, which any Directors are to be elected, Gottschalks, Management and Investor will take all action required by this Agreement to cause the Board to be structured to consist of eleven (11) members, of which two (2) members will be designees of ECI (the "Investor Nominees") and the remaining nine (9) members will consist of members of management or persons affiliated with management that are designated by Management (the "Management Nominees") and independent directors (the "Independent Nominees"), collectively, the "Designated Board"; provided, however, that the Designated Board shall be increased to twelve (12) members, and Investor shall be entitled to a total of three (3) representatives on the Designated Board, if and during such time as Investor Beneficially Owns a number of shares of Gottschalks Common Stock equal to at least 30% of the outstanding Gottschalks Common Stock, on a fully diluted basis. (b) Investor's representation on the Designated Board will be reduced to one representative and the size of the Designated Board will be reduced by the number of Investor Nominees so resigning if either: (i) Investor disposes of more than 700,000 shares of Gottschalks Common Stock; or (ii) Investor and its Affiliates Beneficially Own a number of shares of Gottschalks Common Stock equal to less than 10% of the outstanding Gottschalks Common Stock, on a fully diluted basis. (c) Investor's representation on the Board will be terminated on the earlier of: (i) the date Investor disposes of more than 1,350,000 shares of Gottschalks Common Stock; or (ii) Investor and its Affiliates Beneficially Own a number of shares of Gottschalks Common Stock equal to less than 5% of the outstanding Gottschalks Common Stock, on a fully diluted basis. (d) Subject to the terms of this Agreement: (i) Investor has the right to designate the Investor Nominees; (ii) Joseph Levy (if he is alive and has the capacity) or Bret Levy (if Joseph Levy is not alive or no longer has the capacity) has the right to designate the Management Nominees; and (iii) the Nominating Committee, or the Board if there is no Nominating Committee, has the right to designate the Independent Nominees. In the event both Joseph Levy and Bret Levy are deceased or incapacitated, the Management Nominees shall be chosen by the Chief Executive Officer of Gottschalks. (e) Investor and Management each agrees not to name any person as a nominee to the Board if (i) such person is not reasonably experienced in business or financial matters, (ii) such person has been convicted of, or has pled nolo contendere to, a felony, (iii) the election of such person would violate any law, or (iv) any event required to be disclosed pursuant to Item 401(f) of Regulation S-K of the Exchange Act has occurred with respect to such person. Investor and Management, respectively, shall each use reasonable efforts to afford the Independent Nominees of Gottschalks a reasonable opportunity to meet any individual that it is considering naming as a nominee to the Board. (f) Subject to Section 6.1 of this Agreement, Gottschalks will support the nomination of and the election of each Investor Nominee, each Management Nominee and each Independent Nominee to the Board, and Gottschalks will exercise all authority under applicable law to cause each Investor Nominee, each Management Nominee and each Independent Nominee to be elected to the Board as provided herein. Without limiting the generality of the foregoing, with respect to each meeting of stockholders of Gottschalks at which Directors are to be elected, Gottschalks shall use its reasonable efforts to solicit from the stockholders of Gottschalks eligible to vote in the election of Directors proxies in favor of each Investor Nominee, each Management Nominee and each Independent Nominee. (g) Subject to Section 6.1 of this Agreement: (i) During the period under this Agreement, if any, that Investor shall be entitled pursuant to the proviso of Section 2.1(a) to designate three Investor Nominees, if the total size of the Board is later increased (other than as the result of an acquisition transaction approved by the Board) Investor shall be entitled to a proportionate increase in the number of Investor Nominees. The new number of Investor Nominees shall be calculated by multiplying 3/12 by the size of the new Board (excluding any Directors who have been added as a result of any acquisition transaction approved by the Board) and rounding the result up to the next whole number where the resulting fraction is .5 or above. The table below is provided by way of example: Number of Directors Number of Investor Nominees 13 3 14 4 15 4 16 4 17 4 (ii) During the period under this Agreement, if any, that Investor shall be entitled to designate two Investor Nominees, if the total size of the Board is increased (other than as the result of an acquisition transaction approved by the Board), Investor shall be entitled to a proportionate increase in the number of Investor Nominees. The new number of Investor Nominees shall be calculated by multiplying 2/11 by the size of the new Board (excluding any Directors who have been added as a result of any acquisition transaction approved by the Board) and rounding the result up to the next whole number where the resulting fraction is .5 or above. The table below is provided by way of example: Number of Directors Number of Investor Nominees 12 2 13 2 14 3 15 3 16 3 17 3 (iii) During the period under this Agreement, if any, that Investor shall be entitled to designate one Investor Nominee, if the total size of the Board is increased (other than as the result of an acquisition transaction approved by the Board), Investor shall be entitled to a proportionate increase in the number of Investor Nominees. The new number of Investor Nominees shall be calculated by multiplying 1/11 by the size of the new Board (excluding any Directors who have been added as a result of any acquisition transaction approved by the Board) and rounding the result up to the next whole number where the resulting fraction is .5 or above. The table below is provided by way of example: Number of Directors Number of Investor Nominees 12 1 13 1 14 1 15 1 16 1 17 2 (h) If the Board is increased as provided in paragraph (g) of this Section 2.1, other than those new Directors which must be Investor Nominees pursuant to such paragraph (g), new Directors to be added to the Board shall be either Management Nominees or Independent Nominees. Such Board, as then constituted, will be the "Designated Board" for all purposes hereunder. (i) If Investor's right to nominate directors to the Board is reduced or terminated as set forth in this Agreement, Investor shall cause the applicable number of its Investor Nominees to immediately resign (regardless of the remaining term, if any) and, in the event that the number of Investor Nominees is reduced rather than terminated, the Designated Board shall be reduced in size by the number of Investor Nominees so resigning. (j) Except as otherwise set forth in this Section 2.1, Gottschalks shall not reduce the number of Investor Nominees or Independent Nominees without Investor's consent. Section 2.2 Committee Representation. During such time, if any, as Investor is entitled to have at least one Investor Nominee on the Board, unless Investor chooses not to exercise its rights under this Section 2.2, Gottschalks shall cause at least one Director who is an Investor Nominee to be appointed to each standing committee of the Board. Notwithstanding the foregoing, if none of the Directors who are Investor Nominees would be considered "independent" of Gottschalks, "disinterested," "nonemployee directors" and "outside directors" (i) for purposes of any applicable rule of the New York Stock Exchange or any other securities exchange or other self-regulating organization requiring that members of the audit committee of the Board be independent of Gottschalks or (ii) for purposes of any law or regulation that requires, in order to obtain or maintain favorable tax, securities, corporate law or other material legal benefits with respect to any plan or arrangement for employee compensation or benefits, that the members of the committee of the Board charged with responsibility for such plan or arrangement be "independent" of Gottschalks, "disinterested," "nonemployed directors" or "outside directors," then a Director who is an Investor Nominee shall not be required to be appointed to any such standing committee. In no event shall any Investor Nominee serve on any committee of the Board evaluating any transaction or potential transaction involving Gottschalks and any of Investor, its Affiliates or any Group of which Investor is a member or such other transaction or potential transaction which would involve an actual or potential conflict of interest on the part of the Directors who are Investor Nominees. Any members of any committee who are Investor Nominees shall, in the event of any vacancy in such membership, be replaced by a Director who is an Investor Nominee elected by the Directors who are Investor Nominees. Section 2.3 Vacancies. In the event that any Investor Nominee shall cease to serve as a Director for any reason other than the fact that Investor no longer has a right to nominate such Director, the vacancy resulting thereby shall be filled by an Investor Nominee designated by Investor; provided, however, that any Investor Nominee so designated shall satisfy the qualification requirements set forth in Section 2.1(e). In the event that any Management Nominee or Independent Nominee shall cease to serve as a Director, the vacancy resulting thereby shall be filled in accordance with the terms of this Agreement with either a Management Nominee or an Independent Nominee provided, however, that any nominee so designated shall satisfy the qualification requirements set forth in Section 2.1(e). ARTICLE 3 Voting Rights Section 3.1 Gottschalks Common Stock - Voting Rights and Obligations. (a) Subject to the provisions of this Section 3.1(a), Investor and its Affiliates may vote the shares of Gottschalks Common Stock which they own in their sole and absolute discretion. Investor shall and shall cause its Affiliates to: (i) be present, in person or represented by proxy, at all stockholder meetings of Gottschalks so that all Gottschalks Common Stock beneficially owned by Investor and its Affiliates may be counted for the purpose of determining the presence of a quorum at such meetings; and (ii) vote or consent, or cause to be voted or a consent to be given, with respect to all Gottschalks Common Stock owned beneficially or of record by Investor or its Affiliates or of which Investor or its Affiliates otherwise has the power to vote: (A) in favor of the election of the Investor Nominees, the Management Nominees and the Independent Nominees; and (B) with regard to any transaction which would result in a Change in Control that has been approved by the Board and submitted to a vote of Gottschalks' stockholders, as recommended by the Board. (b) Subject to the provisions of this Section 3.1(b), each member of Management may vote the shares of Gottschalks Common Stock owned by such member in his sole and absolute discretion. Management shall: (i) be present, in person or represented by proxy, at all stockholder meetings of Gottschalks so that all Gottschalks Common Stock beneficially owned by Management may be counted for the purpose of determining the presence of a quorum at such meetings; and (ii) vote or consent, or cause to be voted or a consent to be given, with respect to all Gottschalks Common Stock owned beneficially or of record by Management or of which Management otherwise has the power to vote in favor of the election of the Investor Nominees, the Independent Nominees and the Management Nominees. Section 3.2 Management Registration Rights. With respect to any request by members of management of Gottschalks or members of the Joseph Levy family to the Board to participate in any registration of shares of Gottschalks stock owned by such persons, Investor shall cause the Investor Nominees to vote proportionately with the group of Directors composed of the Management Nominees and the Independent Nominees voting on such request, taken as a whole. ARTICLE 4 Restrictions on Transfer Section 4.1 Restrictions on Transfer. (a) Until the earlier of (x) August ___, 2003, or (y) approval by the stockholders of Gottschalks of a transaction which would result in a Change in Control, Investor will not directly or indirectly sell, transfer, pledge or otherwise dispose of (collectively, "Transfer") any shares of Gottschalks Common Stock issued to Harris except for: (i) Transfers made in compliance with the requirements of Rule 144 of the Securities Act, (ii) Transfers pursuant to negotiated transactions with third parties, provided that: (A) the transferee acknowledges that it is subject to the Standstill Agreement and the provisions of Articles 3 and 4 of this Agreement; and (B) Gottschalks approves any such Transfer that would result in a person beneficially owning more than 9.8% of the Gottschalks Common Stock, (iii) Transfers to one or more Affiliates of Investor who agree to be bound by the terms and conditions of the Standstill Agreement and the obligations of the transferor under this Agreement, (iv) pledges to a bona fide financial institution for the purpose of securing bona fide indebtedness of Investor; provided, that: (A) such indebtedness is full recourse indebtedness; and (B) no such pledge, if enforced, would result in the bona fide financial institution or any person acquiring the pledged shares having Beneficial Ownership of more than 9.8% of the Gottschalks Common Stock and (v) Transfers pursuant to or in accordance with the Registration Rights Agreement in a bona fide public offering. (b) Any Transferee hereunder shall succeed to the obligations, but not the rights, of ECI under this Agreement. Notwithstanding the foregoing, ECI agrees that it shall remain fully liable for ensuring that the Transferee complies with all obligations assumed by Transferee pursuant to this Agreement. (c) Any Transfer contrary to the provisions of this Section 4.1 shall be null and void and the transferee shall not be recognized by Gottschalks as the holder or owner of such shares for any purposes (including voting and dividend rights) unless and until such provisions are satisfied. (d) This Agreement places no restrictions on the Transfer by Management of any shares of Gottschalks Common Stock owned by Management. Section 4.2 Notification of Restrictions. (a) Any certificates representing the shares of Gottschalks Common Stock issued by Gottschalks to Investor will bear the following legend, which legend will remain until such time as the securities represented by the certificates are transferred without such shares continuing to be subject to this Agreement: "THESE SECURITIES ARE SUBJECT TO THE PROVISIONS OF AN AGREEMENT AMONG EL CORTE INGLES, S.A. [OR TRANSFEREE], THE ISSUER, JOSEPH LEVY AND BRET LEVY AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH." (b) The following legend: (i) will be placed on any certificates representing the shares of Gottschalks Common Stock owned or acquired by Investor or its Affiliates that were not issued by Gottschalks to Harris and will remain on such certificates until the termination of this Agreement; and (ii) will be placed on any certificates representing the shares of Gottschalks Common Stock owned by Management and will remain on such certificates until the earlier of the termination of this Agreement and the date on which the shares represented by such certificate or certificates are transferred by Management: "THESE SECURITIES ARE SUBJECT TO THE PROVISIONS OF AN AGREEMENT AMONG EL CORTE INGLES, S.A., THE ISSUER, JOSEPH LEVY AND BRET LEVY." (c) None of Investor, any Affiliate of Investor or Management shall deposit any shares of Gottschalks Common Stock owned by them into a voting trust or subject any such shares to any arrangement or agreement with respect to the voting of such shares inconsistent with the terms of this Agreement. Section 4.3 Notice to Gottschalks. During the period specified in Section 4.1, if Investor wishes to sell pursuant to Section 4.1 any shares of Gottschalks Common Stock, Investor shall give Gottschalks 15 days' prior written notice of such proposed sale, setting forth the number of shares of Gottschalks Common Stock that Investor proposes to sell, the expected timing of the proposed sale, and the details of such sale, in order to enable Gottschalks and Management to confirm that such sale complies with this Agreement. Section 4.4 Compliance with Insider Trading Policy. For as long as Investor Beneficially Owns any shares of Gottschalks Common Stock, it will, and will use its best efforts to cause its directors, officers, employees, agents, and representatives to, comply with the written policy of Gottschalks designed to prevent violations of insider trading and similar laws. Section 4.5 Compliance with Law. During the term of this Agreement, Investor shall comply with, and make timely filings in accordance with, Sections 13 and 16 of the Exchange Act. ARTICLE 5 Non-Competition Investor acknowledges that in light of Investor's representation on the Board, it would be unfair for Investor to compete with Gottschalks. For these and other reasons, and as an inducement to Gottschalks to enter into this Agreement, Investor agrees that during the term of this Agreement, Investor will not and will not allow Harris to, directly or indirectly, for its own benefit or as agent for another, carry on or participate in the ownership, management or control of, or the financing of, or be employed by, or consult for or otherwise render services to, or allow its name or reputation to be used in or by any other present or future business enterprise that competes with Gottschalks in the States of Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oklahoma, Oregon, Texas, Utah, Washington or Wyoming; provided, however, that nothing contained herein shall limit the right of Investor as an investor to hold and make investments in securities of any corporation or limited partnership that is registered on a national securities exchange or admitted to trading privileges thereon or actively traded in a generally recognized over-the-counter market, provided Investor's equity interest therein does not exceed 5% of the outstanding shares or interests in such corporation or partnership. ARTICLE 6 Miscellaneous Section 6.1 Term. The provisions of Article 4 of this Agreement shall expire, upon the earlier of (i) August 20, 2003, or (ii) approval by the stockholders of Gottschalks of a transaction which would result in a Change of Control. All other provisions of this Agreement shall expire, and Investor shall, in accordance with the provisions of paragraph (i) of Section 2.1 require its Investor Nominees to immediately resign, upon the earlier of: (i) the date on which Investor no longer is entitled pursuant to Section 2.1 of this Agreement to a representative on the Board; and (ii) the expiration of the Standstill Agreement (other than as the result of an Early Standstill Termination Event). Section 6.2 Counterparts. This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, all of which shall constitute 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 6.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF. 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 6.6 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 6.6; 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 6.6. 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 6.4 Entire Agreement. This Agreement, together with the Asset Purchase Agreement and the other agreements of the parties hereto and Harris of even date herewith, contain the entire agreement among the parties with respect to the subject matter hereof. This Agreement is not intended to confer upon any person not a party hereto (and their successors and assigns) any rights or remedies hereunder. Section 6.5 Expenses. Except as set forth in the Asset Purchase Agreement, all legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. Section 6.6 Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deeded 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. 7 River Park Place Fresno, CA 93720 Attention: General Counsel Telecopier: (209) 434-4666 with a copy to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071 Attention: D. Stephen Antion, Esq. Telecopier: (213) 430-6407 (b) If to Management, to each of the following: Joseph Levy Gottschalks Inc. 7 River Park Place Fresno, CA 93720 Telecopier: (209) 434-4804 Bret Levy Gottschalks Inc. 7 River Park Place Fresno, CA 93720 Telecopier: (209) 434-4804 (c) If to ECI: El Corte Ingles, S.A. Hermosilla, 112 28009 Madrid SPAIN Attention: Mr Jorge Pont Telecopier: 011-34-91-402-1567 With a copy to: McPeters, McAlearney, Shimoff & Hatt 4 W. Redlands Boulevard, 2nd Floor Redlands, California 92373 Attention: Thomas H. McPeters, Esq. Telecopier: (909) 792-6234 Section 6.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Neither this Agreement nor any rights or obligations under it are assignable by any party hereto, except that ECI and any subsequent Transferee shall be permitted to assign its rights hereunder as provided in Section 4.1 hereof. Section 6.8 Headings. The headings in this Agreement are for convenience only and shall not limit or otherwise affect the meaning hereof. Section 6.9 Amendments and Waivers. 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 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 6.10 Interpretation; Absence of Presumption. (a) For the purposes hereof, (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (ii) the terms "hereof", "herein", and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section and paragraph references are to the Articles, Sections and paragraphs, of this Agreement unless otherwise specified, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall apply, when appropriate, to successive events and transactions. (b) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. Section 6.11 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 6.12 Further Assurances. Gottschalks and Investor agree that, from time to time, each of them will, and will cause their respective Affiliates to, and Management agrees that it will execute and deliver such further instruments and take such other action as may be necessary to carry out the purposes and intents hereof. Section 6.13 Specific Performance. Each of the parties hereto acknowledges that, in view of the uniqueness of the 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 agree that the other parties hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the parties hereto may be entitled, at law or in equity. Section 6.14 Arbitration. (a) Any controversy, dispute or claim under, arising out of, in connection with or in relation to this Agreement, including but not limited to the negotiation, execution, interpretation, construction, coverage, scope, performance, non-performance, breach, termination, validity or enforceability of this Agreement or this Section 6.14 shall be determined by arbitration conducted in accordance with the Commercial Arbitration Rules or then existing rules for commercial arbitration of the American Arbitration Association. The arbitration shall additionally be governed by the California Arbitration Act. The arbitration shall be before a single arbitrator who shall be selected by mutual agreement of the parties from among a list of seven potential arbitrators provided by the American Arbitration Association. If the parties cannot agree on an arbitrator from this first list, the parties hereto shall select an arbitrator for such arbitration from a second list of seven potential arbitrators provided by the American Arbitration Association with each party, alternately striking names, with the last name remaining to be the arbitrator so selected. In the event that either party seeks a temporary restraining order, preliminary injunction or other provisional relief, the provisions of Section 1281.8 of the Cal. Civ. Proc. Code shall apply. The arbitration of such issues, including without limitation any party's rights to specific performance pursuant to Article 5 or Section 6.13 hereof or to any award of damages suffered by any party hereto by reason of the acts or omissions of any party, shall be final and binding upon the parties to the maximum extent permitted by law. The parties intend that this Article shall be valid, binding, enforceable and irrevocable and shall survive the termination of this Agreement. (b) Proceedings under and the provisions of this Section 6.14 shall be subject to Section 6.3 of this Agreement. (c) Any arbitration proceedings hereunder shall be held in Los Angeles, California. (d) Judgment upon any award rendered by the arbitrator(s) may be entered by any court having jurisdiction thereof. Section 6.15 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. IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the parties hereto as of the day first above written. EL CORTE INGLES, S.A. /S/ JORGE PONT GOTTSCHALKS INC. /S/ JAMES FAMALETTE /S/ JOSEPH LEVY /S/ BRET LEVY ACKNOWLEDGEMENT AND AGREEMENT OF SPOUSE The undersigned spouse of Joseph Levy acknowledges that she has read the attached Stockholders' Agreement of even date herewith and agrees to be bound thereby. Dated: August 20, 1998 /S/ SHARON LEVY ACKNOWLEDGEMENT AND AGREEMENT OF SPOUSE The undersigned spouse of Bret Levy acknowledges that she has read the attached Stockholders' Agreement of even date herewith and agrees to be bound thereby. Dated: August 20, 1998 EX-3 4 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 Harris Company, a California corporation and a wholly-owned subsidiary of ECI ("Harris"), Gottschalks has agreed to acquire from Harris substantially all of the assets and certain liabilities of Harris 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, Harris 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 Harris, 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 Harris 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, Joseph Levy and Bret Levy 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. 7 River Park Place Fresno, CA 93720 Attention: General Counsel Telecopier: (209) 434-4666 with copies to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071 Attention: D. Stephen Antion, Esq. Telecopier: (213) 430-6407 (b) If to ECI: El Corte Ingles, S.A. Hermosilla, 112 28009 Madrid SPAIN Attention: Jorge Pont Telecopier: 011-34-91-402-1567 With copies to: McPeters, McAlearney, Shimoff & Hatt 4 W. Redlands Boulevard, 2nd Floor P.O. Box 2084 Redlands, California 92373 Attention: Thomas H. McPeters, Esq. Telecopier: (909) 792-6234 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, Joseph Levy or Bret Levy 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. [remainder of page intentionally left blank] 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/ JORGE PONT GOTTSCHALKS INC. /S/ JAMES FAMALETTE EX-4 5 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of August 20, 1998, between Gottschalks Inc., a Delaware corporation ("Gottschalks"), and The Harris Company, a California corporation ("Harris"). RECITALS WHEREAS, Gottschalks has entered into 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 in the Asset Purchase Agreement), with Harris and El Corte Ingles, S.A., a Spanish corporation and the parent of Harris ("ECI"). WHEREAS, pursuant to the Asset Purchase Agreement (i) Gottschalks has agreed to issue to Harris on the Closing Date two million ninety-five thousand nine hundred (2,095,900) shares (the "Shares") of Gottschalks' common stock, par value $.01 per share (the "Gottschalks Common Stock"), WHEREAS, the Shares have not been registered under the Securities Act and are subject to restrictions on resale or other disposition; WHEREAS, Gottschalks desires to grant, and Harris desires to accept, the registration rights set forth in this Agreement in respect of the Registrable Shares, as defined 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 intending to be legally bound the parties agree as follows: SECTION 1. Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Divesture Date" means any date upon which Harris or ECI (if the Shares are transferred to ECI pursuant to Section 8 hereof) is the registered owner of less than ten percent (10%) on a fully diluted basis of the Gottschalks Common Stock then outstanding. "fully diluted" means, with respect to the Gottschalks Common Stock, the total number of outstanding shares of the Gottschalks Common Stock (for such purposes, treating as outstanding Gottschalks Common Stock all options or warrants to purchase and securities convertible into (or exchangeable or redeemable for) the Gottschalks Common Stock as of the relevant measurement date). "Holder" means Harris and any transferee or assignee as permitted under Section 8 hereof up until but not including and not beyond the Divesture Date. "Registrable Shares" means the Shares issued to Harris pursuant to the Asset Purchase Agreement or the transactions contemplated thereby, including any securities issued in respect thereof pursuant to a stock dividend, stock split, recapitalization or similar event. As to any particular Registrable Shares, once issued such securities shall cease to be Registrable Shares when (A) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (B) such securities shall have been sold in accordance with Rule 144 (or any successor provision) under the Securities Act or (C) such securities are eligible to be resold pursuant to Rule 144(k). The terms "register," "registered" and "registration" refer to the preparation and filing with the SEC of a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement or document. "Registration Expenses" means all expenses, except Selling Expenses, incurred by Gottschalks while complying with Section 2 of this Agreement. Registration Expenses shall include, without limitation, all registration and filing fees and other qualification fees, blue sky fees, printing expenses and fees and disbursements of Gottschalks' accountants and legal counsel incurred in any registration pursuant to Section 2. "SEC" means the United States Securities and Exchange Commission or any successor agency. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Selling Expenses" means all underwriting discounts, selling commissions, stock transfer taxes relating to any Holder's registered securities and any fees and disbursements of counsel, accountants or other agents for any Holder. "Asset Purchase Agreement" shall have the meaning given in the recitals hereof. SECTION 2. Registration. (a) Registration Statement. If Gottschalks proposes to register any Gottschalks Common Stock, whether or not for sale for its own account (other than a registration relating to the sale of securities to participants in a dividend reinvestment plan, a registration on Form S-4 relating to a business combination or similar transaction permitted to be registered on such Form S-4, a registration on Form S-8 relating to the sale of securities to participants in a stock or employee benefit plan, a registration permitted under Rule 462 under the Securities Act registering additional securities of the same class as were included in an earlier registration statement for the same offering, and declared effective, or any other registration on a Form not suitable for the registration of Registrable Shares), Gottschalks will give written notice to all Holders of Gottschalks' intention to effect such a registration and include in such registration all Registrable Shares with respect to which Gottschalks has received written notice from a Holder for inclusion therein within 10 days after the date of Gottschalks' notice (in such capacity such Holder a "Requesting Holder"); provided, however, that nothing in this Section 2 shall be construed as granting to any Holder the right to require Gottschalks to initiate the registration of any Gottschalks Common Stock; provided, further, that: (i) if, at any time after giving written notice of its intention to register any shares and, prior to the effective date of the Registration Statement filed in connection with such registration, Gottschalks shall determine for any reason not to register such shares, Gottschalks may, at its election, give written notice of such determination to each Holder requesting inclusion therein, and, thereupon, Gottschalks shall be relieved of its obligation to register any Registrable Shares in connection with such withdrawn or unfiled registration (but not of its obligation to pay the Registration Expenses in connection therewith pursuant to Section 3 hereto); and (ii) if such registration shall be in connection with an underwritten public offering and the underwriter or managing underwriter, as the case may be, shall advise Gottschalks that in its opinion the number of shares requested to be included in such registration or offering exceeds the number of such securities which can be sold in (or during the time of) such offering or would have an adverse impact on the price of such securities, the amount to be registered shall be allocated first, to Gottschalks, and second, pro rata among the Requesting Holders desiring to participate in such registration and the other holders of the Gottschalks' securities requested to be included in such registration, based on the numbers of shares initially proposed to be included by such holders. (b) Selection of Managing Underwriter; Customary Agreements. If any registration pursuant to this Section 2 is an underwritten public offering: (i) the Holders shall not have the right to select the managing underwriter to administer such offering; and (ii) the Requesting Holders agree to enter into customary agreements (including, if requested, an underwriting agreement), and take such other actions in connection therewith as Gottschalks or the underwriter(s) shall request in order to consummate such registration. (c) Notice of Effectiveness. Upon declaration of effectiveness by the SEC of a registration statement filed pursuant to this Agreement, Gottschalks shall give written notice thereof to each Holder whose Registrable Securities are included in such registration statement. (d) Blackout Periods. Following the effective date of any registration statement filed pursuant to this Section 2, Gottschalks shall be entitled, from time to time, to notify the Holders to discontinue offers or sales of Registrable Securities pursuant to such registration statement for the period of time stated in such notice, up to a maximum of sixty (60) consecutive days (such notice being a "Blackout Notice"), if Gottschalks determines, in its reasonable business judgment, that such offers and sales would materially interfere with any financing, acquisition, corporate reorganization, securities offering or other material transaction, or if there has been any development, event, occurrence or change in circumstances which Gottschalks would not be required to disclose at such time other than in connection with a registration statement, involving Gottschalks or any of its subsidiaries, taken as a whole. Such notice shall be signed by an authorized officer of Gottschalks and shall certify such determination. Each Holder agrees that upon receipt of a Blackout Notice such Holder shall discontinue offers or sales of Registrable Securities pursuant to any such registration statement for the period of time stated in the Blackout Notice and the time period set forth in subsection 2(e) shall be tolled during such period. Gottschalks may issue any number of Blackout Notices and such notices may be given consecutively. (e) Effectiveness of Registration Statements. Gottschalks shall cause any registration statement filed pursuant to this Section 2 to remain effective for at least ninety (90) days after it is declared or ordered effective or until the Holders have completed the distribution described therein, whichever first occurs; provided, however, that in no event will Gottschalks be required to prepare or file audited financial statements with respect to any fiscal year by a date prior to the date on which Gottschalks would be so required to prepare and file such audited financial statements if such registration statement were no longer effective and usable. (f) Holdback Agreement. In the event of any filing of a prospectus supplement or the commencement of an underwritten public distribution of the Gottschalks Common Stock under a Registration Statement, whether or not Registrable Shares are included, each Holder agrees not to effect any public sale or distribution of the Gottschalks Common Stock (except as part of such underwritten public distribution), including a sale pursuant to Rule 144 or Rule 144A under the Securities Act, during a period designated by Gottschalks in a written notice duly given to Holders, which period shall commence approximately 14 days prior to the effective date of any such filing of such prospectus supplement or the commencement of such underwritten public distribution of such Gottschalks Common Stock under a Registration Statement and shall continue for up to 90 consecutive days after such effective date or commencement. SECTION 3. Expenses of Registration. For the first two registrations of Gottschalks Common Stock in which any Holder exercises its right to include in such registration Registrable Shares pursuant to Section 2 hereof (in such capacity such Holder a "Participating Holder"), Gottschalks shall bear the Registration Expenses arising out of such registrations; provided, however, that all Selling Expenses relating to the registered securities of any Participating Holder shall be borne by all Participating Holders and Gottschalks shall have no liability therefor. Thereafter, for any registration of Gottschalks Common Stock pursuant to Section 2 hereof, the Participating Holders, jointly and severally, shall promptly reimburse Gottschalks for all incremental Registration Expenses attributable to the inclusion of Registrable Shares in such registration statement in addition to bearing pro rata all Selling Expenses relating to the Registrable Shares. SECTION 4. Registration Procedures. For each registration, qualification or compliance carried out by Gottschalks pursuant to this Agreement, Gottschalks shall give each Holder written notice of the initiation of such registration, qualification or compliance and Gottschalks will: (a) provide to each Holder participating in such registration a reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and any other documents as may reasonably be necessary to facilitate a public offering; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Shares covered by such registration statement during the effectiveness of such registration statement; (c) use its best efforts to register or qualify all Shares covered by such registration statement under such securities or blue sky laws of such jurisdiction as each Holder shall reasonably request, except that Gottschalks shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation in any such jurisdiction or to consent generally to service of process in any such jurisdiction; and (d) immediately notify each Holder of Shares covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and at the request of any such Holder prepare and furnish to such Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. SECTION 5. Information by Holder. Each Holder of Registrable Securities participating in any registration shall provide Gottschalks, when requested, with written information regarding itself, its ownership of securities of Gottschalks, the distribution proposed by such Holder and such other information as may be legally required in connection with such registration. Such writing shall expressly state that it is being furnished to Gottschalks for use in the preparation of a registration statement, preliminary prospectus, supplementary prospectus, final prospectus or amendment or supplement thereto, as the case may be. Each Holder agrees, by its acquisition of Registrable Shares and its acceptance of the benefits provided to it hereunder, to furnish promptly to Gottschalks all information required to be disclosed in order to make any previously furnished information not misleading. SECTION 6. Delay of Registration. No Holder shall obtain or seek an injunction restraining or otherwise delaying any registration referred to in this Agreement as a result of any controversy arising out of the interpretation or implementation of this Agreement. SECTION 7. Indemnification. (a) Gottschalks will indemnify each Holder of Shares covered by any such registration statement, its officers, directors and partners and each person who controls such Holder within the meaning of Section 15 of the Securities Act against all reasonable expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in the defense and settlement of any litigation, arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus or documents incorporated by reference therein, or based upon any omission (or alleged omission) of a material fact required to be stated therein or necessary to make the statements therein not misleading, and including any of the foregoing incurred or arising out of any violation by Gottschalks of the Securities Act or any rule or regulation promulgated under the Securities Act; provided, however, that Gottschalks will not be under an obligation to indemnify any of them (i) if any of the foregoing are based upon any untrue statement or omission or alleged untrue statement or omission made in reliance upon information furnished to Gottschalks by any Holder or controlling person or (ii) to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of any Holder's or underwriter's failure to send or give a copy of the final prospectus or supplement to the persons asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Shares to such person if such statement or omission was corrected in such final prospectus or supplement; provided further, that the indemnity agreements contained in this subsection shall not apply to amounts paid in any settlement if such settlement is effected without the consent of Gottschalks. (b) Each Holder participating in a registration pursuant to this Agreement will indemnify Gottschalks, its directors and officers, each person who controls Gottschalks within the meaning of Section 15 of the Securities Act, and each other Holder and each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all reasonable expenses, claims, losses, damages and liabilities incurred and actions arising out of any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement and any documents related thereto or based upon any omission (or alleged omission) of a material fact required to be stated therein or necessary to make the statements therein not misleading, and including any of the foregoing incurred or arising out of the violation by any such Holder of the Securities Act or any rule or regulation promulgated thereunder; provided, however, that such Holder will only be obligated to indemnify any of them for any of the foregoing based upon a material misstatement or an omission (alleged or otherwise) made in reliance upon information furnished to Gottschalks by such Holder. (c) Each party entitled to indemnification under this Section 7 ("Indemnified Party") shall give prompt notice to the party required to provide indemnification ("Indemnifying Party") as soon as Indemnified Party has actual knowledge of any claim for which indemnify may be sought, and shall permit Indemnifying Party to assume and control the defense of any such claim or any litigation resulting therefrom, provided that Indemnified Party will have the right to approve (whose approval shall not be unreasonably withheld) of the counsel chosen by Indemnifying Party to defend such claim or litigation, and provided that Indemnified Party may participate in such defense at Indemnified Party's expense. The failure of any Indemnified Party to give notice of a claim subject to indemnification shall not relieve Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to Indemnifying Party's ability to defend such claim. Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defense. In defending such claim, Indemnifying Party shall not, without the prior written consent of Indemnified Party, consent to the entry of any judgment or enter into any settlement which does not include an unconditional provision releasing Indemnified Party from all liability in respect to such claim or litigation. (d) The obligations of Gottschalks and Holders under this Section 7 shall survive the completion of any offering of Registrable Securities in a registration statement under this Agreement, and otherwise. SECTION 8. Transfer of Registration Rights. Any Holder's rights under Section 2 hereof may not be assigned or transferred except to an affiliate that is bound by and becomes a party to that certain Stockholders' Agreement dated as of August 20, 1998 among Gottschalks, ECI, Joseph Levy and Bret Levy. SECTION 9. Amendment of Registration Rights. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of Gottschalks and Holders of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each Holder, each transferee or assignee of Holder pursuant to Section 8 of this Agreement. SECTION 10. Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Agreement after the fifteenth anniversary of the date hereof. SECTION 11. 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 the holders of Registrable Securities, to the addresses shown on the signature page(s) hereto, with a copy to: McPeters, McAlearney, Shimoff & Hatt 4 W. Redlands Boulevard, 2nd Floor P.O. Box 2084 Redlands, California 92373 Attention: Thomas H. McPeters, Esq. Telecopier: (909) 792-6234 (b) If to Gottschalks to: Gottschalks Inc. 7 River Park Place Fresno, California 93720 Attention: General Counsel Telecopier: (209) 434-4666 with a copy to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 Attention: D. Stephen Antion, Esq. Telecopier: (213) 430-6407 SECTION 12. Parties in Interest. This Agreement shall be binding upon and inure to the benefit of each party, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation of any third person to any party to this Agreement. SECTION 13. 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. SECTION 14. Headings. The headings in this Agreement are for convenience only and shall not limit or otherwise affect the meaning hereof. SECTION 15. 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. SECTION 16. Arbitration. (a) Any controversy, dispute or claim under, arising out of, in connection with or in relation to this Agreement, including but not limited to the negotiation, execution, interpretation, construction, coverage, scope, performance, non-performance, breach, termination, validity or enforceability of this Agreement or this Section 16 shall be determined by arbitration conducted in accordance with the Commercial Arbitration Rules or then existing rules for commercial arbitration of the American Arbitration Association. The arbitration shall additionally be governed by the California Arbitration Act. The arbitration shall be before a single arbitrator who shall be selected by mutual agreement of the parties from among a list of seven potential arbitrators provided by the American Arbitration Association. If the parties cannot agree on an arbitrator from this first list, the parties hereto shall select an arbitrator for such arbitration from a second list of seven potential arbitrators provided by the American Arbitration Association with the Holders, on the one hand, and Gottschalks, on the other, alternately striking names, with the last name remaining to be the arbitrator so selected. In the event that either party seeks a temporary restraining order, preliminary injunction or other provisional relief, the provisions of Section 1281.8 of the Cal. Civ. Proc. Code shall apply. The arbitration of such issues, including without limitation any award of damages suffered by any party hereto by reason of the acts or omissions of any party, shall be final and binding upon the parties to the maximum extent permitted by law. The parties intend that this Section shall be valid, binding, enforceable and irrevocable and shall survive the termination of this Agreement. (b) Any arbitration proceedings hereunder shall be held in Los Angeles, California. (c) Judgment upon any award rendered by the arbitrator(s) may be entered by any court having jurisdiction thereof. SECTION 17. 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 judgement and, to the maximum extent permitted by law, not be deemed merged into such judgment. SECTION 18. 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 19. Entire Agreement. This Agreement, together with the Asset Purchase Agreement and the other agreements of Gottschalks, Harris and ECI of even date herewith, contains the entire understanding of the parties with respect to the subject matter of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. GOTTSCHALKS INC. /S/ JAMES FAMALETTE THE HARRIS COMPANY /S/ LEOPOLDO DEL NOGAL /S/ THOMAS MCPETERS Notice Address: c/o El Corte Ingles, S.A. Hermosilla, 112 28009 Madrid, SPAIN Attn: Jorge Pont Facsimile: 011-34-91-402-1567 With a copy to: McPeters McAlearney Shimoff & Hatt 4 W.Redlands Boulevard, 2nd Floor P.O. Box 2084 Redlands, CA 92373 Attn: Thomas H. McPeters, Esq. Facsimile: (909) 792-6234 -----END PRIVACY-ENHANCED MESSAGE-----