-----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, DlIHv3SHu+QXKB9PXGP/vtqclNdxNtFA3v8ZY5VJCdnDXTLrCmCb0hS9Y9FyXX7x McFtK7Bvb9EDoGWkcfwdKQ== 0000950144-97-007253.txt : 19970625 0000950144-97-007253.hdr.sgml : 19970625 ACCESSION NUMBER: 0000950144-97-007253 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19970624 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFFITTS INC CENTRAL INDEX KEY: 0000812900 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 620331040 STATE OF INCORPORATION: TN FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-29919 FILM NUMBER: 97629029 BUSINESS ADDRESS: STREET 1: 3455 HIGHWAY 80 W CITY: JACKSON STATE: MS ZIP: 39209 BUSINESS PHONE: 6159837000 MAIL ADDRESS: STREET 1: P.O. BOX 9388 CITY: ALCOA STATE: TN ZIP: 37701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBERGERS G R INC CENTRAL INDEX KEY: 0000046967 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-29919-01 FILM NUMBER: 97629030 BUSINESS ADDRESS: STREET 1: - STREET 2: 600 MALL GERMIN CITY: STA CLOUD STATE: MN ZIP: 56301 MAIL ADDRESS: STREET 2: 600 MALL GERMAIN CITY: ST CLOUD STATE: MN ZIP: 56301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARISIAN INC CENTRAL INDEX KEY: 0000729979 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 630680839 STATE OF INCORPORATION: AL FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-29919-02 FILM NUMBER: 97629031 BUSINESS ADDRESS: STREET 1: 750 LAKESHORE PKWY CITY: BIRMINGHAM STATE: AL ZIP: 35211 BUSINESS PHONE: 2059404000 MAIL ADDRESS: STREET 2: 750 LAKESHORE PKWY CITY: BIRMINGHAM STATE: AL ZIP: 35211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCRAES INC CENTRAL INDEX KEY: 0000773086 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 640202140 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-29919-03 FILM NUMBER: 97629032 BUSINESS ADDRESS: STREET 1: - STREET 2: 3455 HIGHWAY 80 WEST CITY: JACKSON STATE: MI ZIP: 34209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCRAES OF ALABAMA INC CENTRAL INDEX KEY: 0001041022 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-29919-04 FILM NUMBER: 97629033 BUSINESS ADDRESS: STREET 1: - STREET 2: 600 MALL GERMAIN CITY: ST CLOUD STATE: MN ZIP: 56301 MAIL ADDRESS: STREET 2: 600 MALL GERMAIN CITY: ST CLOUD STATE: MN ZIP: 56301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCRAES STORES PARTNERSHIP CENTRAL INDEX KEY: 0001041023 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-29919-05 FILM NUMBER: 97629034 BUSINESS ADDRESS: STREET 1: - STREET 2: 600 MALL GERMAIN CITY: ST CLOUD STATE: MN ZIP: 56301 MAIL ADDRESS: STREET 2: 600 MALL GERMAIN CITY: ST CLOUD STATE: MN ZIP: 56301 S-1 1 PROFITT'S INC 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- PROFFITT'S, INC. (Exact name of registrant as specified in its charter) TENNESSEE 5311 82-0331040 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer incorporation or organization) Classification Code Number) identification number)
3455 HIGHWAY 80 WEST JACKSON, MISSISSIPPI 39209 (601) 968-4400 (Address, including zip code, and telephone number, including area code, of the Company's principal executive offices) G.R. HERBERGER'S, INC. (AS GUARANTOR) (Exact name of registrant as specified in its charter) DELAWARE 5311 41-0635374 (State or other jurisdiction (Primary Standard Industrial (I.R.S. employer of Classification Code Number) identification number) incorporation or organization)
600 MALL GERMAIN ST. CLOUD, MINNESOTA 56301 (320) 251-5351 (Address, including zip code, and telephone number, including area code, of the Company's principal executive offices) MCRAE'S, INC. (AS GUARANTOR) (Exact name of registrant as specified in its charter) MISSISSIPPI 5311 64-0202140 (State or other jurisdiction (Primary Standard Industrial (I.R.S. employer of Classification Code Number) identification number) incorporation or organization)
3455 HIGHWAY 80 WEST JACKSON, MISSISSIPPI 39209 (601) 968-4400 (Address, including zip code, and telephone number, including area code, of the Company's principal executive offices) MCRAE'S STORES PARTNERSHIP (AS GUARANTOR) (Exact name of registrant as specified in its charter) MISSISSIPPI 5311 72-1360263 (State or other jurisdiction (Primary Standard Industrial (I.R.S. employer of Classification Code Number) identification number) incorporation or organization)
3455 HIGHWAY 80 WEST JACKSON, MISSISSIPPI 39209 (601) 968-4400 (Address, including zip code, and telephone number, including area code, of the Company's principal executive offices) ================================================================================ (Cover continued on next page) 2 ================================================================================ MCRAE'S OF ALABAMA, INC. (AS GUARANTOR) (Exact name of registrant as specified in its charter) ALABAMA 5311 63-0165960 (State or other jurisdiction (Primary Standard Industrial (I.R.S. employer of Classification Code Number) identification number) incorporation or organization)
3455 HIGHWAY 80 WEST JACKSON, MISSISSIPPI 39209 (601) 968-4400 (Address, including zip code, and telephone number, including area code, of the Company's principal executive offices) PARISIAN, INC. (AS GUARANTOR) (Exact name of registrant as specified in its charter) ALABAMA 5311 63-0680839 (State or other jurisdiction (Primary Standard Industrial (I.R.S. employer of Classification Code Number) identification number) incorporation or organization)
750 LAKESHORE PARKWAY BIRMINGHAM, ALABAMA 35211 (205) 940-4400 (Address, including zip code, and telephone number, including area code, of the Company's principal executive offices) --------------------- BRIAN J. MARTIN, ESQ. EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL PROFFITT'S, INC. 750 LAKESHORE PARKWAY BIRMINGHAM, ALABAMA 35211 (205) 940-4890 FAX: (205) 940-4468 (Name, address, including zip code and telephone number, including area code, of agent for service) COPIES TO: RALPH F. MACDONALD, III, ESQ. JAMES A. STRAIN, ESQ. ALSTON & BIRD LLP SOMMER & BARNARD, PC ONE ATLANTIC CENTER 4000 BANK ONE TOWER 1201 WEST PEACHTREE STREET 111 MONUMENT CIRCLE ATLANTA, GEORGIA 30309-3424 INDIANAPOLIS, INDIANA 46204 (404) 881-7000 (317) 630-4000 FAX: (404) 881-7777 FAX: (317) 236-9802
--------------------- Approximate date of commencement of proposed sale to public: UPON CONSUMMATION OF THE EXCHANGE OFFER REFERRED TO HEREIN. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this form is filed to register additional Securities for an offering pursuant to Rule 462(b) under the Securities Act of 1993. Please check the following box. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(a) under the Securities Act, please check the following box and list the securities Act registration number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, Please check the following box. [ ] --------------------- CALCULATION OF REGISTRATION FEE
==================================================================================================================== PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE(1) - ------------------------------------------------------------------------------------------------------------------ 8 1/8% Senior Notes due 2004, Series B...................... $125,000,000 100% $125,000,000 $37,878.79 ==================================================================================================================
(1) Estimated solely for purposes of calculating the filing fee pursuant to Rule 457(a) under the Securities Act of 1933. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 3 SUBJECT TO COMPLETION, DATED JUNE 20, 1997 PROSPECTUS $125,000,000 PROFFITT'S, INC. OFFER TO EXCHANGE ITS 8 1/8% SENIOR NOTES DUE 2004, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OUTSTANDING 8 1/8% SENIOR NOTES DUE 2004, SERIES A ------------------ THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON , , 1997, UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE "EXPIRATION DATE"). Proffitt's, Inc., a Tennessee corporation (the "Company"), hereby offers (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange up to $125,000,000 aggregate principal amount of its 8 1/8% Senior Notes due 2004, Series B (the "Exchange Notes") for an equal principal amount of its outstanding 8 1/8% Senior Notes due 2004, Series A (the "Series A Notes", and collectively with the Exchange Notes, the "Notes"). The Exchange Notes are substantially identical (including principal amount, interest rate, maturity, redemption rights and guarantees) to the Series A Notes for which they may be exchanged pursuant to this offer, except that (i) the Exchange Notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) holders of Exchange Notes will no longer be entitled to certain rights of registration provided to eligible holders of the Series A Notes under a Registration Rights Agreement by and among the Company, the Subsidiary Guarantors (as defined herein), and the Initial Purchasers (as defined herein), dated as of May 21, 1997 (the "Registration Rights Agreement"). The Series A Notes have been, and the Exchange Notes will be, issued under an Indenture dated as of May 21, 1997 (the "Indenture"), by and among the Company, the Subsidiary Guarantors, and The First National Bank of Chicago, as trustee (the "Trustee"). The Company will not receive any proceeds from this Exchange Offer; however, pursuant to the Registration Rights Agreement, the Company will bear certain offering expenses. See "Description of the Notes." The Exchange Notes will bear interest at the same rate and on the same terms as the Series A Notes. Consequently, interest on the Exchange Notes will be payable semi-annually in arrears on May 15 and November 15 of each year, commencing November 15, 1997, including interest accrued but unpaid since the Series A Notes were originally issued. The Exchange Notes will mature on May 15, 2004 and will not be subject to redemption, at the option of the Company, at any time. Following the occurrence of a Change of Control Triggering Event (as defined herein), each holder of Notes will have the right to require the Company to purchase all or a portion of such holder's Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of purchase. See "Description of the Notes." The Notes rank pari passu in right of payment with all existing and future unsecured and unsubordinated indebtedness of the Company and senior in right of payment to all existing and future subordinated indebtedness of the Company. The Notes are fully and unconditionally guaranteed on a senior basis (the "Guarantees") by substantially all of the Company's existing and future subsidiaries (other than Accounts Receivable Subsidiaries and any Foreign Subsidiaries) (the "Subsidiary Guarantors"). The Guarantees are subject to release under certain circumstances specified in the Indenture, and rank pari passu in right of payment with all existing and future unsecured and unsubordinated indebtedness of the Subsidiary Guarantors and senior in right of payment to all existing and future subordinated indebtedness of the Company and the Subsidiary Guarantors. The Notes and the Guarantees will be effectively subordinated to all secured indebtedness of the Company and the Subsidiary Guarantors to the extent of the value of the assets securing such indebtedness. As of May 3, 1997, on a pro forma basis after giving effect to the issuance of the Series A Notes and the application of the net proceeds therefrom, the Company and the Subsidiary Guarantors would have had approximately $521.2 million of indebtedness outstanding, of which approximately $295.3 million would have been senior indebtedness and approximately $60.3 million would have been secured indebtedness. See "Description of the Notes -- Guarantees." The Series A Notes have not been listed on any securities exchange and are not traded on the National Association of Securities Dealers Automated Quotation System, Inc. ("Nasdaq"). The Series A Notes have been designated eligible for trading through the National Association of Securities Dealers, Inc.'s ("NASD") PORTAL trading system. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through Nasdaq. Although the Initial Purchasers (as defined herein) have informed the Company that they currently intend to make a market in the Notes, they are not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. The Company's Common Stock is traded on the Nasdaq National Market under the symbol "PRFT." The Company has filed an application to list its Common Stock for trading on The New York Stock Exchange. SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER SERIES A NOTES IN THE EXCHANGE OFFER. The Company will accept for exchange any and all Series A Notes validly tendered by eligible holders and not withdrawn prior to 5:00 p.m. New York City time on , 1997, unless extended by the Company in its sole discretion (the "Expiration Date"). Tenders of Notes may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is subject to certain customary conditions. The Notes may be tendered only in integral multiples of $1,000. See "The Exchange Offer." ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1997. 4 EXPLANATORY NOTE This Registration Statement covers $125,000,000 aggregate principal amount of the Exchange Notes and the related guarantees thereof to be offered in exchanged for equal principal amounts of the Series A Notes and the related Guarantees thereof in the Exchange Offer. This Registration Statement is being filed to satisfy certain requirements of the Registration Rights Agreement. Based on interpretations by the staff of the Securities and Exchange Commission (the "SEC" or the "Commission") set forth in no-action letters issued to unrelated third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Series A Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is a broker-dealer that holds Notes acquired for its own account as a result of market-making or other trading activities or any holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act of 1933, as amended (the "Securities Act")) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder is not engaged in, and does not intend to participate, and has no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. In the event that any holder of Series A Notes is prohibited by law or any policy of the Commission from participating in the Exchange Offer, or any holder of Exchange Notes may not resell such Exchange Notes without delivering a prospectus and this Prospectus is inappropriate or unavailable for such resales, or if a holder is a broker-dealer and holds Notes acquired directly from the Company or one of its affiliates, and in each case such holder satisfies certain other requirements, including timely notice to the Company, the Company has agreed, pursuant to the Registration Rights Agreement, to file a shelf registration statement (the "Shelf Registration Statement") in respect of any such Notes pursuant to Rule 415 under the Securities Act. Any Series A Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent Series A Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered and unregistered Series A Notes could be adversely affected. Following consummation of the Exchange Offer, the holders of Series A Notes will continue to be subject to the existing restrictions upon transfer thereof and the Company will have fulfilled one of its obligations under the Registration Rights Agreement. Holders of Notes who do not tender their Notes generally will not have any further registration rights under the Registration Rights Agreement or otherwise. See "The Exchange Offer -- Termination of Certain Rights" and " -- Consequences of Failure To Exchange." The Company expects that the Exchange Notes will be issued only in the form of a Global Note (as defined herein), which will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in its name or in the name of DTC's nominee, Cede & Co. ("Cede"). Beneficial interests in the Global Note representing the Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by DTC and its participants. After the initial issuance of the Global Note, Exchange Notes in certificated form may be issued in exchange for the Global Note on the terms and conditions set forth in the Indenture. See "Description of Exchange Notes -- Book-Entry; Delivery and Form." The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). So long as any Notes are outstanding, or the Company is subject to the periodic reporting requirements of the Exchange Act, it is required to furnish the information required to be filed with the Commission to the Trustee and the holders of the Notes. The Company has agreed that, even if it is not required under the Exchange Act to furnish such information to the Commission, it will nonetheless continue to furnish information that would be required to be furnished by the Company pursuant to Sections 13 and 15(d) of the Exchange Act, to the Trustee and the holders of the Notes as if it were subject to such periodic reporting requirements. See "Available Information." In addition, the Company has agreed that in the event the Company is no longer subject to Sections 13 or 15(d) under the Exchange Act, and for so long as any of the Series A Notes remain outstanding, it will make available to any prospective purchaser of the Series A Notes or beneficial owner of the Series A Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act, until 2 5 such time as either (i) the Company has exchanged the Series A Notes for the Exchange Notes or (ii) the holders thereof have disposed of such Series A Notes pursuant to an effective registration statement filed by the Company. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission a registration statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Exchange Notes, reference is hereby made to the Registration Statement, including the exhibits and schedules filed or incorporated as a part thereof. Statements contained herein concerning the provisions of any document are not necessarily complete and in each instance reference is made to the copy of the document filed as an exhibit or schedule to the Registration Statement. Each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission. In addition, the Company files periodic reports and other information with the Commission under the Exchange Act, relating to the Company's business, financial statements and other matters. The Registration Statement, including the exhibits and schedules thereto, and the periodic reports and other information filed in connection therewith, may be inspected at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies may be obtained at the prescribed rates from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or on the Internet at http://www.sec.gov. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS Certain of the matters discussed in this Prospectus may constitute forward-looking statements for purposes of the Securities Act and the Exchange Act. Such forward-looking statements may involve uncertainties and other factors that may cause the actual results and performance of the Company to be materially different from future results or performance expressed or implied by such statements. Cautionary statements regarding the risks associated with such forward-looking statements, include, without limitation, those statements included under "Risk Factors" "Summary -- Business Strategy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere herein. Among others, factors that could adversely affect actual results and performance include local and regional economic conditions in the areas served by the Company, the level of consumer spending for apparel and other consumer goods, the effects of weather conditions on seasonal sales in the Company's market areas, competition among department and specialty stores, changes in merchandise mixes, site selection and related traffic and demographic patterns, best practices and merchandising, inventory management and turnover levels, realization of planned synergies and cost savings, and the Company's success in integrating recent and potential future acquisitions. See "Risk Factors -- Forward-Looking Statements." All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by the foregoing cautionary statement. 3 6 PROSPECTUS SUMMARY The following is a summary of certain information contained elsewhere in this Prospectus. Reference is made to, and this summary is qualified in its entirety by, the more detailed information contained in this Prospectus. As used herein, unless the context otherwise requires, "Company" means Proffitt's, Inc. and its subsidiaries, and the terms "Proffitt's," "McRae's," "Younkers," "Parisian" and "Herberger's" refer to the Company's five department store chains, and the existing and predecessor entities that conduct or conducted business under such names. Reference in this Prospectus to the Company's fiscal year means the fiscal year ended on the Saturday nearest January 31 of the following calendar year (e.g., "fiscal 1995" means the fiscal year ended February 3, 1996). Unless the context otherwise requires, references in this Prospectus to "pro forma" financial information reflect the acquisition by the Company of Parisian as if the acquisition had occurred on February 4, 1996. Historical financial information presented in this Prospectus includes the results of Parisian from and after October 11, 1996, the date of its acquisition by the Company. THE EXCHANGE OFFER The Exchange Offer......... The Exchange Offer consists of this Prospectus and the related Letter of Transmittal, and is being made solely to eligible holders of Series A Notes. Upon the terms and subject to the conditions of the Exchange Offer, the Company is offering eligible holders of Series A Notes the opportunity to exchange its Series A Notes that have not been registered under the Securities Act for the Exchange Notes that have been registered under the Securities Act. Exchange Offer Expiration Date..................... The Exchange Offer expires at 5:00 P.M., Eastern Time on , , 1997 unless extended by the Company in its sole discretion. Exchange Notes Offered..... The Exchange Notes consist of $125,000,000 aggregate principal amount of 8 1/8% Senior Notes due 2004, Series B. Procedures for Tendering Series A Notes........... Brokers, dealers, commercial banks, trust companies and other nominees who hold Series A Notes through DTC (as defined herein) may effect tenders by book-entry transfer in accordance with DTC's Automated Tender Offer Program ("ATOP"). Holders of such Series A Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee are urged to contact such person promptly if they wish to tender Series A Notes. In order for Series A Notes to be tendered by a means other than by book-entry transfer, a Letter of Transmittal must be completed and signed in accordance with the instructions contained herein. The Letter of Transmittal and any other documents required by the Letter of Transmittal must be delivered to the Exchange Agent by mail, facsimile, hand delivery or overnight carrier, and either such Series A Notes must be delivered to the Exchange Agent or specified procedures for guaranteed delivery must be complied with. See "The Exchange Offer -- Procedures for Tendering." Letters of Transmittal and certificates representing Series A Notes should not be sent to the Company. Such documents should only be sent to the Exchange Agent. See "The Exchange Offer -- Exchange Agent." THE NOTES Maturity Date of the Notes...................... May 15, 2004. 4 7 Interest Payment Dates..... Limited Nature of May 15 and November 15 of each year, commencing November 15, 1997. Guarantees................. The Notes are fully and unconditionally guaranteed on a senior basis by the Subsidiary Guarantors. Under certain circumstances, future subsidiaries (other than Accounts Receivables Subsidiaries and Foreign Subsidiaries) of the Company may be requested to guarantee the Notes. In addition, the Guarantees are subject to release under certain circumstances. See "Description of the Notes -- Exchange Note Guarantees" and "Description of the Exchange Notes -- Limitations on Guarantees by Restricted Subsidiaries." Ranking.................... The Notes rank pari passu in right of payment with all existing and future unsecured and unsubordinated indebtedness of the Company and senior in right of payment to all existing and future subordinated indebtedness of the Company. The Guarantees rank pari passu in right of payment with all existing and future unsecured and unsubordinated indebtedness of the Subsidiary Guarantors and senior in right of payment to all existing and future subordinated indebtedness of the Subsidiary Guarantors. The Notes and the Guarantees will be effectively subordinated to all secured indebtedness of the Company and the Subsidiary Guarantors to the extent of the value of the assets securing such indebtedness. As of May 3, 1997, on a pro forma basis after giving effect to the issuance of the Notes and the application of the net proceeds therefrom, the Company and the Subsidiary Guarantors would have had an aggregate of approximately $521.2 million of indebtedness outstanding, of which approximately $295.3 million would have been senior indebtedness and approximately $60.3 million would have been secured indebtedness. See "Description of the Exchange Notes." Change of Control.......... Following the occurrence of a Change of Control Triggering Event (as defined in the Indenture), the Company will be required to make an offer to purchase all outstanding Notes at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. See "Description of the Notes -- Change of Control." Certain Covenants.......... The Indenture under which the Notes are issued contains certain covenants that, among other things, limit (i) the incurrence of additional indebtedness, (ii) certain restricted payments, (iii) certain asset sales, (iv) transactions with affiliates, (v) consolidations, mergers and dispositions of assets on a consolidated basis, and (vi) the Company's restricted subsidiaries from guaranteeing certain other indebtedness of the Company unless such restricted subsidiaries also guarantee the Notes. The Indenture also prohibits certain restrictions on distributions from restricted subsidiaries of the Company. These covenants are subject to important exceptions and qualifications. The Indenture provides that after the Notes achieve an investment grade rating from both Standard & Poor's Ratings Group and Moody's Investors Service, Inc., the Company's obligation to comply with certain of the restrictive covenants described herein will be terminated. See "Description of the Notes -- Certain Covenants." Use of Proceeds............ The Company will not receive any proceeds from the issuance of the Exchange Notes pursuant to the Exchange Offer. The net proceeds to the Company from the sale of the Series A Notes are being used to repay 5 8 certain outstanding mortgage and other indebtedness of the Company, to reduce certain borrowings under the Credit Facility and for general corporate purposes. See "Use of Proceeds." Shelf Registration Statement............... If (i) the Exchange Offer is not permitted by applicable law or (ii) any holder of Transfer Restricted Notes (as defined herein) notifies the Company within 20 business days of the commencement of the Exchange Offer that (A) it is prohibited by law or Commission policy from participating in the Exchange Offer, (B) that it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and this Prospectus is not appropriate or available for such resales or (C) that it is a broker-dealer and holds Series A Notes acquired directly from the Company or an affiliate of the Company, the Company will be required to provide the Shelf Registration Statement to cover resales of the Notes by such holders thereof. If the Company fails to satisfy these registration obligations, it will be required to pay Additional Interest (as defined herein) to the holders of Notes under certain circumstances. See "The Exchange Offer." Absence of an Established Trading Market for the Notes.................... The Series A Notes are new securities that were issued on May 21, 1997 (the "Issue Date" or "Closing Date"). There is currently no established trading market for the Notes or the Exchange Notes. Although Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co. and Smith Barney Inc. (the "Initial Purchasers") have informed the Company that they currently intend to make a market in the Series A Notes and, upon issuance, the Exchange Notes, they are not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. To the extent Series A Notes are exchanged in this Exchange Offer, the liquidity of the market for the remaining Series A Notes may be reduced. The Series A Notes have been designated eligible for trading in the Private Offerings, Resale and Trading through Automatic Linkages (PORTAL) market. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through Nasdaq. See "Risk Factors -- Absence of a Public Market." THE COMPANY The Company is a leading regional department store chain operating 175 stores in 24 states, primarily in the Southeast and Midwest. The Company operates its stores under five chain names: Proffitt's (19 stores), McRae's (29 stores), Younkers (48 stores), Parisian (40 stores) and Herberger's (39 stores). Each chain operates primarily as a leading branded traditional department store in its communities, with Parisian serving as a better branded specialty department store. Most of the stores are located in premier regional malls in the respective trade areas served. The Company's stores offer a wide selection of fashion apparel, accessories, cosmetics and decorative home furnishings, featuring assortments of premier brands, private brands and specialty merchandise. Each of the Company's chains operates with its own merchandising, marketing and store operations team in order to tailor regional assortments to the local customer. At the same time, the Company coordinates merchandising among the chains and consolidates administrative and support functions to realize scale economies, to promote a competitive cost structure and to increase margins. Under the leadership of R. Brad Martin and an experienced senior management team, the Company has executed a disciplined acquisition strategy and strategic approach to new store openings, growing from 11 stores and net sales of $94.8 million in fiscal 1989 to 175 stores and pro forma net sales of $2.3 billion in fiscal 6 9 1996. In addition, the Company has increased EBITDA from $8.9 million in fiscal 1989 to $167.2 million in fiscal 1996, on a pro forma basis. Members of the Company's senior management have substantial investments in the Company. As of April 25, 1997, Mr. Martin beneficially owned approximately 4.7% of the Company's Common Stock and all directors and executive officers of the Company as a group beneficially owned approximately 13.2% of the Company's Common Stock. The Company was incorporated under the laws of the State of Tennessee in 1919. The principal executive offices of the Company are located at 3455 Highway 80 West, Jackson, Mississippi 39209, and its telephone number is (601) 968-4400. BUSINESS STRENGTHS The Company believes that it is well-positioned to build upon its historical success by capitalizing on its competitive strengths, including the following: Strong Regional Focus. The Company places a high priority on being a market leader in each of the markets in which it operates. In smaller communities, the Company's stores are frequently the only branded name department store catering to middle and upper income customers and offering an array of brands that frequently are not otherwise available to shoppers in such markets. In most larger metropolitan markets, the Company seeks to maximize its market share by operating multiple stores in prime locations. While the Company has grown through the acquisition of regional chains, its philosophy has been to (i) maintain existing trade names and retain merchandising and store personnel and (ii) utilize previously developed regional expertise and knowledge of the local customer base by allowing each chain to tailor merchandise assortments to the local customer. The Company believes that the increased sales and gross margins resulting from a coordinated but decentralized merchandising effort outweigh any incremental operating cost savings associated with a completely centralized strategy. Scale Economies. With pro forma sales of approximately $2.3 billion in fiscal 1996, the Company realizes scale economies in purchasing and distribution, administrative areas such as accounting, proprietary credit card administration, management information systems, and other infrastructure-related areas. Although the Company's chains control regional merchandising, the Proffitt's Merchandising Group coordinates merchandising, planning and execution, visual presentation, marketing and advertising activities among the chains. The Proffitt's Merchandising Group manages strategic relationships with the Company's top vendors to ensure that each chain is afforded the purchasing leverage of the Company as a whole. In addition to seeking economies of scale in purchasing, the Proffitt's Merchandising Group will continue to capitalize on corporate level marketing synergies, such as the coordination of media buying and direct mail programs, the establishment of preferred advertising rates, and the production of store catalogs. Proven Track Record of Integrating Acquisitions. In recent years, the Company has grown primarily through the acquisition of strong, regional department store chains at valuations believed to be attractive by management. The following table sets forth certain information concerning the Company's significant acquisitions:
TRANSACTION VALUE(A) EQUITY AS A % AS A MULTIPLE OF: DATE OF NUMBER TRANSACTION OF TRANSACTION ---------------------------- COMPANY ACQUIRED ACQUISITION OF STORES VALUE(A) VALUE(A) LTM SALES(B) LTM EBITDA(B) - ---------------- ----------- --------- ----------- -------------- ------------ ------------- (IN MILLIONS) McRae's, Inc................... March 31, 1994 28 $264.8 5% 0.6x 5.3x Younkers, Inc.................. February 3, 1996 51 321.6 79 0.5 6.5 Parisian, Inc.................. October 11, 1996 38 375.0 28 0.5 8.7 G.R. Herberger's, Inc.......... February 1, 1997 39 176.9 88 0.5 7.4
- --------------- (a) Transaction value is the total consideration paid in the form of: (i) cash; (ii) notes; (iii) equity (valued as of the announcement date for pooling-of-interest transactions and in accordance with generally 7 10 accepted accounting principles for purchase accounting transactions); and (iv) assumed long-term debt, net of cash, as of the end of the last full fiscal quarter prior to the acquisition date. (b) LTM Sales and LTM EBITDA of the acquired company represent data for the twelve months ending on the last day of the last full fiscal quarter prior to the acquisition date. Additionally, EBITDA for Herberger's is adjusted for ESOP expense of $4.3 million. See "-- Summary Historical and Pro Forma Financial and Operating Data" for the definition of EBITDA. The Company employs a "best practices" approach to integrating acquired companies. Best practices is a process whereby each acquired chain's operating procedures and policies are reviewed to determine those practices which the Company believes will increase synergies while minimizing business interruptions. The Company believes the implementation of best practices throughout the Company's chains has resulted in improved comparable store sales and increased operating margins through better and more consistent inventory control and pricing, and other operating efficiencies. Strong Financial Position. The Company has been able to realize significant growth while maintaining moderate leverage. Since February 1996, the acquisitions of Younkers, Herberger's and Parisian have resulted in an increase in net sales of approximately $1.6 billion, while senior debt as a percentage of total capitalization decreased slightly. In addition to conservative balance sheet management, the Company's strong cash flow generation has allowed it to fund all capital expenditures, incremental working capital requirements and fixed charges with internally generated cash flow. On a pro forma basis, the Company's ratio of EBITDA to interest expense in fiscal 1996 would have been 3.7x. The Company's strong financial performance has provided it with significant financial flexibility, including the ability to use its publicly-traded common stock as consideration for selected acquisitions. Geographic and Demographic Diversity. The Company operates 175 stores in 24 states. Stores are operated in metropolitan markets such as Atlanta, Georgia and Indianapolis, Indiana, as well as in smaller markets such as Ames, Iowa and Kalispell, Montana. The Company believes that its geographic diversity and the demographic breadth of its target customer groups may to some extent serve to insulate the Company from sales and earnings volatility typically associated with poor weather conditions, or changes in local or regional economic conditions. Attractive Real Estate. The Company believes that its stores are primarily located in premier malls in the markets in which the Company operates. As is consistent with national trends, the Company further believes that construction of new malls in many of its markets is likely to be limited. The Company anticipates that the attractiveness of its existing locations, combined with limited new mall development, may contribute to improved comparable store sales. BUSINESS STRATEGY The Company's business objective is to maximize profitability and shareholder value by (i) expanding its core business through comparable store sales growth, new store openings and margin expansion, and (ii) monitoring acquisition opportunities while maintaining a strong capital structure. Comparable Store Sales Growth. The Company expects that comparable store sales will benefit from a number of merchandising initiatives including (i) implementing best practices, (ii) expanding sales of key brands, and (iii) increasing sales of the Company's private brands. As part of best practices, the Company benchmarks sales of product categories and brand assortments for each store and identifies and targets opportunities to strengthen such sales by altering the merchandise mix. The Company has successfully used this strategy by applying the long history of strength in the cosmetics business of McRae's and Proffitt's stores to increase the penetration and profitability of Younkers stores' cosmetics business. The Company believes that it will be able to further utilize this strategy to increase sales in the Younkers shoe business, increase McRae's women's apparel sales and introduce home goods into select Parisian stores. The Company believes that comparable store sales will also benefit from expanded sales of key brands, such as Tommy Hilfiger, Liz Claiborne, Jones New York, Polo/Ralph Lauren, Calvin Klein, Guess, and Nine West, among others. The Company's large scale and proven track record with these vendors has enabled the Company to introduce certain of these brands into acquired stores which, prior to combining with the 8 11 Company, did not have access to these vendors. For instance, Tommy Hilfiger, Nautica and Lancome will now be carried in select Herberger's stores. Additionally, the Company plans to increase sales of its private brand offerings within the apparel and housewares categories from 6% of total net sales to 12% to 15% over the next two to three years. For example, the Company has recently developed its own line of men's dress shirts and accessories, under the brand name RBM. The RBM collection is designed to fill a niche for quality men's furnishings at moderate prices. New Store Openings. The Company plans to open 15 to 20 new stores across all chains over the next three years and to make selective real estate acquisitions in existing or new markets. The Company targets premier mall locations principally based on favorable demographic profiles and trends, as well as the compatibility and traffic draws of other tenants. High quality real estate is a primary criterion for all new stores. In addition, the Company plans to selectively remodel or expand certain existing stores. Margin Expansion. The Company has implemented the following strategies to increase margins: (i) leveraging key vendor relationships; (ii) capitalizing on purchasing economies of scale; (iii) extending key brands into certain acquired stores; (iv) shifting the merchandise mix toward higher margin products; (v) increasing private brand penetration; (vi) consolidating administrative and support areas and eliminating redundant expenses; and (vii) realizing efficiencies related to the re-engineering of certain operating activities. The Company intends to further increase gross margins by increasing sales of its private brand products, which typically generate higher margins and enhance customer loyalty. Operating margins are also expected to benefit from sales productivity enhancements across the Company's chains and from the integration cost savings programs developed by management in conjunction with the Younkers, Parisian, and Herberger's acquisitions. These programs reduced operating expenses by a total of $6 million in fiscal 1996 (consistent with the Company's announced target) and are expected to produce annualized expense savings of $20 million in fiscal 1997 and $29 million in fiscal 1998 (compared to the 1995 cost structure of the chains on an independent basis). Monitor Acquisition Opportunities. The Company has an established record of successfully acquiring and integrating regional department store chains. The Company believes that its philosophy of retaining the local identity and merchandising organization of acquired companies makes the Company an attractive acquirer for regional department store companies. The Company's criteria in evaluating strategic opportunities include (i) strong market presence; (ii) prime real estate locations; (iii) similar merchandising strategies targeted toward middle to upper income consumers; (iv) geographic proximity to the Company's core markets; (v) compatible corporate culture; and (vi) favorable demographics in the regions served. Although the Company currently has no agreements, arrangements or understandings with respect to future acquisitions, the Company expects the department store industry will continue to consolidate and the Company will regularly evaluate possible acquisition opportunities as they arise. Maintain Strong Capital Structure. The Company intends to maintain a strong balance sheet to support its growth objectives. The fulfillment of this objective has been facilitated by strong cash flows and the Company's issuance of its Common Stock as all or part of the consideration used in its recent acquisitions. The Company believes that, absent any additional acquisitions, future cash flows from operations (with seasonal needs supplemented by borrowings under its Credit Facility) will be sufficient to service debt and lease payments, and to fund capital expenditures and working capital requirements. RECENT DEVELOPMENTS Strengthening and Retaining Management. In recent months, the Company has acted to strengthen and retain its senior management in light of its recent growth and strategic objectives. In April 1997, the Board of Directors of the Company authorized a new five-year employment agreement with R. Brad Martin, its Chairman and Chief Executive Officer since 1989. Among other recent appointments, the Company also named Douglas E. Coltharp as Executive Vice President and Chief Financial Officer, William D. Cappiello as President and Chief Executive Officer of Parisian, Frank E. Kulp as President and Chief Executive Officer of Herberger's, Mark Shulman as President and Chief Executive Officer of Younkers, Toni E. Browning as President and Chief Executive Officer of the Proffitt's Division, Dawn H. Robertson as President and Chief Executive Officer of McRae's, and Donald E. Wright as Senior Vice President of Finance and Accounting. 9 12 Implementation of Capital Structure Improvements. The Company is in the process of implementing a number of capital structure improvements to position it for future growth. The issuance of the Notes is part of a plan to improve the Company's capital structure by (i) reducing the amount of the Company's secured indebtedness; (ii) reducing the amount of the Company's indebtedness that bears interest at a floating rate; and (iii) extending the average life of the Company's indebtedness. The Company is also seeking to amend its existing credit facility (the "Credit Facility") to, among other things, increase such facility from $275 million to $325-$400 million, and extend the maturity to five years from the closing of the amended credit facility. Furthermore, the Company is pursuing a restructuring of its existing accounts receivable financing arrangements in an effort to extend the term of a portion of such arrangements from one year to three to five years through the sale of investment grade term asset-backed securities. The Company anticipates that such transactions may be completed during or shortly after the Exchange Offer. There is no assurance, however, that these transactions will be completed as presently contemplated. Sale of Seven Virginia Stores. The Company continuously evaluates store performance and closes or sells stores that do not meet management's objectives. As part of its ongoing efforts to efficiently deploy its capital, the Company recently closed seven Proffitt's stores in Virginia and sold the fixed assets to an unrelated company. While these stores were profitable, they did not meet management's targeted return on investment. Proceeds from the sale of these stores will be reinvested in new stores and existing store renovations. RISK FACTORS See "Risk Factors," beginning on page 13, for a discussion of certain factors that should be considered by holders of both Series A Notes and Exchange Notes. 10 13 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA The following table presents summary historical and pro forma financial and operating data derived from the audited Consolidated Financial Statements of the Company for the last five fiscal years and the unaudited Condensed Consolidated Financial Statements for the latest interim period. The historical financial data should be read in conjunction with the Company's Consolidated Financial Statements and Condensed Consolidated Financial Statements and the notes thereto appearing elsewhere herein. The summary historical pro forma financial and operating data give effect to the purchase of Parisian as if it had occurred on February 4, 1996, are based on certain assumptions and are derived from, and should be read in conjunction with the Pro Forma Combined Statement of Income (Unaudited) appearing elsewhere herein. The summary pro forma financial data do not purport to present the actual financial position or results of operations of the Company had the Parisian acquisition and the events assumed therein in fact occurred on the dates specified, nor are they necessarily indicative of the results of operations that may be achieved in the future. See "Pro Forma Combined Statement of Income (Unaudited)" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
THREE MONTHS ENDED PRO FORMA FISCAL YEAR ENDED(A) ------------------------- YEAR ENDED --------------------------------------- MAY 3, MAY 4, FEBRUARY 1, FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996(A) 1997 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS) CONSOLIDATED INCOME STATEMENT DATA: Net sales................ $ 526,370 $365,179 $2,320,955 $1,889,779 $1,661,056 $1,513,444 Cost and expenses: Cost of sales.......... 335,882 237,201 1,511,802 1,230,454 1,087,619 980,028 Selling, general and administrative expenses............. 128,629 88,952 551,804 440,502 398,999 352,448 Depreciation and amortization......... 10,898 9,811 48,471 41,037 43,013 40,305 Property and equipment rentals.............. 19,048 11,270 81,747 60,684 50,609 47,857 Taxes other than income taxes................ 12,622 9,638 49,720 40,403 36,938 34,421 Merger, restructuring and integration costs(b)............. 1,468 2,763 15,929 15,929 20,822 -- Operating income......... 17,796 7,804 62,576 61,864 753 52,385 Other income (expense): Finance charge income, net(c)............... 10,878 7,160 37,883 32,305 31,273 27,934 Interest expense....... (10,692) (4,706) (44,702) (26,756) (29,389) (23,286) Other income, net...... 136 498 3,409 1,572 4,051 4,826 Income before provision for income taxes, extraordinary loss and cumulative effect of changes in accounting methods................ 18,118 10,756 59,166 68,985 6,688 61,859 Net income (loss)........ 10,544 6,308 29,768 37,399 (1,419) 37,448 OTHER FINANCIAL DATA(D): EBITDAR.................. $ 60,251 $ 37,046 $ 248,921 $ 212,297 $ 172,824 $ 173,307 Rental expense........... 19,048 11,270 81,747 60,684 50,609 47,857 ---------- -------- ---------- ---------- ---------- ---------- EBITDA................... 41,203 25,776 167,174 151,613 122,215 125,450 Unusual items(e)......... (1,495) (503) (14,835) (14,835) (43,125) -- ---------- -------- ---------- ---------- ---------- ---------- EBITDA after unusual items.................. $ 39,708 $ 25,273 $ 152,339 $ 136,778 $ 79,090 $ 125,450 ---------- -------- ---------- ---------- ---------- ---------- Capital expenditures..... $ 24,090 $ 9,944 $ 66,242 $ 61,03 $ 51,469 $ 53,293 Ratio of EBITDA to interest expense....... 3.9 5.5 3.7x 5.7x 4.2x 5.4x Ratio of total debt to EBITDA(h).............. 3.1x 2.7x 3.1 2.4 2.7 2.7 FISCAL YEAR ENDED(A) ------------------------- JANUARY 29, JANUARY 30, 1994 1993 ----------- ----------- CONSOLIDATED INCOME STATEMENT DATA: Net sales................ $1,063,488 $ 858,754 Cost and expenses: Cost of sales.......... 690,083 523,444 Selling, general and administrative expenses............. 255,856 220,889 Depreciation and amortization......... 26,693 19,586 Property and equipment rentals.............. 37,049 26,344 Taxes other than income taxes................ 25,050 18,227 Merger, restructuring and integration costs(b)............. -- -- Operating income......... 28,757 50,264 Other income (expense): Finance charge income, net(c)............... 19,312 16,151 Interest expense....... (11,286) (11,701) Other income, net...... 4,063 233 Income before provision for income taxes, extraordinary loss and cumulative effect of changes in accounting methods................ 40,846 54,947 Net income (loss)........ 25,540 32,522 OTHER FINANCIAL DATA(D): EBITDAR.................. $ 115,874 $ 112,578 Rental expense........... 37,049 26,344 ---------- ---------- EBITDA................... 78,825 86,234 Unusual items(e)......... -- -- ---------- ---------- EBITDA after unusual items.................. $ 78,825 $ 86,234 ---------- ---------- Capital expenditures..... $ 86,192 $ 48,078 Ratio of EBITDA to interest expense....... 7.0x 4.2x Ratio of total debt to EBITDA(h).............. 2.8 3.4
11 14
THREE MONTHS ENDED PRO FORMA FISCAL YEAR ENDED(A) ------------------------- YEAR ENDED --------------------------------------- MAY 3, MAY 4, FEBRUARY 1, FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996(A) 1997 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- ----------- CONSOLIDATED BALANCE SHEET DATA: Working capital.......... $ 375,348 $226,361 $ 344,410 $ 344,410 $ 235,194 $ 301,270 Total assets............. 1,456,794 921,606 1,403,796 1,403,796 919,013 967,667 Long-term debt, less current portion........ 505,108 247,537 502,577 502,577 269,442 325,501 Shareholders' equity..... 555,159 334,394 539,898 539,898 327,371 337,007 SELECTED STORE DATA(F): Stores at beginning of period................. 173 144 181 144 146 115 Stores opened or acquired............... 2 1 3 4 1 31 Stores closed or sold.... (2) (11) (11) (3) -- ---------- -------- ---------- ---------- ---------- ---------- Stores at end of period(g).............. 175 143 173 173 144 146 ========== ======== ========== ========== ========== ========== FISCAL YEAR ENDED(A) ------------------------- JANUARY 29, JANUARY 30, 1994 1993 ----------- ----------- CONSOLIDATED BALANCE SHEET DATA: Working capital.......... $ 306,853 $ 203,977 Total assets............. 653,680 536,603 Long-term debt, less current portion........ 203,838 216,985 Shareholders' equity..... 275,104 122,582 SELECTED STORE DATA(F): Stores at beginning of period................. 106 77 Stores opened or acquired............... 12 29 Stores closed or sold.... (3) -- ---------- ---------- Stores at end of period(g).............. 115 106 ========== ==========
- --------------- (a) Effective February 1, 1997 and February 3, 1996, Herberger's and Younkers, respectively, were acquired by the Company. Such acquisitions were accounted for under the pooling-of-interests method. Accordingly, the Company's financial statements were restated for all periods to include the results of operations and financial position of Herberger's and Younkers. The pro forma financial and operating data do not reflect the cost savings realized by the Company from consolidation of administrative and operating functions and other synergies following such acquisitions. (b) In connection with the acquisitions of Younkers and Herberger's, the Company incurred certain merger, restructuring and integration costs, including transaction costs, costs associated with severance and related benefits, abandonment and elimination of duplicate administrative office space, property, data processing equipment and software, and other costs. (c) Finance charge income includes finance charges and late payment fees earned on the Company's proprietary credit cards, less the portion of such income allocated to third party purchasers of such credit card receivables. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Finance Charge Income, Net," "Receivables Securitization Facilities" and Note 4 to the Company's Consolidated Financial Statements. (d) EBITDA represents earnings before interest, taxes, depreciation, amortization and unusual items. EBITDAR represents EBITDA plus rental expense. While EBITDA and EBITDAR should not be construed as substitutes for operating income or as better measures of liquidity than cash flows from operating activities, which are determined in accordance with generally accepted accounting principles, they are included herein to provide additional information with respect to the ability of the Company to meet future debt service, capital expenditure and working capital requirements. In fiscal 1996, the Company incurred additional charges aggregating $16.3 million associated with the closing of seven stores in Virginia ($4.9 million), Herberger's employee stock ownership plan ($3.9 million), excess markdowns associated with adjustments to Herberger's inventory ($3.8 million), and write-offs and accruals related to various Herberger's balance sheet items ($3.7 million). Pro forma EBITDA before these additional charges for the fiscal year ended February 1, 1997 would have been approximately $183.5 million, and the ratios of EBITDA to interest expense and total debt to EBITDA would have been 4.1x and 2.8x, respectively. (e) Unusual items for the 52 weeks ended February 1, 1997 include net gains from long-lived assets of $1.1 million and merger, restructuring and integration costs of $15.9 million. Unusual items for the 53 weeks ended February 3, 1996 include expenses of $3.2 million related to Younkers' hostile takeover defense, losses from long-lived assets of $19.1 million, and merger, restructuring and integration costs of $20.8 million. (f) Where operations within a particular shopping mall are divided among two or more locations but operate under the same chain, the combined operation is counted as one store. (g) Excludes two stores opened subsequent to February 1, 1997, and reflects the closing of seven stores in Virginia. See "-- Recent Developments -- Sale of Seven Virginia Stores." (h) EBITDA is annualized for the three months ended May 3, 1997 and May 4, 1996, respectively, for purposes of calculating the ratio. 12 15 RISK FACTORS Eligible holders of Series A Notes should consider carefully, in addition to the other information contained in this Prospectus, the following risk factors before tendering Series A Notes in the Exchange Offer. RANKING; INDEBTEDNESS OF THE COMPANY All of the Notes and the related Guarantees will be senior unsecured obligations of the Company and the Subsidiary Guarantors ranking pari passu in right of payment with all existing and future unsubordinated obligations of the Company, including indebtedness incurred under the Credit Facility. Such Notes and Guarantees will be effectively subordinated to all secured indebtedness of the Company and the Subsidiary Guarantors to the extent of the value of the assets securing such indebtedness. After any realization upon the collateral or a dissolution, liquidation, reorganization or similar proceeding involving the Company or any Subsidiary Guarantor, there can be no assurance that there will be sufficient available proceeds or other assets for holders of the Notes to recover all or any portion of their claims under the Notes and the Indenture. As of May 3, 1997, on a pro forma basis, after giving effect to the issuance of the Series A Notes and the application of the net proceeds therefrom, the Company and the Subsidiary Guarantors would have had approximately $521.2 million of indebtedness outstanding, of which approximately $295.3 million would have been senior indebtedness and approximately $60.3 million would have been secured indebtedness. At such date, the Company would have had outstanding approximately $225.9 million of indebtedness subordinated in right of payment to the Exchange Notes. The prepayment of the 9 7/8% Senior Subordinated Notes due 2003 of Parisian (the "Senior Subordinated Notes") is not restricted under the Indenture. See "Description of the Notes -- Certain Covenants -- Limitation on Restricted Payments." Each Subsidiary Guarantor's Guarantee of the Notes may be subject to review under relevant federal and state fraudulent conveyance and similar law. In the event the Guarantees of any Subsidiary Guarantors are deemed to be unenforceable as a fraudulent conveyance or otherwise, all the Notes will be effectively subordinated in right of payment to all outstanding indebtedness of such Subsidiary Guarantor or Subsidiary Guarantors. A portion of the Company's cash flow from operations will be dedicated to debt service, thereby reducing funds available for operations and capital expenditures. The indebtedness and the restrictive covenants to which the Company is subject under the terms of its indebtedness (including the Notes and the Exchange Notes) may make the Company more vulnerable to economic downturns and competitive pressures, may hinder its ability to execute its growth strategy, and may reduce its flexibility to respond to changing business conditions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Other Indebtedness." COMPETITION The department store business is highly competitive. The Company's stores compete with national and regional department store chains, specialty apparel stores and discount store chains, some of which are larger than the Company and may be able to devote greater financial and other resources to marketing and other competitive activities. The Company also competes with local stores that carry similar categories of merchandise. The Company generally competes on the basis of pricing, quality, merchandise selection, customer service and amenities and store design. The Company's success also depends in part on its ability to anticipate and respond to changing merchandise trends and customer preferences in a timely manner. Accordingly, any failure by the Company to anticipate and respond to changing merchandise trends and customer preferences could materially adversely affect sales of the Company's private brands and product lines, which in turn could materially adversely affect the Company's business, financial condition or results of operations. There can be no assurance that the Company's stores will continue to compete successfully with such other stores or that any such competition will not have a material impact on the Company's financial condition or results of operations. See "Business -- Competition." 13 16 GENERAL ECONOMIC CONDITIONS; SEASONALITY The Company's future performance is subject to prevailing economic conditions and to all operating risks normally incident to the retail industry. The Company experiences seasonal fluctuations in sales and net income, with disproportionate amounts typically realized during the fourth quarter of each year. Sales and net income are generally weakest during the first quarter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Seasonality," "Business -- Seasonality" and Note 17 to the Company's Consolidated Financial Statements. INTEGRATION OF ACQUIRED COMPANIES As part of its business strategy, the Company has consummated several acquisitions and will regularly evaluate future acquisition opportunities including acquisitions of other regional department store chains and individual stores or locations. The Company's future operations and earnings will be affected by its ability to continue to successfully integrate the operations of any acquired businesses or store locations. While the Company has in the past been successful at effectively integrating the operations of acquired businesses, there can be no assurance that the Company will be able to continue to do so. In addition, the successful integration of operations will be subject to numerous contingencies, some of which are beyond the Company's control. The failure to successfully integrate any such operations with those of the Company could have a material adverse effect on the Company's financial position, results of operations and cash flows. RESTRICTIONS ON RESALE The Series A Notes have not been registered under the Securities Act or any state securities laws and, unless so registered or qualified, may not be offered or sold except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act or any applicable state securities laws. The Exchange Notes have been registered under the Securities Act and, generally, will be freely tradable. See "Exchange Offer" and "Plan of Distribution." ABSENCE OF AN ESTABLISHED TRADING MARKET FOR THE NOTES The Series A Notes are new securities that were first issued on May 21, 1997. There is currently no established trading market for the Notes. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Series A Notes and, upon issuance, the Exchange Notes, they are not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. To the extent Series A Notes are exchanged in this Exchange Offer, the liquidity of the market for the remaining Series A Notes may be reduced. The Series A Notes have been designated eligible for trading in the Private Offerings, Resale and Trading through Automatic Linkages (PORTAL) market. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through Nasdaq. There is no assurance that an active public or other market will develop for the Exchange Notes, and it is expected that the market, if any, that develops for the Exchange Notes will be similar to the limited market that currently exists for the Series A Notes. LIMITED REGISTRATION RIGHTS EXCEPT AS OTHERWISE PROVIDED HEREIN, FOLLOWING THE CONSUMMATION OF THE EXCHANGE OFFER, ANY HOLDERS OF SERIES A NOTES NOT TENDERED THEREIN WHO ARE NOT ENTITLED TO RESELL THE SAME PURSUANT TO A RESALE PROSPECTUS, IF ANY, REQUIRED TO BE FILED AS A POST-EFFECTIVE AMENDMENT TO THIS REGISTRATION STATEMENT OR PURSUANT TO A SHELF REGISTRATION STATEMENT, WILL HAVE NO FURTHER EXCHANGE OR REGISTRATION RIGHTS, AND SUCH NOTES WILL CONTINUE TO BE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER. 14 17 FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements concerning the Company's existing and contemplated operations, economic performance and financial condition. These statements are based upon a number of assumptions and estimates which are inherently subject to uncertainties and contingencies, many of which are beyond the control of the Company, including the level of consumer spending for apparel and other merchandise carried by the Company, competition among department and specialty stores, management's ability to predict consumer tastes, merchandise brands and mix, the effectiveness of planned advertising, marketing and promotional campaigns, appropriate inventory management, realization of planned synergies, private brand sales and effective cost containment. See "Cautionary Notice Regarding Forward-Looking Statements." THE EXCHANGE OFFER PERSONS NOT ELIGIBLE TO PARTICIPATE IN THE EXCHANGE OFFER ANY HOLDER OF SERIES A NOTES WHO IS PROHIBITED BY APPLICABLE LAW OR SEC POLICY FROM PARTICIPATING IN THE EXCHANGE OFFER, INCLUDING ANY HOLDER WHO IS AN AFFILIATE OF THE COMPANY OR A BROKER-DEALER WHO HOLDS SERIES A NOTES ACQUIRED DIRECTLY FROM THE COMPANY OR ONE OF ITS AFFILIATES, AND ANY PERSON WHO INTENDS TO, OR HAS ANY ARRANGEMENT OR UNDERSTANDING TO PARTICIPATE IN, A DISTRIBUTION OF THE EXCHANGE NOTES, SHOULD CONTACT THE COMPANY WITHIN 20 BUSINESS DAYS OF THE COMMENCEMENT OF THE EXCHANGE OFFER IN ORDER TO PRESERVE ITS REGISTRATION RIGHTS THAT ARE DISCUSSED HEREIN. REGISTRATION RIGHTS AND EFFECT OF EXCHANGE OFFER The Series A Notes were sold by the Company on the Issue Date to the Initial Purchasers pursuant to a Purchase Agreement dated as of May 15, 1997, by and among the Company, the Subsidiary Guarantors and the Initial Purchasers (the "Purchase Agreement"). Subsequently, the Initial Purchasers sold the Series A Notes to various "qualified institutional buyers" ("QIBs") and to a limited number of institutional "accredited investors" (as defined in Rule 501(a)(1),(2), (3) or (7) under the Securities Act ("Accredited Investors")) in reliance upon Rule 144A and other available exemptions under the Securities Act. As a condition to the Initial Purchasers' obligations under the Purchase Agreement, the Company and the Subsidiary Guarantors entered into the Registration Rights Agreement with the Initial Purchasers, pursuant to which the Company and the Subsidiary Guarantors agreed to file with the Commission a registration statement (the "Registration Statement") on an appropriate form under the Securities Act with respect to an offer to the holders of Series A Notes who are able to make certain representations ("Eligible Holders"), the opportunity to exchange their Series A Notes for Exchange Notes. The Registration Statement covers the offer to the Exchange Notes pursuant to the Exchange Offer made hereby and resales by broker-dealers that acquired Notes for their own accounts as a result of market-making and other trading activities. Such resales of Transfer Restricted Securities made in reliance upon the registration thereof under the Securities Act may be made only pursuant to the "Plan of Distribution" set forth in this Prospectus or the other prospectus, if any, filed as an amendment to the Registration Statement. To be eligible to effect resales of Transfer Restricted Securities pursuant to a Registration of the Notes for resale by holders ineligible to participate in the Exchange Offer, holder of Transfer Restricted Securities must (i) notify the Company within 20 business days after the commencement of the Exchange Offer that it has determined that it is not permitted by law or any policy of the Commission to participate in the Exchange Offer made hereby or that such holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and that the prospectus included in this Registration Statement is inappropriate or unavailable for such resales by such holder or that such holder is a broker-dealer and holds Notes acquired directly from the Company or one of its affiliates and (ii) provide to the Company, within 15 days following the Company's request therefor, such information as the Company may reasonably request for use in connection with the Registration Statement. In the event that any holders of Transfer Restricted Securities comply with the foregoing requirements, and supply any additional information 15 18 reasonably requested by the Company within 20 business days following such request, the Company will file, as promptly as is practicable, an amendment to the Registration Statement containing an appropriate resale prospectus and will use its reasonable efforts to cause such amendment to become effective under the Securities Act and to remain continuously effective thereunder for a period of three years following the Closing Date. Each holder of Series A Notes that wishes to exchange such Series A Notes for Exchange Notes in the Exchange Offer is required to establish that it is an Eligible Holder that may participate in such Exchange Offer by making certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business and that it did not acquire such Series A Notes directly from the Company, (ii) it has no arrangement or understanding with any person to participate in and has no intention of participating in, a distribution (within the meaning of the Securities Act) of the Exchange Notes and (iii) it is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Series A Notes that were acquired as a result of market-making activities or other trading activities, it also will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes, but that by delivering such a prospectus it is not thereby deemed to admit that it is an "underwriter" within in the meaning of the Securities Act. Holders of Notes acquired directly from the Company, affiliates of the Company and persons participating in, or having any arrangement or understanding with any person to participate in, a distribution of the Exchange Notes will be ineligible, under Commission policy, to participate in the Exchange Offer, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction of the Notes. If (i) the Company is not permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy, (ii) the Exchange Offer is not for any other reason consummated within 150 days after the Issue Date, (iii) any holder of Series A Notes notifies the Company within 20 business days after commencement of the Exchange Offer that (a) due to a change in law or policy it is not entitled to participate in the Exchange Offer, (b) due to a change in law or policy it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such holder or (c) it is a broker-dealer and owns Series A Notes acquired directly from the Company or an affiliate of the Company or (iv) the holders of a majority of the principal amount of the Series A Notes may not resell the Exchange Notes acquired by them in the Exchange Offer to the public without restriction under the Securities Act (other than delivery of the prospectus contained in the Exchange Offer Registration Statement), the Company will file with the Commission a Shelf Registration Statement to cover resales of the Transfer Restricted Notes (as defined herein) by the holders thereof. The Company has agreed to use its best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the foregoing and as used elsewhere herein, "Transfer Restricted Notes" means each Series A Note until (i) the date on which such Series A Note has been exchanged by a person other than a broker-dealer referred to in clause (ii) below for an Exchange Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of a Series A Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale, a copy of the prospectus contained in the Registration Statement, as amended or supplemented, (iii) the date on which such Series A Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement, (iv) the date on which such Series A Note is distributed to the public pursuant to Rule 144 under the Securities Act (or any similar provision then in force, but not Rule 144A under the Securities Act), (v) the date on which such Series A Note shall have been otherwise transferred by the holder thereof and a new Note not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such Note shall not require registration under the Securities Act or (vi) such Series A Note ceases to be outstanding. 16 19 Under existing Commission interpretations, the Exchange Notes will, in general, be freely transferable by holders after the Exchange Offer without further registration under the Securities Act; provided that in the case of eligible broker-dealers participating in the Exchange Offer, a prospectus meeting the requirements of the Securities Act must be delivered upon resale by such broker-dealers in connection with resales of the Exchange Notes. The Company has agreed, for period of 90 days after consummation of the Exchange Offer (subject to extension in certain cases), to make available a prospectus meeting the requirements of the Securities Act to any such broker-dealer for use in connection with any resale of any Exchange Notes acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales may be deemed a statutory underwriter that may, as such, may be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Registration Rights Agreement (including certain indemnification rights and obligations). The Company has agreed to pay all expenses incident to the Exchange Offer and to indemnify the Initial Purchasers against certain liabilities, including liabilities under the Securities Act. The Registration Rights Agreement provides that unless the Exchange Offer is not permitted by applicable law or Commission policy, the Company will: (i) file the Registration Statement with the Commission on or prior to 45 days after the Issue Date, (ii) use its best efforts to have the Registration Statement declared effective by the Commission on or prior to 120 days after the Issue Date and (iii) commence the Exchange Offer following the effectiveness of the Registration Statement and use its best efforts to issue, on or prior to 30 business days after the date on which the Registration Statement was declared effective by the Commission, Exchange Notes in Exchange for all Series A Notes tendered prior thereto in the Exchange Offer. In addition, the Registration Rights Agreement provides that, if obligated to file the Shelf Registration Statement, the Company will use its best efforts to file prior to the later of (a) 150 days after the Issue Date or (b) 30 days after such filing obligation arises and use its best efforts to cause the Shelf Registration Statement to be declared effective by the Commission on or prior to 90 days after such obligation arises; provided, however that if the Company has not consummated the Exchange Offer within 150 days of the Issue Date, then the Company will file the Shelf Registration Statement with the Commission on or prior to the 165th day after the Issue Date. The Company shall use its best efforts to keep such Shelf Registration Statement, if required, continuously effective, supplemented and amended until the earlier of two years from the Issue Date or such shorter period ending when all Notes covered by the Shelf Registration Statement have been sold in the manner set forth and as contemplated in the Shelf Registration Statement, such Notes are no longer outstanding or when the Notes become eligible for resale pursuant to Rule 144 under the Securities Act without volume restrictions. A holder of Notes that sells its Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such a holder (including certain indemnification and contribution obligations). In addition, each holder of the Notes will be required to timely deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement and to benefit from the provisions regarding additional interest set forth in the following paragraph. If the Company issues a notice that the Shelf Registration Statement is unusable due to the pendency of an announcement of a material corporate transaction, or such a notice is required under applicable securities laws to be issued by the Company, and the aggregate number of days in any consecutive twelve-month period for which all such notices are issued or required to be issued exceeds 30 days in the aggregate, then the interest rate borne by the Notes will be increased by 0.25% per annum following the date that such Shelf Registration Statement ceases to be usable for a period of time in excess of the period permitted above, which rate shall be increased by an additional 0.25% per annum at the beginning of each subsequent 90-day period; provided that the aggregate increase in such annual interest rate may in no event exceed 1.00% per annum. Upon the 17 20 Company declaring that the Shelf Registration Statement is usable after the period of time described in the preceding sentence, the interest rate borne by the Notes will be reduced to the original interest rate if the Company is otherwise in compliance with this paragraph. Such additional interest, if any, shall accrue and be paid only on the actual number of days for which the Shelf Registration Statement is unusable. The Company has filed the Registration Statement required by the Registration Rights Agreement on or before the date specified for such filing. However, if (i) such registration statement (or any other registration statement required by the Registration Rights Agreement) is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), subject to certain limited exceptions, (ii) the Company fails to consummate the Exchange Offer within 30 business days of the Effectiveness Target Date with respect to the Registration Statement, or (iii) the Shelf Registration Statement or the Registration Statement is declared effective but thereafter, subject to certain limited exceptions, ceases to be effective or usable in connection with resales of Transfer Restricted Notes or with the Exchange Offer, as the case may be, during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (iii) above, a "Registration Default"), then the interest rate on the Transfer Restricted Notes will increase ("Additional Interest") with respect to the first 90-day period (or portion thereof) while a Registration Default is continuing immediately following the occurrence of such Registration Default in an amount equal to 0.25% per annum of the principal amount of the Notes. The rate of Additional Interest will increase by an additional 0.25% per annum of the principal amount of the Notes for each subsequent 90-day period (or portion thereof) while a Registration Default is continuing until all Registration Defaults have been cured, up to a maximum amount of 1.00% of the principal amount of the Notes. Additional Interest, if any, shall be computed based on the actual number of days elapsed during which any such Registration Default exists. Following the cure of a particular Registration Default, the accrual of Additional Interest with respect to such Registration Default will cease. EXCEPT AS OTHERWISE PROVIDED HEREIN WITH RESPECT TO THE SHELF REGISTRATION STATEMENT, FOLLOWING THE CONSUMMATION OF THE EXCHANGE OFFER, ANY HOLDER OF SERIES A NOTES THAT HAS NOT TENDERED AND EFFECTIVELY DELIVERED TO THE EXCHANGE AGENT IN ACCORDANCE WITH THE EXCHANGE OFFER, AND ANY HOLDER OF EXCHANGE NOTES WHO IS NOT ENTITLED TO RESELL SUCH EXCHANGE NOTES PURSUANT TO A RESALE PROSPECTUS, IF ANY, REQUIRED TO BE FILED AS AN AMENDMENT TO THE REGISTRATION STATEMENT, WILL HAVE NO FURTHER EXCHANGE OR REGISTRATION RIGHTS AND SUCH SERIES A NOTES WILL CONTINUE TO BE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER. See "-- Termination of Certain Rights," "-- Consequences of Failure to Exchange," and "-- Resale of Notes." Accordingly, the ability of any such holder of Notes to resell its Notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Series A Notes validly tendered and not withdrawn prior to 5:00 P.M. Eastern Time, on the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Series A Notes accepted in the Exchange Offer. Holders may tender some or all of their Series A Notes pursuant to the Exchange Offer. However, Series A Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are substantially identical to the form and terms of the Series A Notes except that (i) the Exchange Notes have been registered under the Securities Act and hence will not bear the transfer restrictions set forth on the Series A Notes and (ii) the holders of the Exchange Notes generally will not be entitled to certain rights under the Registration Rights Agreement, which rights generally will terminate upon consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Series A Notes and will be entitled to the benefits of the Indenture, including the Guarantees. Holders of the Notes do not have any appraisal or dissenters' rights under Indenture or otherwise in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with 18 21 the Indenture, the Registration Rights Agreement, and the applicable requirements of the Exchange Act and the rules and regulations of the SEC thereunder, including Rule 14e-1 thereunder. The Company shall be deemed to have accepted validly tendered Series A Notes when, as and if the Company has given telephonic, facsimile or written notice thereof to the Exchange Agent (as defined herein). The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Exchange Notes from the Company. If any tendered Series A Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Series A Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Series A Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Series A Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 P.M., Eastern Time, on , 1997, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. To extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice, followed by a public announcement thereof no later than 9:00 A.M., Eastern Time, on the next business day after the previously scheduled Expiration Date. The Company reserves the right, in its reasonable judgment, (i) to delay accepting any Series A Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "-- Conditions" shall not have been satisfied, by giving telephonic, facsimile or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension or termination, and any amendment will be followed as promptly as practicable by a public announcement thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders. If the Company does not consummate the Exchange Offer, or, in lieu thereof, the Company does not file and cause to become effective a Shelf Registration Statement for the Series A Notes within the time periods set forth herein, Additional Interest will accrue and be payable on the Notes. See " -- Registration Rights and Effect of Exchange Offer." Without limiting the manner in which the Company may choose to make public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest from May 15, 1997, the date of issuance of the Series A Notes that are exchanged for the Exchange Notes (or, if later the most recent Interest Payment Date to which interest on such Series A Notes has been paid or duly provided for). Accordingly, holders of Series A Notes that are accepted for exchange will not receive interest that is accrued but unpaid on those Notes at the time of tender, but such interest will be payable on the first Interest Payment Date following the Expiration Date. Interest on the Exchange Notes will be payable semiannually on each May 15 and November 15, commencing on November 15, 1997. 19 22 PROCEDURES FOR TENDERING Only Eligible Holders of Series A Notes may tender such Series A Notes in the Exchange Offer. To tender in the Exchange Offer, a holder of Series A Notes must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal and mail or otherwise deliver the Letter of Transmittal or such facsimile, together with the Series A Notes and any other required documents, to the Exchange Agent so as to be received by the Exchange Agent at the address set forth below prior to 5:00 P.M., Eastern Time, on the Expiration Date. Delivery of the Series A Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the Exchange Agent prior to the Expiration Date. In addition, either (i) certificates for such Series A Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Series A Notes, if such procedure is available, into the Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or (iii) the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Letter of Transmittal or, in the case of a book-entry transfer, an Agent's Message in lieu of a letter of transmittal, and all other required documents must be received by the Exchange Agent at the address set forth below under "-- Exchange Agent" prior to the Expiration Date. The term "Agent's Message" means a message transmitted by DTC to, and received by, the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that DTC has received express acknowledgment from the tendering DTC participant indicating that such participant has received, and agrees to be bound by, the Letter of Transmittal and that the Company may enforce such Letter of Transmittal against such participant. The tender by a holder and the acceptance thereof by the Company will constitute an agreement between such holder of Series A Notes and the Company upon the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF THE SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE SOLE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Series A Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, including Series A Notes held in book-entry form and who wishes to tender should contact the registered holder of Notes promptly, or in the case of book-entry Series A Notes, DTC participant who holds such Series A Notes at DTC on behalf of the beneficial owner, and instruct such registered holder to tender on such beneficial owner's behalf. See "Exchange Offer." Signatures on the Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Series A Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on the Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Series A Notes listed therein, such Series A Notes must be endorsed or accompanied by a properly completed bond power, 20 23 signed by such registered holder as such registered holder's name appears on such Series A Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Series A Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Series A Notes and withdrawal of tendered Series A Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Series A Notes not properly tendered or any Series A Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive, to the extent permitted by applicable law, any defects, irregularities or conditions of tender as to particular Series A Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Series A Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of Series A Notes of defects or irregularities with respect to tenders of Series A Notes, none of the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Series A Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Series A Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders as soon as practicable following the Expiration Date. BOOK-ENTRY TRANSFER The Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Series A Notes at DTC for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a DTC Participant may make book-entry delivery of the Series A Notes by causing DTC to transfer such Series A Notes into the relevant Exchange Agent's account with respect to the Series A Notes in accordance with DTC's ATOP procedures for such transfer. Although delivery of the Series A Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, an Agent's Message or an appropriate Letter of Transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to DTC does not constitute delivery to the Exchange Agent. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Series A Notes and (i) whose Series A Notes are not immediately available, (ii) who cannot deliver their Series A Notes, the Letter of Transmittal or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, in each case prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder of Series A Notes, the certificate number(s) of such holder's Series A Notes and the principal amount of Series A Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the 21 24 certificates(s) representing the tendered Series A Notes (or a confirmation of book-entry transfer of such Series A Notes into the Exchange Agent's account at DTC) and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Series A Notes in proper form for transfer (or a confirmation of book-entry transfer of such Series A Notes into the Exchange Agent's account at DTC) and all other documents required by the Letter of Transmittal, are received by the relevant Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Series A Notes according to the guaranteed delivery procedures set forth above. WITHDRAWALS OF TENDERS Except as otherwise provided herein, tenders of Series A Notes may be withdrawn at any time prior to 5:00 P.M., Eastern Time, on the Expiration Date. To withdraw a tender of Series A Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the relevant Exchange Agent at its address set forth herein prior to 5:00 P.M., Eastern Time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Series A Notes to be withdrawn (the "Depositor"), (ii) identify the Series A Notes to be withdrawn (including the certificate number(s) and principal amount of such Series A Notes, or, in the case of Series A Notes transferred by book-entry transfer, the name and number of the account at DTC to be credited and the DTC participant through which such Series A Notes are held), (iii) be signed by the holder of such Series A Notes in the same manner as the original signature on the Letter of Transmittal by which such Series A Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the transfer agent and registrar with respect to the Series A Notes register the transfer of such Series A Notes into the name of the person withdrawing the tender; and (iv) specify the name in which any such Series A Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Series A Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Series A Notes so withdrawn are validly and timely re-tendered. Any Series A Notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder, as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Series A Notes may be re-tendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer including, without limitation, the terms and conditions contained herein and in the Letter of Transmittal, the Company shall not be required to accept for exchange, or to exchange Exchange Notes for, any Series A Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Series A Notes, if: (a) any law, statute, rule, regulation or interpretation by the staff of the SEC is proposed, adopted or enacted, which, in the reasonable judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Company; or (b) any governmental approval has not been obtained, which approval the Company shall, in its reasonable judgment, deem necessary for the consummation of the Exchange Offer as contemplated hereby. 22 25 If the Company determines in its reasonable judgment that any of the conditions are not satisfied, the Company may, in its sole discretion (i) refuse to accept any Series A Notes and return all tendered Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Series A Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Series A Notes (see "-- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Series A Notes which have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders of Series A Notes. TERMINATION OF CERTAIN RIGHTS Holders of the Notes to whom this Exchange Offer is made have special rights under the Registration Rights Agreement, certain of which will terminate upon the consummation of the Exchange Offer. Such special rights which will terminate include (a) the right to require the Company to comply with the following: (x) to file with the Commission a registration statement under the Securities Act with respect to the Exchange Notes no later than 45 days following the Issue Date, (y) to use its best efforts to cause such registration statement to become effective under the Securities Act within 120 days after the Issue Date, and (z) to commence the Exchange Offer following the effectiveness of such registration statement and use its best efforts to issue, on or prior to 30 business days after the date on which such registration statement was declared effective by the Commission, Exchange Notes in exchange for all Notes tendered prior thereto in the Exchange Offer; (b) the right to receive Additional Interest in the event of a breach by the Company of any of its obligations set forth in the foregoing clauses (x), (y) or (z), in an amount, during the first 90-day period (or portion thereof) immediately following the occurrence, and during the continuance, of such a breach, equal to 0.25% per annum of the principal amount of the Notes, such amount to increase by an additional 0.25% of the principal amount of the Notes for each subsequent 90-day period (or portion thereof) until the breach and all other breaches thereunder in respect of such obligations have been cured, up to a maximum amount of 1.00% of the principal amount of the Notes. See "-- Registration Rights and Effect of Exchange Offer." The Registration Statement also requires the registering for resale, pursuant to Rule 415 under the Securities Act, the Transfer Restricted Notes under certain circumstances. Such resale of Transfer Restricted Notes made in reliance upon the registration thereof under the Securities Act may be made only pursuant to the "Plan of Distribution" set forth in this Prospectus or a separate resale prospectus, if any, filed as an amendment to the Registration Statement. To be eligible to effect resales of Transfer Restricted Notes pursuant to the Shelf Registration Statement, a holder of Transfer Restricted Notes must (i) notify the Company in writing within 20 days after the commencement of the Exchange Offer that (a) due to a change in law or policy it is not entitled to participate in the Exchange Offer, (b) due to a change in law or policy it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and this Prospectus is not appropriate or available for such resales by such holder or (c) it is a broker-dealer and owns Notes acquired directly from the Company or an affiliate of the Company and (ii) provide to the Company, within 15 days following receipt by such holder of the Company's request therefor, such information as the Company may reasonably request for use in connection with the Shelf Registration Statement. In the event that any holders of Transfer Restricted Notes comply with the foregoing requirements, and supply any additional information reasonably requested by the Company within 15 days following such request, the Company will file, as promptly as practicable, an amendment to this Registration Statement containing an appropriate resale prospectus and will use its best efforts to cause such amendment to become effective under the Securities Act and to remain continuously effective thereunder for a period of two years following the Issue Date. In the event that the Company fails to comply with its obligations in connection with resales of Transfer Restricted Notes under the resulting Shelf Registration Statement it may be required to pay Additional Interest. See "-- Registration Rights and Effect of Exchange Offer." 23 26 EXCHANGE AGENT The Trustee will act as Exchange Agent for the Exchange Offer with respect to the Notes (the "Exchange Agent"). Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal for the Notes and requests for copies of Notice of Guaranteed Delivery should be directed to the Exchange Agent, addressed as follows: By Registered or Certified Mail, Overnight Mail or Courier Service or in Person by Hand: The First National Bank of Chicago c/o First Chicago Trust Company of New York 8th Floor, Window 2 New York, New York 10005 By Facsimile: (212) 240-8938 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone, facsimile or in person by officers and regular employees of the Company and its affiliates, who may be reimbursed their reasonable expenses incurred in connection with such solicitation, but who will not otherwise receive special compensation for such efforts. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or other persons soliciting acceptance of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith and pay other registration expenses, including reasonable fees and expenses of the Trustee, filing fees, blue sky fees and printing and distribution expenses. The Company will pay all transfer taxes, if any, applicable to the exchange of the Notes pursuant to the Exchange Offer. If, however, certificates representing the Exchange Notes or the Series A Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Series A Notes tendered, or if tendered Series A Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of the Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other person) will be payable by the tendering holder of Series A Notes. ACCOUNTING TREATMENT The Exchange Notes will be recorded by the Company at the same carrying value as the Series A Notes, which is the aggregate principal amount in the case of the Series A Notes. Accordingly, no gain or loss for accounting purposes will be recognized in connection with the Exchange Offer. The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. RESALE OF EXCHANGE NOTES Based on an interpretation by the staff of the SEC set forth in no-action letters issued to unrelated third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is a broker-dealer that holds Series A Notes acquired for its own accounts as a result of market-making or other trading activities or any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder does not intend to participate, and has no arrangement or 24 27 understanding with any person to participate, in the distribution of such Exchange Notes. Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes may not rely on the position of the staff of the SEC enunciated in Exxon Capital Holdings Corporation (available April 13, 1989); Morgan Stanley & Co., Incorporated (available June 5, 1991) and Shearman & Sterling (available July 2, 1993), or similar no-action letters, but rather must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. In addition, any such resale transaction should be covered by an effective registration statement containing the selling security holders information required by Item 507 of Regulation S-K of the Securities Act. Each broker-dealer that receives Exchange Notes for its own account in exchange for Series A Notes, where such Series A Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, may be a statutory underwriter and must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. By tendering Series A Notes in the Exchange Offer, each holder tendering such Series A Notes will represent to the Company that, among other things, (i) the Exchange Notes to be acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is a holder, (ii) neither the holder nor any such other person has an arrangement or understanding with any person to participate in a distribution of such Exchange Notes and (iii) the holder and such other person acknowledge that if they participate in the Exchange Offer for the purpose of distributing the Exchange Notes (a) they must, in the absence of an exemption therefrom, comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes and cannot rely on the no-action letters referenced above and (b) failure to comply with such requirements in such instance could result in such holder incurring liability under the Securities Act for which such holder is not indemnified or otherwise protected by the Company. Further, by tendering in the Exchange Offer, each holder that may be deemed an "affiliate" (as defined under Rule 405 under the Securities Act) of the Company will represent to the Company that such holder understands and acknowledges that the Exchange Notes may not be offered for resale, resold or otherwise transferred by that holder without registration under the Securities Act or an exemption therefrom. As set forth above, affiliates of the Company are not entitled to rely on the foregoing interpretations of the staff of the SEC with respect to resales of the Exchange Notes without compliance with the registration and prospectus delivery requirements of the Securities Act. The Company has agreed to bear all registration expenses incurred under the Registration Rights Agreement, including printing and distribution expenses, reasonable fees of counsel, blue sky fees and expenses, reasonable fees of independent accountants in connection with the preparation of comfort letters (to the extent required), and SEC and the NASD filing fees and expenses. CONSEQUENCES OF FAILURE TO EXCHANGE As a result of the making of this Exchange Offer, the Company will have fulfilled one of its obligations under the Registration Rights Agreement, and holders of Series A Notes who do not tender their Series A Notes generally will not have any further registration rights under the Registration Rights Agreement or otherwise. Accordingly, any holder of Series A Notes that does not exchange that holder's Series A Notes for Exchange Notes will continue to hold unregistered Series A Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture, except to the extent that such rights or limitations, by their terms, terminate or cease to have further effectiveness as a result of the Exchange Offer. The Series A Notes that are not exchanged for Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Series A Notes may be resold only (i) to the Company (upon redemption thereof or otherwise), (ii) pursuant to an effective registration statement under the Securities Act, (iii) so long as the Series A Notes are eligible for resale pursuant to Rule 144A, to a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, (iv) outside the United States to a foreign person pursuant to the exemption from the registration requirements of the Securities Act provided by Regulation S thereunder, (v) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available) or (vi) to an institutional 25 28 accredited investor in a transaction exempt from the registration requirements of the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. See "Risk Factors -- Restrictions on Transfer." NO RECOMMENDATION Participation in the Exchange Offer is voluntary and holders of Series A Notes should carefully consider whether to accept. Holders of Series A Notes are urged to consult their own financial and tax advisors in making their own decision on what action to take. The Boards of Directors of the Company and the Guarantors make no recommendation as to whether or not holders should tender Series A Notes pursuant to the Exchange Offer. OTHER The Company may in the future seek to acquire unregistered Series A Notes that are not tendered in the Exchange Offer in open market, privately negotiated or other transactions, through subsequent exchange offers or otherwise. The Company has no present plans to acquire any Series A Notes that are not tendered in the Exchange Offer or, except as required by the Registration Rights Agreement, to file a registration statement to permit resales of any untendered Series A Notes. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge (i) that by receiving Exchange Notes for its own account in exchange for Series A Notes, where such Series A Notes were acquired as a result of market-making activities or other trading activities, such broker-dealer may be a statutory underwriter, and (ii) that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resales of Exchange Notes received in exchange for the Series A Notes where such Series A Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 90 days (subject to extensions in certain cases) after the date on which the Registration Statement is declared effective, it will make this Prospectus, as amended or supplemented, available to any broker-dealer that requests such documents in the Letter of Transmittal for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers or any other persons. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incident to the Company's performance of, or compliance with, the Registration Rights Agreement and will indemnify the holders (including any broker-dealers) and certain parties related to the holders against certain liabilities, including liabilities under the Securities Act. 26 29 USE OF PROCEEDS The Company will not receive any proceeds from the issuance of the Exchange Notes pursuant to the Exchange Offer. The net proceeds to the Company from the sale of the Series A Notes were approximately $120.8 million (after deducting estimated expenses and commissions), of which (i) approximately $64.0 million is being used to repay real estate and mortgage notes, (ii) approximately $3.8 million is being used to repay unsecured notes payable, and (iii) approximately $53.0 million is being used to reduce outstanding borrowings under the Credit Facility. Amounts used to reduce balances under the Credit Facility may be reborrowed, subject to having the requisite borrowing base and satisfying other conditions to borrowing, and utilized for general corporate purposes. At February 1, 1997, the indebtedness to be repaid accrued interest at a weighted average interest rate of approximately 7.7% per annum and had maturities ranging from January 1, 1998 to February 1, 2010. See "Description of Other Indebtedness." CAPITALIZATION The following table sets forth the capitalization of the Company as of May 3, 1997, (i) on an actual basis and (ii) as adjusted to reflect the sale of the Notes (after deducting the offering expenses and the application of the net proceeds therefrom). This table should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto included elsewhere herein.
AS OF MAY 3, 1997 --------------------------- ACTUAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) Long-term debt(a): Credit Facility........................................... $ 163,100 $ 110,101 Real estate and mortgage notes............................ 113,578 49,547 Sale of Notes............................................. -- 125,000 Other notes payable....................................... 3,754 -- Capital lease obligations................................. 10,706 10,706 Senior Subordinated Notes(b).............................. 125,000 125,000 Convertible subordinated debentures....................... 86,250 86,250 Junior subordinated debt.................................. 14,590 14,590 ---------- ----------- Total long-term debt.............................. 516,978 521,194 Shareholders' equity........................................ 555,159 555,159 ---------- ----------- Total capitalization.............................. $1,072,137 $ 1,076,353 ========== ===========
- --------------- (a) Includes current maturities of long-term debt. (b) Since May 3, 1997, the Company has purchased approximately $32 million of Senior Subordinated Notes. 27 30 SELECTED FINANCIAL DATA The selected financial and operating data below are derived from, and should be read in conjunction with, the Company's Consolidated Financial Statements and Condensed Consolidated Financial Statements and the notes thereto appearing elsewhere herein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
THREE MONTHS ENDED ------------------------- FISCAL YEAR ENDED(A) MAY 4, ------------------------------------------------------------------- MAY 3, 1997 1996(A) FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30, (UNAUDITED) (UNAUDITED) 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) CONSOLIDATED INCOME STATEMENT DATA: Net sales..................... $ 526,370 $365,179 $1,889,779 $1,661,056 $1,513,444 $1,063,488 $ 858,754 Costs and expenses: Cost of sales................. 335,882 237,201 1,230,454 1,087,619 986,028 690,083 523,444 Selling, general and administrative expenses... 128,629 88,952 440,502 398,999 352,448 255,856 220,889 Other operating expenses.... 42,568 30,719 142,124 130,560 122,583 88,792 64,157 Expenses related to hostile takeover defense(b)....... -- 3,182 -- -- -- (Gains) losses from long-lived assets(c)...... 27 (2,260) (1,094) 19,121 -- -- -- Merger, restructuring and integration costs(d)...... 1,468 2,763 15,929 20,822 -- -- -- ---------- -------- ---------- ---------- ---------- ---------- ---------- Operating income.............. 17,796 7,804 61,864 753 52,385 28,757 50,264 Other income (expense): Finance charge income, net(e).................... 10,878 7,160 32,305 31,273 27,934 19,312 16,151 Interest expense............ (10,692) (4,706) (26,756) (29,389) (23,286) (11,286) (11,701) Other income, net........... 136 498 1,572 4,051 4,826 4,063 233 ---------- -------- ---------- ---------- ---------- ---------- ---------- Income before provision for income taxes, extraordinary loss and cumulative effect of changes in accounting methods................... 18,118 10,756 68,985 6,688 61,859 40,846 54,947 Provision for income taxes..................... 7,574 4,448 31,586 6,047 24,411 16,122 20,631 ---------- -------- ---------- ---------- ---------- ---------- ---------- Income before extraordinary loss and cumulative effect of changes in accounting methods................... 10,544 6,308 37,399 641 37,448 24,724 34,316 Extraordinary loss (net of tax) from early extinguishment of debt.... -- -- -- (2,060) -- (1,088) -- Cumulative effect of changes in accounting methods (net of tax)(f)................ -- -- -- -- -- 1,904 (1,794) ---------- -------- ---------- ---------- ---------- ---------- ---------- Net income (loss)........... $ 10,544 $ 6,308 $ 37,399 $ (1,419) $ 37,448 $ 25,540 $ 32,522 ========== ======== ========== ========== ========== ========== ========== CONSOLIDATED BALANCE SHEET DATA: Working capital............... $ 375,348 $226,361 $ 344,410 $ 235,194 $ 301,270 $ 306,853 $ 203,977 Total assets.................. 1,456,794 921,606 1,403,796 919,013 967,667 653,680 536,603 Long-term debt, less current portion..................... 505,108 247,537 502,577 269,442 325,501 203,838 216,985 Shareholder's equity.......... 555,159 334,394 539,898 327,371 337,007 275,104 122,582 OTHER FINANCIAL AND OPERATING DATA: Stores open at end of period...................... 175 143 173 144 146 115 106 Capital expenditures.......... $ 24,090 $ 9,944 $ 61,031 $ 51,469 $ 53,293 $ 86,192 $ 48,078 Ratio of earnings to fixed charges..................... 2.1x 2.3x 2.4x 1.1x 2.5x 2.6x 3.7x
- --------------- (a) Effective February 1, 1997 and February 3, 1996, Herberger's and Younkers, respectively, were acquired by the Company. These acquisitions were accounted for under the pooling-of-interests method. Accordingly, the Company's financial statements were restated for all periods to include the results of operations and financial position of Herberger's and Younkers. (b) Expenses incurred were related to the defense of the attempted hostile takeover of Younkers by Carson Pirie Scott & Co. 28 31 (c) The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in the fourth quarter of fiscal 1995. As a result of adopting this new accounting standard and as a result of closing certain stores and warehouses, the Company incurred impairment charges related to the write-down in carrying value of six stores due to poor operating results, abandonment of duplicate warehouse and leasehold improvements related to the Younkers acquisition, and a loss on abandonment of leasehold improvements related to closed stores. For the period ended February 1, 1997, the Company incurred additional charges of $1.4 million for closed or underperforming stores of the newly-acquired Herberger's chain. These losses were offset by gains from sales of assets totaling $2.5 million consisting principally of land, building and fixtures related to two Younkers stores sold to Carson Pirie Scott & Co. (d) In connection with the Younkers and Herberger's acquisitions, the Company incurred certain costs to effect such acquisitions and other costs to restructure and integrate the combined operating companies. The costs incurred included, among other costs, merger transaction costs, severance and related benefits, abandonment and elimination of duplicate administrative office space, property, data processing equipment and software. (e) Finance charge income includes finance charges and late payment fees earned on the Company's proprietary credit cards, less the portion of such income allocated to third party purchasers of such credit card receivables. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Finance Charge Income, Net;" "Receivables Securitization Facilities" and Note 4 to the Company's Consolidated Financial Statements. (f) Effective as of the beginning of the fiscal year ended January 30, 1993, Younkers recognized a cumulative effect adjustment of $1.8 million (net of income taxes of $1.2 million) due to the adoption of SFAS No. 106, under which employers recognize the cost of retiree health and life insurance benefits over the employees' period of service. Effective January 31, 1993, the Company changed its method of accounting for inventory to include certain purchasing and distribution costs. Previously, these costs were charged to expense in the period incurred rather than in the period in which the merchandise was sold. The cumulative effect of this change was to increase net income $2.3 million (net of income taxes of $1.5 million). Also effective January 31, 1993, the Company also changed its method of accounting for store preopening costs to expensing such costs when incurred. The cumulative effect of this change was to decrease net income $0.4 million (net of income taxes of $0.2 million). Previously, these costs were amortized over the twelve months immediately following the individual store openings. In 1992, the Financial Accounting Standards Board issued SFAS No. 109, Accounting for Income Taxes, which requires a change from the deferred method to the asset and liability method of accounting for income taxes. The Company adopted the new accounting standard effective January 31, 1993. Adoption of the new standard had no effect on the Company's financial position or results of operations. There would have been no impact on the year ended January 30, 1993 had the standard been applied retroactively. Effective January 30, 1994, the Company changed its method of accounting for inventory to the last-in, first-out (LIFO) method for a substantial portion of its inventories. Previously, all inventories were valued using the first-in, first-out (FIFO) method. The cumulative effect of this change is not presented because it is not determinable. 29 32 PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED) The following Pro Forma Combined Statement of Income (Unaudited) has been derived by the application of pro forma adjustments to the Company's Consolidated Financial Statements included elsewhere herein to reflect the Company's acquisition of Parisian on October 11, 1996, which was accounted for as a purchase. Historical financial information presented in this Prospectus includes results of Parisian from the acquisition date. The accompanying Pro Forma Combined Statement of Income (Unaudited) for the year ended February 1, 1997 gives effect to the Parisian acquisition as if it had been consummated on February 4, 1996. The Pro Forma Combined Statement of Income (Unaudited) is intended for informational purposes only and is not necessarily indicative of future results of operations or financial position of the Company had the Parisian acquisition occurred on the indicated date and does not purport to indicate the results of operations that may be achieved in the future. The Pro Forma Combined Statement of Income (Unaudited) does not reflect the cost savings realized by the Company from consolidation of administrative and operating functions and other synergies. The Pro Forma Combined Statement of Income (Unaudited) and the accompanying notes should be read in conjunction with the Consolidated Financial Statements of the Company including the notes thereto, appearing elsewhere herein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
HISTORICAL PRO FORMA ------------------------ ACQUISITION PRO FORMA COMPANY(A) PARISIAN(B) ADJUSTMENTS(C) TOTAL ---------- ----------- -------------- ---------- (IN THOUSANDS) Net sales................................. $1,889,779 $431,176 $2,320,955 Costs and expenses: Cost of sales........................... 1,230,454 279,699 $ 1,649(d) 1,511,802 Selling, general, and administrative expenses............................. 440,502 112,390 (1,649)(d) 551,804 561(e) Other operating expenses................ 142,124 38,328 (1,845)(e) 179,938 1,331(f) Gains from long lived assets, net....... (1,094) (1,094) Merger, restructuring and integration costs................................ 15,929 15,929 ---------- -------- ------- ---------- Operating income.......................... 61,864 759 (47) 62,576 Other income (expense): Finance charge income, net.............. 32,305 5,578 37,883 Interest expense........................ (26,756) (11,932) (6,014)(g) (44,702) Other income, net....................... 1,572 1,837 3,409 ---------- -------- ------- ---------- Income (loss) before provision for income taxes................................... 68,985 (3,758) (6,061) 59,166 Provision for income taxes................ 31,586 (799) (1,389)(h) 29,398 ---------- -------- ------- ---------- Net income (loss)......................... $ 37,399 $ (2,959) $(4,672) $ 29,768 ========== ======== ======= ==========
- --------------- (a) The historical income statement of the Company does not reflect the operating results of Parisian prior to the Company's acquisition of Parisian on October 11, 1996. (b) Includes information derived from Parisian's unaudited historical income statement for the period from February 4, 1996 through October 10, 1996. (c) Pro forma adjustments do not include any charges or benefits related to the integration of the operations of the businesses of the Company and Parisian. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Merger, Restructuring and Integration Costs" and Notes 2 and 3 to the Company's Consolidated Financial Statements. (d) Adjustments have been made to conform Parisian's direct cost method of accounting for inventory to the full cost method used by the Company and to conform Parisian's presentation of certain expenses with that of the Company. 30 33 (e) Adjustments have been made to conform Parisian's accounting method for store preopening costs of deferral and amortization over twelve months to the Company's accounting method of expensing such costs as incurred. (f) Adjustments have been made to reflect the increase in depreciation and amortization resulting from the purchase price allocation for the Parisian acquisition. (g) Adjustments have been made to reflect interest expense on acquisition debt of approximately $119.0 million at 7.4% per annum for the period ended October 10, 1996, assuming the debt was outstanding throughout the period. (h) Adjustments have been made to reflect the income tax impact of the pro forma merger and acquisition adjustments using a combined federal and state income tax rate of 40%. See Note 6 to the Company's Consolidated Financial Statements. 31 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto and other data and information appearing in this Prospectus. OVERVIEW General. The Company is a leading regional department store company offering a wide selection of fashion apparel, accessories, cosmetics and decorative home furnishings, featuring assortments of premier brands and specialty merchandise. The Company's five chains are Proffitt's (19 stores), McRae's (29 stores), Younkers (48 stores), Parisian (40 stores) and Herberger's (39 stores). The following table sets forth the merchandising mix for each chain for the year ended February 1, 1997:
TOTAL PROFFITT'S MCRAE'S YOUNKERS PARISIAN(A) HERBERGER'S COMPANY ---------- ------- -------- ----------- ----------- ------- Womens Apparel................. 32.6% 25.9% 31.7% 31.7% 39.0% 31.8% Mens Apparel................... 13.7 16.6 16.1 21.7 15.3 17.4 Home/Gifts..................... 11.1 15.3 15.6 1.1 9.4 9.9 Cosmetics...................... 15.0 11.4 10.9 9.5 8.6 10.8 Children's Apparel............. 7.8 7.3 6.8 11.3 12.9 9.1 Accessories.................... 6.7 7.1 6.2 6.9 5.6 6.5 Shoes.......................... 7.3 8.0 2.9 12.3 5.4 7.5 Intimate Apparel............... 4.2 3.9 4.6 3.2 3.8 3.9 ----- ----- ----- ----- ----- ----- Total owned.......... 98.4 95.5 94.8 97.7 100.0 96.9 Leased(b)...................... 1.6 4.5 5.2 2.3 E 3.1 Total................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== =====
- --------------- (a) Represents entire period even though Parisian was acquired October 11, 1996. (b) Leased departments include fine jewelry, beauty salon, and maternity departments. See "Business -- Merchandising." Recent Acquisitions and Growth in Store Base. The Company's financial results for the periods discussed below have been affected by the Company's significant acquisition-related growth. In March 1994, the Company acquired McRae's, a privately owned company with 28 stores. In April 1995, the Company completed the acquisition of Parks-Belk Company, the owner-operator of four stores in Northeast Tennessee. Effective February 3, 1996, the Company acquired Younkers, a publicly traded company with 51 stores. On October 11, 1996, the Company acquired Parisian, a 38 store closely-held company. Effective February 1, 1997, the Company acquired Herberger's, an employee owned company with 39 stores. The McRae's, Parks-Belk and Parisian transactions were accounted for using the purchase method and are included in the Company's income statements from the date of acquisition; the Younkers and Herberger's transactions were accounted for as poolings of interests. The Company's Consolidated Financial Statements have been restated to reflect the Younkers and Herberger's acquisitions. Actions Impacting Future Results. The Company believes that its future results of operations may be impacted by a number of factors, including (i) the results of cost savings and operating efficiency programs undertaken in connection with recent acquisitions, (ii) the results of the Company's efforts to centralize certain administrative and support functions, (iii) the implementation of the Company's plans to improve its capital structure, (iv) the results of a shift to a more optimal merchandise mix and the realization of improved purchasing power resulting from increased scale, and (v) future acquisitions, if any, undertaken by the Company. Management has identified synergies and developed cost savings programs in conjunction with the Younkers, Parisian and Herberger's acquisitions. The implementation of these programs reduced operating 32 35 expenses by $6 million (from the Younkers acquisition only) in fiscal 1996 and is expected to produce annualized cost savings of $20 million in fiscal 1997 and $29 million in fiscal 1998 (compared to the 1995 cost structure of the chains on an independent basis). Cost reductions are expected to be achieved through the elimination of duplicate corporate expenses, economies of scale, implementation of best practices and consolidation of certain administrative support functions. The Company expects that these programs may result in additional cost savings which cannot presently be quantified. The realization of these cost savings is subject to uncertainties described under "Risk Factors." During 1995 and 1996, the Company consolidated certain administrative and support functions, such as accounting, information systems, proprietary credit card administration and store planning for the Proffitt's, McRae's and Younkers chains. The Company is in the process of further consolidating these functions to include the Parisian chain, with the majority of this work to be completed by the fall of 1997. Consolidation of these functions for the Herberger's chain will begin in 1997 and is expected to be completed in 1998. Merchandising, store operations, sales promotion and advertising and visual presentation for the Proffitt's, McRae's, Younkers, Parisian and Herberger's chains will remain separate, but will be coordinated centrally by the Proffitt's Merchandising Group. The issuance of the Notes was part of a plan to improve the Company's capital structure by (i) reducing the amount of the Company's secured indebtedness, (ii) reducing the amount of the Company's indebtedness that bears interest at floating rates of interest, and (iii) extending the average life of the Company's indebtedness. To achieve these objectives, the Company will undertake the following: - Use of Proceeds from the Issuance of the Notes. The Company is applying the net proceeds from the issuance of the Notes to (i) repay approximately $64.0 million of real estate and mortgage notes, (ii) repay approximately $3.8 million of unsecured notes payable and (iii) reduce outstanding borrowings under the Credit Facility. This will extend the maturity of the Company's indebtedness. See "Use of Proceeds." - Renegotiation of Revolving Credit Facility. The Company has engaged NationsBank of Texas, National Association ("NationsBank") and NationsBanc Capital Markets, Inc. ("NCMI") in connection with the Company's efforts to amend its existing $275 million syndicated Credit Facility. The proposed amendment seeks, among other things, to increase such facility to $325-$400 million, extend the termination date to five years from the closing of the amended credit facility and otherwise provide greater flexibility for the Company. Although there is no assurance that the Credit Facility will be amended, that the amended credit facility will be successfully syndicated or as to the final terms of the amended credit facility, it is currently anticipated that such amendments will be completed during or shortly after the Exchange Offer. See "Description of Other Indebtedness -- Bank Credit Facilities -- Amended Credit Facility" and " -- Liquidity and Capital Resource." - New Receivables Arrangements. The Company has engaged NCMI to restructure and combine its existing accounts receivable securitization facilities into a new master trust, with a view to issuing approximately $200 million of investment grade asset-backed securities having terms of up to five years secured by the Company's credit card receivables, while continuing to provide the Company with the ability to sell a variable interest in proprietary credit card receivables to asset-backed commercial paper conduits. Although there is no assurance that a new accounts receivable securitization facility will be successfully established, or as to the final terms of such a facility, it is currently anticipated that such a facility will be established during Summer 1997. See " -- Liquidity and Capital Resources" and "Receivables Securitization Facilities." During the first and second fiscal quarters of 1997, the Company has purchased approximately $32 million of Senior Subordinated Notes. The Company or its subsidiaries may from time to time purchase additional Senior Subordinated Notes with available cash and borrowings under the Credit Facility. See "Description of Other Indebtedness -- Subordinated Indebtedness -- Senior Subordinated Notes." 33 36 RESULTS OF OPERATIONS The following table sets forth the selected financial data (excluding unusual items) for the Company expressed as a percentage of net sales for the periods indicated.
THREE MONTHS ENDED FISCAL YEAR ENDED(1) -------------------- ----------------------------------------- MAY 3, MAY 4, FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996(1) 1997 1996 1995 -------- -------- ----------- ----------- ----------- Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales......................... 63.8 65.0 65.1 65.5 65.2 ----- ----- ----- ----- ----- Gross profit.......................... 36.2 35.0 34.9 34.5 34.8 Selling, general and administrative expenses............................ 24.4 24.4 23.3 24.0 23.3 Property and equipment rentals........ 3.6 3.1 3.2 3.0 3.1 Taxes other than income taxes......... 2.4 2.6 2.1 2.2 2.2 Finance charge income, net............ 2.1 2.0 1.7 1.9 1.8 Other income, net..................... 0.0 0.1 0.0 0.2 0.3 ----- ----- ----- ----- ----- EBITDA................................ 7.8 7.1 8.0 7.4 8.3 Depreciation & amortization........... 2.1 2.7 2.2 2.6 2.7 ----- ----- ----- ----- ----- EBIT.................................. 5.7% 4.4% 5.8% 4.8% 5.6%
- --------------- (1) Effective February 1, 1997 and February 3, 1996, Herberger's and Younkers, respectively, were acquired by the Company. Such acquisitions were accounted for under the pooling-of-interests method. Accordingly, the Company's financial statements were restated for all periods to include the results of operations and financial position of Herberger's and Younkers. RESULTS OF OPERATIONS FOR QUARTERS ENDED MAY 4, 1996 AND MAY 3, 1997 For the quarter ended May 3, 1997, total Company sales were $526.4 million, a 44% increase over $365.2 million in the prior year. Sales for the quarter included $166.4 million of sales from the newly-acquired Parisian division. On a comparable stores basis (excluding Parisian), total Company sales increased 3% for the quarter. For the quarter ended May 3, 1997, gross margin percentages increased over the prior year. This improvement resulted from improved inventory management, reduced markdowns, and the effects of inventory repositioning at both the Parisian and Herberger's businesses, which was initiated in late 1996. Selling, general, and administrative expenses declined as a percentage of net sales for the quarter. This expense leverage primarily resulted from the early stages of targeted cost reductions related to each of the Company's recent business combinations. Other operating expenses, which consist of rents, depreciation and amortization, and taxes other than income taxes, declined as a percentage of net sales for the quarter. This reduction was primarily due to the effect of closed underperforming stores. Total financing costs, which include interest expense and finance charge income allocated to the third party purchasers of accounts receivable, increased as a percentage of net sales for the quarter due to additional borrowings related to the October 1996 purchase of Parisian. Prior to the non-recurring items and ESOP charges outlined below, net income totaled $11.9 million, or $.41 per share, a 77% increase over $6.7 million, or $.26 per share last year. In conjunction with the Company's mergers with Younkers (completed February 3, 1996), Parisian, and Herberger's, the Company incurred certain non-recurring integration charges in the first quarter of each year presented. For the quarter ended May 3, 1997, these charges totaled $1.5 million before tax, or 0.3% of net sales ($.9 million after tax, or $.03 per share). For the quarter ended May 4, 1996, these charges totaled $2.8 million before tax, or 0.8% of net sales ($1.7 million after tax, or $.07 per share). 34 37 For the quarter ended May 4, 1996, the Company realized pre-tax gains of $2.3 million ($1.4 million after tax, or $0.6 per share) related to the Company's March 1996 sale of two Younkers stores to Carson Pirie Scott & Co. For the quarters ended May 3, 1997 and May 4, 1996, the Company incurred pre-tax expenses of $0.7 million, or 0.1% of net sales, and $0.2 million, or 0.1% of net sales, respectively, related to the Company's Employee Stock Ownership Plan (ESOP) maintained at the newly acquired Herberger's Division. On an after-tax basis, these charges totaled $.5 million, or $.01 per share, and $.1 million, or less than $.01 per share, for the quarters ended May 3, 1997 and May 4, 1996, respectively. After these non-recurring items and ESOP charges, net income for the quarter ended May 3, 1997 totaled $10.5 million, or $.37 per share, compared to $6.3 million, or $.25 per share, for the quarter ended May 4, 1996. The increase in earnings over the prior year primarily was due to solid gross margin performance and leverage on operating expenses netted against increased financing costs. NET SALES FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 Total Company net sales increased by 13.8% and 9.8% in fiscal 1996 and fiscal 1995, respectively. The fiscal 1996 increase primarily was due to a comparable store sales increase of 3% and revenues generated from the Parisian chain acquired in October 1996. The fiscal 1995 sales increase primarily was due to a comparable store sales increase of 3% and a full year of sales generated from the McRae's stores acquired in March 1994. GROSS MARGINS FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 Gross margins were 34.9%, 34.5%, and 34.8% in fiscal 1996, fiscal 1995, and fiscal 1994, respectively. The Company uses a full-cost method to account for inventories, which includes certain purchasing and distribution costs. Such costs which relate to obtaining merchandise and preparing it for sale are included in cost of sales. The improvement in gross margin percent in fiscal 1996 to 34.9% from 34.5% in fiscal 1995 was a result of improved inventory management, resulting in increased inventory turnover and lower markdowns. The decrease in gross margin percent from 34.8% in 1994 to 34.5% in 1995 was primarily a result of increased markdowns over the prior year. Management expects that sales and gross margins can be enhanced over time through further development of key businesses in each of the Company's chains; expansion of key brands (primarily at the newly acquired Herberger's chain); further private brand development; enhanced relationships and buying power with vendors due to the Company's increased scale; and continued appropriate inventory management. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 Selling, general and administrative expenses ("SG&A") were 23.3% of net sales in fiscal 1996, 24.0% of net sales in fiscal 1995, and 23.3% of net sales in fiscal 1994. In fiscal 1996, primarily in conjunction with its acquisition of Herberger's, the Company revised certain estimates and recorded other charges to SG&A in the fourth quarter totaling $3.7 million, or 0.2% of net sales. The most significant components of these charges were: (i) a $0.7 million charge for store closing and conversion costs and (ii) a $1.7 million charge to strengthen various accruals. In addition, the Company recorded fourth quarter charges to SG&A of $1.0 million, or 0.1% of net sales, related to the sale of seven of the Company's stores located in Virginia. In fiscal 1995, primarily in conjunction with the Company's acquisition of Younkers, the Company revised certain estimates and recorded other charges to SG&A in the fourth quarter totaling $13.7 million, or 0.8% of net sales. The most significant components of these charges were: (i) a $2.4 million charge for the conversion of the Younkers leased shoe operation to an owned operation; (ii) a $2.0 million charge to strengthen the Company's bad debt reserve; and (iii) a $5.0 million reserve for various Younkers legal claims. See "Summary -- Recent Developments -- Sale of Seven Virginia Stores." 35 38 Excluding these fourth quarter charges, SG&A as a percentage of net sales was 23.0% in fiscal 1996 and 23.2% in fiscal 1995. The reduction of the SG&A percentage in fiscal 1996 over fiscal 1995 was due to increased economies of scale and the implementation of the synergies outlined under "-- Overview." OTHER OPERATING EXPENSES FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 Other operating expenses were 7.5% of net sales in fiscal 1996, compared to 7.9% in fiscal 1995 and 8.1% in fiscal 1994. Other operating expenses for fiscal 1996 include a $1.0 million charge, or 0.1% of net sales, related to the sale of seven of the Company's stores located in Virginia. Excluding this charge, other operating expenses as a percentage of net sales were 7.4% in fiscal 1996. The percent decline in fiscal 1996 over fiscal 1995 and fiscal 1994 levels resulted from leverage of these expenses over a larger sales base, the effect of closed underperforming stores, and lower expenses due to the write-down of certain property. See "Summary -- Recent Developments -- Sale of Seven Virginia Stores" and "-- Gains (Losses) from Long-Lived Assets". EXPENSES RELATED TO HOSTILE TAKEOVER DEFENSE BY YOUNKERS FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 During fiscal 1995, the Company incurred expenses of approximately $3.2 million, or 0.2% of net sales, related to the defense of the attempted hostile takeover of Younkers by Carson Pirie Scott & Co. GAINS (LOSSES) FROM LONG-LIVED ASSETS FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company adopted the provision of this new accounting standard in the fourth quarter of fiscal 1995. As a result of adopting this new accounting standard and as a result of closing certain stores and warehouses, the Company incurred impairment charges totaling $1.0 million, or 0.1% of net sales, and $19.1 million, or 1.1% of net sales, in fiscal 1996 and fiscal 1995, respectively. The fiscal 1996 write-down of $1.0 million was netted against gains on the sales of certain properties totaling $2.1 million, or 0.1% of net sales, primarily related to the sale of two Younkers units in March 1996. The $19.1 million charge in fiscal 1995 is comprised of $15.9 million related to the write-down in carrying value of six store properties and $3.2 million related to the write-down of abandoned property. MERGER, RESTRUCTURING, AND INTEGRATION COSTS FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 In connection with the acquisition of Herberger's by the Company, the two companies incurred certain costs in the fourth quarter of fiscal 1996 to effect the transaction and other costs to restructure, integrate and combine operations. These costs totaled $10.0 million, or 0.5% of net sales, and were comprised of $2.6 million of merger transaction costs (principally investment banking, legal, and other direct merger costs); $6.5 million of severance and related benefits, the consolidation of administrative operations, and systems conversions; and $0.9 million for the write-off of duplicate administrative facilities. Management also expects to incur certain additional integration costs in fiscal 1997, such as transition payroll, training, and relocation expenses. These expenses are expected to total approximately $3.0 to $4.0 million in 1997. In connection with the acquisition of Younkers by the Company, the two companies incurred certain costs in the fourth quarter of fiscal 1995 to effect the transaction and other costs to restructure, integrate, and combine operations. These costs totaled $20.8 million, or 1.3% of net sales, and were comprised of $8.8 million of merger transaction costs (principally investment banking, legal, and other direct merger costs); $3.2 million of severance and related benefits, $7.4 million for the write-off of duplicate administrative facilities, and $1.4 million of miscellaneous costs. The Company also incurred certain additional integration costs in fiscal 1996, such as transition payroll, training, and relocation expenses. These expenses totaled $5.9 million during 1996, or 0.3% of net sales. FINANCE CHARGE INCOME, NET FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 Net finance charge income was 1.7% of net sales in 1996 and 1.9% of net sales in both 1995 and 1994. 36 39 For fiscal 1996, gross finance charge income (before allocation of finance charges to the third party purchasers of accounts receivable) increased to 2.6% of net sales from 2.4% in fiscal 1995. This increase was primarily due to increased finance charge rates assessed in certain states and a full year's benefit of the October 1995 implementation of late fee charges on past due charge accounts for the Proffitt's and McRae's chains. See "-- Liquidity and Capital Resources." For fiscal 1995, gross finance charge income increased to 2.4% of net sales over 2.2% of net sales in fiscal 1994. This increase was due to increased customer usage of the Company's proprietary charge cards, increased finance charge rates assessed in certain states, the October 1995 implementation of late fee charges on past due charge account balances for the McRae's and Proffitt's chains, and a full year's benefit of the May 1994 implementation of late fee charges on past due charge account balances at the Younkers chain. The allocation of finance charges to the third party purchasers of accounts receivable totaled approximately $16.0 million, or 0.8% of net sales, in fiscal 1996; $8.8 million, or 0.5% of net sales, in fiscal 1995; and $5.6 million, or 0.4% of net sales, in fiscal 1994. Utilization of the Company's accounts receivable securitization programs increased each year presented, commensurate with the Company's growth in proprietary charge card sales. See "-- Liquidity and Capital Resources." Each of the Company's chains operates a proprietary credit card program. A proprietary credit card program was introduced to the Herberger's customer base on May 15, 1997. INTEREST EXPENSE FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 Interest expense as a percentage of net sales was 1.4% for fiscal 1996, 1.8% for fiscal 1995, and 1.5% for fiscal 1994. Total interest expense was $26.8 million, $29.4 million, and $23.3 million in fiscal 1996, fiscal 1995, and fiscal 1994, respectively. The decrease in interest expense in fiscal 1996 over fiscal 1995 was attributable to lower average borrowings under the Company's Credit Facility due to an increase in cash flow from operations, and a reduction in short-term interest rates. The increase in interest expense in fiscal 1995 over fiscal 1994 was attributable to higher borrowings associated with the purchase and operation of the stores acquired from the Parks-Belk Company in April 1995 and the acquisition of McRae's in March 1994, along with higher interest rates. INCOME TAXES FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 The effective tax rates differ from the expected tax rates principally due to nondeductible merger costs and other nondeductible expenses related to acquisitions. NET INCOME FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 Net income (prior to extraordinary items) was $37.4 million in fiscal 1996, or 2.0% of net sales, $0.6 million in fiscal 1995, or 0.0% of net sales, and $37.4 million in fiscal 1994, or 2.5% of net sales. Earnings in fiscal 1996 were negatively affected by such items as fourth quarter charges to SG&A in conjunction with the acquisition of Herberger's by the Company and the sale of seven of the Company's stores located in Virginia and merger, restructuring, and integration costs previously discussed. Without these items, fiscal 1996 net income would have totaled $52.2 million, or 2.8% of net sales. In fiscal 1995, earnings were negatively affected by such items as fourth quarter charges to SG&A in conjunction with the acquisition of Younkers, expenses related to the Younkers hostile takeover attempt, charges for the impairment of long-lived assets, and merger, restructuring, and integration costs previously discussed. Without these items, fiscal 1995 net income would have totaled $38.4 million, or 2.3% of net sales. See "-- Expenses Related to Hostile Takeover Defense." EXTRAORDINARY ITEM FOR FISCAL 1994, FISCAL 1995 AND FISCAL 1996 On February 3, 1996, Younkers replaced its debt financing of accounts receivable with sales of ownership interests in its accounts receivable. In addition, Younkers canceled its $150.0 million revolving credit agreement. As a result of the early extinguishment of debt, certain deferred costs associated with the debt facilities, such as loan origination costs and a loss from an interest rate swap, were written off. This write-off of $3.4 million ($2.1 million net of income taxes) was recorded as an extraordinary item in fiscal 1995. 37 40 INFLATION Inflation affects the costs incurred by the Company in its purchase of merchandise and in certain components of its selling, general, and administrative expenses. The Company attempts to offset the effects of inflation through price increases and control of expenses, although the Company's ability to increase prices is limited by competitive factors in its markets. Inflation may also adversely affect the Company's net finance charge income. See "Business -- Proprietary Credit Cards." SEASONALITY The Company's business, like that of most retailers, is subject to seasonal influences, with a significant portion of net sales and net income realized during the fourth quarter of each year, which includes the Christmas selling season. In light of these patterns, selling, general, and administrative expenses are typically higher as a percentage of net sales during the first three quarters of each year, and working capital needs are greater in the last quarter of each year. The fourth quarter increases in working capital needs have typically been financed with internally generated funds, the sale of interests in the Company's accounts receivable, and borrowings under the Company's revolving credit facility. Generally, more than 30% of the Company's net sales and over 50% of net income are generated during the fourth quarter. See "Risk Factors -- Effect of General Economic Conditions; Seasonality", "Business -- Seasonality" and Note 17 to the Company's Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES The Company's primary needs for liquidity are to: acquire, renovate, or construct stores; service debt; meet operating lease and other rental payment obligations; and provide working capital for new and existing stores. The Company estimates capital expenditures for fiscal 1997 will approximate $110 million, primarily for the construction of seven new stores opening in fiscal 1997, initial expenditures related to new stores scheduled to be opened in fiscal 1998, several store expansions and renovations, and enhancements to management information systems. At February 1, 1997, total debt was 48.8% of total book capitalization, up from 42.8% at February 3, 1996. Excluding subordinated debt of approximately $225.8 million at February 1, 1997 and approximately $100.5 million at February 3, 1996, senior debt was 27.4% of total capitalization, down from 28.0% one year ago. As of February 1, 1997, the Company owed $120.3 million of mortgage debt related to 26 of its owned store locations and other owned properties. Management believes the market value of these properties significantly exceeds the related indebtedness. The increase in the May 3, 1997 and February 1, 1997 asset, liability, and shareholders' equity classifications over the May 4, 1996 balances presented was largely attributable to the acquisition and financing of the Parisian transaction completed on October 11, 1996. For example, May 3, 1997 merchandise inventories and property and equipment balances increased over May 4, 1996 balances primarily due to the value of the acquired Parisian inventories and property and equipment. May 3, 1997 goodwill and tradenames increased over the balance at May 4, 1996 due to goodwill of approximately $225 million recorded in conjunction with the October 1996 Parisian acquisition. May 3, 1997 subordinated debt increased over the balance at May 4, 1996 due to the addition of Parisian's $125 million of 9 7/8% notes due 2003. In fiscal 1996, on a pro forma basis, the Company would have incurred approximately $81.7 million in operating lease and rent expense. It is expected that minimum operating lease and rent expense for fiscal 1997 will remain relatively constant as a percentage of sales. 38 41 Net cash provided by operating activities was $82.5 million in fiscal 1996 and $66.6 million in fiscal 1995. In fiscal 1996 net income and depreciation and amortization charges were offset by additional working capital needs of $14.3 million. In fiscal 1995, working capital needs were reduced by $14.0 million. Net cash used in investing activities was $174.7 million in fiscal 1996 of which $119.1 million was for the acquisition of Parisian and $61.0 million was related to other capital expenditures. Net cash used in investing activities for fiscal 1995 totaled $62.0 million, of which $51.5 million related to other capital expenditures and $10.5 million was the cash portion of the purchase price for the Company's acquisition of stores from the Parks-Belk Company. Net cash provided by financing activities for fiscal 1996 totaled $66.4 million, which was primarily due to proceeds of $113.0 million from borrowings on long-term debt netted against payments on such debt of $49.3 million. Net cash provided by financing activities for fiscal 1995 totaled $7.0 million, which was primarily due to proceeds of $32.3 million from borrowings on long-term debt netted against payments on such debt of $20.3 million. The Company currently has a $275 million unsecured Credit Facility with several banks, which is available for general corporate purposes. The Credit Facility, which matures in 1999, provides various borrowing options, including prime rate and Eurodollar rates. As of May 30, 1997, the LIBOR-based, variable interest rate on the Credit Facility was approximately 6.8% per annum. Borrowings under the Credit Facility are, subject to certain qualifications, limited to 55% of eligible inventories. As of May 30, 1997, the Company had borrowings totaling $120.8 million outstanding under the Credit Facility and unused availability of $154.2 million. The maximum amount outstanding under the Credit Facility during fiscal 1996 was $176.7 million, at which time, the Company had unused availability on the Credit Facility of $98.3 million. The Company's previous $125 million revolving credit facility was replaced by the Credit Facility in October 1996 in conjunction with the acquisition of Parisian by the Company. The Company has engaged NationsBank and NCMI in connection with the Company's efforts to amend its existing $275 million Credit Facility. The proposed amendment seeks, among other things, to increase the facility to $325-$400 million, extend the termination date to five years from the closing of the amended credit facility and otherwise provide greater flexibility for the Company. See "Description of Other Indebtedness -- Bank Credit Facilities." In January 1997, an Accounts Receivable Subsidiary (as defined under "Description of the Exchange Notes") of the Company entered into a $300 million facility agreement (the "Proffitt's Accounts Receivable Facility") with a third party financial institution for the sale of ownership interests in accounts receivable, which expires in 1998. The Proffitt's Accounts Receivable Facility requires a portion of finance charges earned to be allocated to the purchaser of the ownership interests in the accounts receivable in an amount sufficient to cover the yield on commercial paper utilized by the purchaser to finance the transaction, plus fees and expenses. As of May 30, 1997, the interest rate on the Proffitt's Accounts Receivable Facility, including program fees, was approximately 6.0% per annum, and $219.5 million of receivables were sold through the Proffitt's Accounts Receivable Facility at that date. As of February 1, 1997, $234.0 million of receivables were sold through the Proffitt's Accounts Receivable Facility. Amounts sold are limited to 82% of eligible accounts receivable. The Proffitt's Accounts Receivable Facility replaced the following facilities: (i) the Proffitt's and McRae's accounts receivable program ($175 million facility) and (ii) the Parisian accounts receivable program ($160 million facility). Maximum amounts sold under these facilities in fiscal 1996 were $172.4 million and $129.0 million, respectively. Prior to February 3, 1996, Younkers utilized an accounts receivable securitization program under which its receivables were used as collateral for commercial paper issued by a wholly-owned special purpose subsidiary. Effective with the February 3, 1996 acquisition by the Company, Younkers replaced amounts borrowed under its prior securitization program with the Younkers Credit Card Master Trust (the "Younkers Master Trust") including the sale of: (i) fixed rate asset-backed securities of $75 million and (ii) variable ownership interests of up to $50 million financed through variable rate asset-backed commercial paper. The $75 million of receivables sold under the term asset-backed securities are from a pool of $91.5 million of accounts receivable and remain fixed until 2000 at which time a portion of collections of outstanding 39 42 receivables will be retained by the purchaser until the $75 million is amortized. The purchaser retains an allocation of finance charges earned on the $75 million of receivables in an amount sufficient to provide a return of approximately 6.5% per annum. Additional sales of receivables up to $50 million are restricted on the basis of the level of eligible receivables in excess of the $91.5 million supporting the fixed pool and a minimum ownership interest to be retained by Younkers. Younkers may obtain additional proceeds by increasing the ownership interest transferred to the purchaser or reduce the purchaser's interest by allowing a portion of the collections to be retained by the purchaser. The purchaser retains an allocation of finance charge income equal to a variable rate based on commercial paper or Eurodollar rates. The $50 million facility expires in 1998. As of March 21, 1997, the interest rate was approximately 5.8% per annum, and $5.0 million of Younkers' receivables were sold under this facility at that date. The aggregate fixed and variable interests in receivables sold in fiscal 1996 totaled $90.0 million. The Company has engaged NCMI to restructure and combine its existing accounts receivable securitization facilities into a new master trust, with a view to issuing approximately $200 million of investment grade asset-backed securities having terms of up to five years secured by the Company's credit card receivables, while continuing to provide the Company with the ability to sell a variable interest in proprietary credit card receivables to asset-backed commercial paper conduits. It is currently anticipated that such a facility will be established during or shortly after the Exchange Offer. The Company anticipates its capital expenditures, working capital requirements relating to planned new and existing stores and debt and lease payment obligations will be funded through cash provided by operations and borrowings under its Credit Facility. The Company expects to generate adequate cash flows from operating activities to sustain current levels of operations, debt service and lease payments. The Company maintains favorable banking relations and anticipates the Credit Facility will be amended or new agreements will be entered into in order to provide future borrowing requirements as needed, although no assurance can be given in this regard. The Company also believes it has access to a variety of other capital markets. The Company's goal is to continue to maintain a strong balance sheet and prudent leverage, providing the Company flexibility to capitalize on attractive opportunities for growth. See "Description of Other Indebtedness." The Company is using the net proceeds from the issuance of the Series A Notes to repay certain outstanding mortgage and other indebtedness, to reduce certain borrowings under the Credit Facility and for general corporate purposes. As a result of the issuance of the Series A Notes and the application of the net proceeds therefrom, the Company reduced the amount of its secured indebtedness, reduced the amount of its indebtedness that bears interest at floating rates and extended the average life of its indebtedness. The Company will not receive any proceeds from the issuance of the Exchange Notes pursuant to the Exchange Offer. RECENT ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The new standard, which was effective for all sales of accounts receivable beginning January 1, 1997, requires that a gain be recognized at the time of sale to the extent the fair value of the undivided interest in the receivables sold and the servicing rights retained exceed the carrying value of the receivables. Historically, the Company has recognized the excess interest earned on sold receivables over the life of the receivables. The effect of this accounting change was immaterial to fiscal 1996. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." The new standard changes the presentation and method in which earnings per share are computed and is effective for the Company's year ending January 31, 1998. The new standard will be applied on a "retroactive restatement of all prior periods" basis. The Company is currently ascertaining the impact the new standard will have on its earnings per share amounts for fiscal 1996 and prior periods. 40 43 BUSINESS THE COMPANY The Company is a leading regional department store chain operating 175 stores in 24 states, primarily in the Southeast and Midwest. The Company operates its stores under five chain names: Proffitt's (19 stores), McRae's (29 stores), Younkers (48 stores), Parisian (40 stores) and Herberger's (39 stores). Each chain operates primarily as a leading branded traditional department store in its communities, with Parisian serving as a better branded specialty department store. Most of the stores are located in premier regional malls in the respective trade areas served. The Company's stores offer a wide selection of fashion apparel, accessories, cosmetics and decorative home furnishings, featuring assortments of premier brands, private brands and specialty merchandise. Each of the Company's chains operates with its own merchandising, marketing and store operations team in order to tailor regional assortments to the local customer. At the same time, the Company coordinates merchandising among the chains and consolidates administrative and support functions to realize scale economies, to promote a competitive cost structure and to increase margins. Under the leadership of R. Brad Martin and an experienced senior management team, the Company has executed a disciplined acquisition strategy and strategic approach to new store openings, growing from 11 stores and net sales of $94.8 million in fiscal 1989 to 175 stores and pro forma net sales of $2.3 billion in fiscal 1996. In addition, the Company has increased EBITDA from $8.9 million in fiscal 1989 to $167.2 million in fiscal 1996, on a pro forma basis. Members of the Company's senior management have substantial investments in the Company. As of April 25, 1997, Mr. Martin beneficially owned approximately 4.7% of the Company's Common Stock and all directors and executive officers of the Company as a group beneficially owned approximately 13.2% of the Company's Common Stock. BUSINESS STRENGTHS The Company believes that it is well-positioned to build upon its historical success by capitalizing on its competitive strengths, including the following: Strong Regional Focus. The Company places a high priority on being a market leader in each of the markets in which it operates. In smaller communities, the Company's stores are frequently the only branded name department store catering to middle and upper income customers and offering an array of brands that frequently are not otherwise available to shoppers in such markets. In most larger metropolitan markets, the Company seeks to maximize its market share by operating multiple stores in prime locations. While the Company has grown through the acquisition of regional chains, its philosophy has been to (i) maintain existing trade names and retain merchandising and store personnel and (ii) utilize previously developed regional expertise and knowledge of the local customer base by allowing each chain to tailor merchandise assortments to the local customer. The Company believes that the increased sales and gross margins resulting from a coordinated but decentralized merchandising effort outweigh any incremental operating cost savings associated with a completely centralized strategy. Scale Economies. With pro forma sales of approximately $2.3 billion in fiscal 1996, the Company realizes scale economies in purchasing and distribution, administrative areas such as accounting, proprietary credit card administration, management information systems, and other infrastructure-related areas. Although the Company's chains control regional merchandising, the Proffitt's Merchandising Group coordinates merchandising, planning and execution, visual presentation, marketing and advertising activities among the chains. The Proffitt's Merchandising Group manages strategic relationships with the Company's top vendors to ensure that each chain is afforded the purchasing leverage of the Company as a whole. In addition to seeking economies of scale in purchasing, the Proffitt's Merchandising Group will continue to capitalize on corporate level marketing synergies, such as the coordination of media buying and direct mail programs, the establishment of preferred advertising rates, and the production of store catalogs. 41 44 Proven Track Record of Integrating Acquisitions. In recent years, the Company has grown primarily through the acquisition of strong, regional department store chains at valuations believed to be attractive by management. The following table sets forth certain information concerning the Company's significant acquisitions:
TRANSACTION VALUE(A) AS A MULTIPLE OF: EQUITY AS A % -------------------- DATE OF NUMBER TRANSACTION OF TRANSACTION LTM LTM COMPANY ACQUIRED ACQUISITION OF STORES VALUE (A) VALUE(A) SALES(B) EBITDA(B) - ---------------- ----------- --------- ----------- -------------- -------- --------- (IN MILLIONS) McRae's, Inc. .............. March 31, 1994 28 $264.8 5% 0.6x 5.3x Younkers, Inc. ............. February 3, 1996 51 321.6 79 0.5 6.5 Parisian, Inc. ............. October 11, 1996 38 375.0 28 0.5 8.7 G.R. Herberger's, Inc. ..... February 1, 1997 39 176.9 88 0.5 7.4
- --------------- (a) Transaction value is the total consideration paid in the form of: (i) cash; (ii) notes; (iii) equity (valued as of the announcement date for pooling-of-interest transactions and in accordance with generally accepted accounting principles for purchase accounting transactions); and (iv) assumed long-term debt, net of cash, as of the end of the last full fiscal quarter prior to the acquisition date. (b) LTM Sales and LTM EBITDA of the acquired company represent data for the twelve months ending on the last day of the last full fiscal quarter prior to the acquisition date. Additionally, EBITDA for Herberger's is adjusted for ESOP expense of $4.3 million. See "-- Summary Historical and Pro Forma Financial and Operating Data" for the definition of EBITDA. The Company employs a "best practices" approach to integrating acquired companies. Best practices is a process whereby each acquired chain's operating procedures and policies are reviewed to determine those practices which the Company believes will increase synergies while minimizing business interruptions. The Company believes the implementation of best practices throughout the Company's chains has resulted in improved comparable store sales and increased operating margins through better and more consistent inventory control and pricing, and other operating efficiencies. Strong Financial Position. The Company has been able to realize significant growth while maintaining moderate leverage. Since February 1996, the acquisitions of Younkers, Herberger's and Parisian have resulted in an increase in net sales of approximately $1.6 billion, while senior debt as a percentage of total capitalization decreased slightly. In addition to conservative balance sheet management, the Company's strong cash flow generation has allowed it to fund all capital expenditures, incremental working capital requirements and fixed charges with internally generated cash flow. On a pro forma basis, the Company's ratio of EBITDA to interest expense in fiscal 1996 would have been 3.7x. The Company's strong financial performance has provided it with significant financial flexibility, including the ability to use its publicly-traded common stock as consideration for selected acquisitions. Geographic and Demographic Diversity. The Company operates 175 stores in 24 states. Stores are operated in metropolitan markets such as Atlanta, Georgia and Indianapolis, Indiana, as well as in smaller markets such as Ames, Iowa and Kalispell, Montana. The Company believes that its geographic diversity and the demographic breadth of its target customer groups may to some extent serve to insulate the Company from sales and earnings volatility typically associated with poor weather conditions, or changes in local or regional economic conditions. Attractive Real Estate. The Company believes that its stores are primarily located in premier malls in the markets in which the Company operates. As is consistent with national trends, the Company further believes that construction of new malls in many of its markets is likely to be limited. The Company anticipates that the attractiveness of its existing locations, combined with limited new mall development, may contribute to improved comparable store sales. 42 45 BUSINESS STRATEGY The Company's business objective is to maximize profitability and shareholder value by (i) expanding its core business through comparable store sales growth, new store openings and margin expansion, and (ii) monitoring acquisition opportunities while maintaining a strong capital structure. Comparable Store Sales Growth. The Company expects that comparable store sales will benefit from a number of merchandising initiatives including (i) implementing best practices, (ii) expanding sales of key brands, and (iii) increasing sales of the Company's private brands. As part of best practices, the Company benchmarks sales of product categories and brand assortments for each store and identifies and targets opportunities to strengthen such sales by altering the merchandise mix. The Company has successfully used this strategy by applying the long history of strength in the cosmetics business of McRae's and Proffitt's stores to increase the penetration and profitability of Younkers stores' cosmetics business. The Company believes that it will be able to further utilize this strategy to increase sales in the Younkers shoe business, increase McRae's women's apparel sales and introduce home goods into select Parisian stores. The Company believes that comparable store sales will also benefit from expanded sales of key brands, such as Tommy Hilfiger, Liz Claiborne, Jones New York, Polo/Ralph Lauren, Calvin Klein, Guess, and Nine West, among others. The Company's large scale and proven track record with these vendors has enabled the Company to introduce certain of these brands into acquired stores which, prior to combining with the Company, did not have access to these vendors. For instance, Tommy Hilfiger, Nautica and Lancome will now be carried in select Herberger's stores. Additionally, the Company plans to increase sales of its private brand offerings within the apparel and housewares categories from 6% of total net sales to 12% to 15% over the next two to three years. For example, the Company has recently developed its own line of men's dress shirts and accessories, under the brand name RBM. The RBM collection is designed to fill a niche for quality men's furnishings at moderate prices. New Store Openings. The Company plans to open 15 to 20 new stores across all chains over the next three years and to make selective real estate acquisitions in existing or new markets. The Company targets premier mall locations principally based on favorable demographic profiles and trends, as well as the compatibility and traffic draws of other tenants. High quality real estate is a primary criterion for all new stores. In addition, the Company plans to selectively remodel or expand certain existing stores. Margin Expansion. The Company has implemented the following strategies to increase margins: (i) leveraging key vendor relationships; (ii) capitalizing on purchasing economies of scale; (iii) extending key brands into certain acquired stores; (iv) shifting the merchandise mix toward higher margin products; (v) increasing private brand penetration; (vi) consolidating administrative and support areas and eliminating redundant expenses; and (vii) realizing efficiencies related to the re-engineering of certain operating activities. The Company intends to further increase gross margins by increasing sales of its private brand products, which typically generate higher margins and enhance customer loyalty. Operating margins are also expected to benefit from sales productivity enhancements across the Company's chains and from the integration cost savings programs developed by management in conjunction with the Younkers, Parisian, and Herberger's acquisitions. These programs reduced operating expenses by a total of $6 million in fiscal 1996 (consistent with the Company's announced target) and are expected to produce annualized expense savings of $20 million in fiscal 1997 and $29 million in fiscal 1998 (compared to the 1995 cost structure of the chains on an independent basis). Monitor Acquisition Opportunities. The Company has an established record of successfully acquiring and integrating regional department store chains. The Company believes that its philosophy of retaining the local identity and merchandising organization of acquired companies makes the Company an attractive acquirer for regional department store companies. The Company's criteria in evaluating strategic opportunities include (i) strong market presence; (ii) prime real estate locations; (iii) similar merchandising strategies targeted toward middle to upper income consumers; (iv) geographic proximity to the Company's core markets; (v) compatible corporate culture; and (vi) favorable demographics in the regions served. Although the Company currently has no agreements, arrangements or understandings with respect to future acquisitions, 43 46 the Company expects the department store industry will continue to consolidate and the Company will regularly evaluate possible acquisition opportunities as they arise. Maintain Strong Capital Structure. The Company intends to maintain a strong balance sheet to support its growth objectives. The fulfillment of this objective has been facilitated by strong cash flows and the Company's issuance of its Common Stock as all or part of the consideration used in its recent acquisitions. The Company believes that, absent any additional acquisitions, future cash flows from operations (with seasonal needs supplemented by borrowings under its Credit Facility) will be sufficient to service debt and lease payments and to fund capital expenditures and working capital requirements. DEPARTMENT STORES Proffitt's. The Proffitt's chain operates 19 department stores located in the Southeast and mid-Atlantic regions of the United States, with twelve of its stores located in Tennessee. Proffitt's stores average approximately 95,000 gross square feet and approximately $149 in net sales per square foot of selling space. The Proffitt's stores offer moderate to better brand name fashion apparel, shoes, accessories, cosmetics and decorative home furnishings. Major brands found in a typical Proffitt's store include Liz Claiborne, Calvin Klein, Jones New York, Polo/Ralph Lauren, Tommy Hilfiger, Nautica, Marisa Christina, Enzo, Nine West, Timberland, Levi's, Clinique, Lancome, and Estee Lauder. Proffitt's stores are principally anchor stores in leading regional or community malls. The Proffitt's chain is headquartered in Alcoa, Tennessee. McRae's. The McRae's chain operates 29 stores located in four Southeastern states, with 26 of its stores located in Mississippi and Alabama. McRae's stores average approximately 101,000 gross square feet and approximately $183 in net sales per square foot of selling space. The merchandise selection of the McRae's chain is very similar to that of the Proffitt's chain with modifications for regional tastes. The McRae's chain is headquartered in Jackson, Mississippi. Younkers. Younkers is a leading fashion department store chain operating 48 stores located in Iowa, Nebraska, Wisconsin, Michigan, Illinois, Minnesota and South Dakota. The Younkers stores average approximately 97,000 gross square feet and approximately $149 in net sales per square foot of selling space. Younkers' stores are generally located in mid-sized to smaller cities where Younkers is one of the primary department stores and competition is more limited than in major metropolitan areas. Younkers stores are full-line department stores which offer a merchandise selection similar to Proffitt's with modifications for regional taste. Younkers also sells furniture and operates restaurants in certain of its stores. The Younkers chain is headquartered in Des Moines, Iowa. Parisian. The Parisian chain operates 40 specialty department stores located in nine states, with 33 of its stores located in the Southeast and the remainder located in the Midwest. The Parisian stores average approximately 107,000 gross square feet and approximately $228 in net sales per square foot of selling space. Parisian's stores are generally anchor stores in enclosed regional and premium malls. Parisian carries moderate to better apparel, cosmetics, shoes, accessories and gifts customarily found in other quality department stores, but does not carry home furnishings, housewares, or furniture. In addition to popular brands found in the Company's other department stores, Parisian carries premium lines such as Brighton, Robert Talbott, Armani, Coach, and MAC cosmetics. Parisian seeks to create a special shopping experience in its stores through carefully selected fashion merchandise assortments, attractive store design, exciting visual presentations and promotional events, and personal amenities that enhance customer convenience and comfort. The Parisian chain is headquartered in Birmingham, Alabama. Parisian stores overlap with McRae's and Proffitt's stores in certain markets. In several instances, these stores serve as anchor stores in the same mall. The Company believes that the product offerings and image of the Parisian chain are distinct and allow for the successful coexistence of these stores. Herberger's. The Herberger's chain operates 39 stores located in ten states throughout the Midwest and Great Plains states. Herberger's stores average approximately 64,000 gross square feet and approximately $143 44 47 in net sales per square foot of selling space. Most Herberger's stores are located in rural population centers where Herberger's is generally the leading brand name department store. Such markets typically encompass a retail trade area ranging in size from approximately 50,000 to 300,000 people, although certain stores are in larger markets where Herberger's believes it successfully fulfills the customer's desire for a "neighborhood" department store. Brands typically found in a Herberger's store include Liz Claiborne, Susan Bristol, Chaps by Ralph Lauren, Calvin Klein, Woolrich, Timberland, Nike and Estee Lauder. Prior to its acquisition by the Company, the size and location of the Herberger's chain made it difficult to establish relationships with certain popular and premium vendors as an independent company. As one of the Company's chains, Herberger's has recently received commitments to introduce key brands such as Tommy Hilfiger, Nautica, and Lancome in certain of its locations during 1997. The Herberger's chain is headquartered in St. Cloud, Minnesota. Prior to its merger with the Company, Herberger's did not have an existing proprietary credit card program. Instead, Herberger's had participated in a co-branded VISA(R) program with a third-party financial institution which has been terminated. On May 15, 1997, the Company introduced a proprietary credit card at the Herberger's stores. Based on experience in its other chains, the Company believes that the introduction of the proprietary credit card will increase sales, improve customer loyalty and generate additional finance charge income. The Herberger's proprietary credit card program will be administered from the Company's central credit card processing center located in Jackson, Mississippi. Herberger's stores overlap with Younkers stores in Appleton, Wisconsin and Waterloo, Iowa. The Company has announced that the Herberger's stores in Appleton and Waterloo will be converted to Younkers stores to better leverage advertising and promotion expenses. MERCHANDISING The Company's merchandising strategy is to provide middle to upper income customers a wide assortment of quality fashion apparel, shoes, accessories, cosmetics, and decorative home furnishings at competitive prices. The Company's commitment to a branded merchandising strategy, enhanced by its merchandise presentation and high level of customer service, makes it a preferred distribution channel for premier brand-name merchandise. Key brands featured include Liz Claiborne, Marisa Christina, Susan Bristol, Karen Kane, Jones New York, Polo/Ralph Lauren, Tommy Hilfiger, Nautica, Calvin Klein, Guess, Haggar, Estee Lauder, Clinique, Lancome, Vanity Fair, Nine West, Enzo, Coach, Brighton, and Timberland. The Company's large scale and proven track record with these vendors has enabled the Company to introduce certain of these brands into acquired stores which prior to combining with the Company did not have access to these vendors. The Company believes that the introduction of these key brands will increase revenues and improve gross margins. The Company supplements its name brand assortments with high quality private brands in selected merchandise categories. Private brand offerings are intended to provide national brand quality at lower prices. During fiscal 1996 private brand offerings comprised approximately 6.0% of the Company's net sales. The Company believes that the extension of certain existing private brands such as RBM and River Trader across the Proffitt's, McRae's, Younkers and Herberger's chains, the introduction of Parisian Signature as a premium brand in the stores of these chains, and the introduction of other new private brands will enhance customer loyalty and contribute to improved revenues and gross margin. The Company has developed a detailed knowledge of each of its regional markets and customer bases. This market knowledge and expertise has been gained through the Company's regional merchandising structure in conjunction with frequent store visits by senior management and merchandising personnel, as well as, use of on-line merchandise information. The Company believes it is successful in tailoring each store's merchandise assortments to the characteristics of its markets and responding to demographic and customer profiles. The Proffitt's Merchandising Group coordinates merchandising planning, execution, visual presentation, marketing, and advertising activities among the chains. By so doing, the Proffitt's Merchandising Group 45 48 enables the Company to leverage its purchasing power, monitor the performance of brands and categories of merchandise on a per store and per buyer level, and ensure consistency in standards across all of the chains. The Company believes that the Proffitt's Merchandising Group will improve merchandise flow throughout the Company, resulting in higher sales and margins and improvements in inventory turnover. Certain departments in the Company's stores are leased to independent companies in order to provide high quality service and merchandise where specialization and expertise are critical and economics do not justify the Company's direct participation in the business. Leased departments include fine jewelry, beauty salon, and maternity departments. The terms of the lease agreements typically are between one and three years and require the lessee to pay for fixtures and provide its own employees. Leased department sales are included in the Company's net sales. Management regularly evaluates the performance of the leased departments and requires compliance with established customer service guidelines. See Note 1 to the Company's Consolidated Financial Statements. PRICING The Company's primary merchandise focus is on moderate to better nationally branded merchandise and private brands. Management believes that customers respond to promotional events more favorably than they do to "everyday low pricing." Accordingly, while the Company continues to maintain a competitive pricing structure that provides value to its customers, the Company's business includes various promotional events throughout the year. The Company recognizes that competitors sometimes price merchandise below the Company's prices. In such situations, it is the Company's policy to match competitor's prices. Accordingly, sales associates have the authority to reduce the price of any merchandise if the customer has seen the same item advertised or sold at a lower price in the same geographic market. PURCHASING AND DISTRIBUTION The Company purchases merchandise from numerous suppliers. Management monitors the Company's profitability and sales history with each supplier and believes it has alternative sources available for each category of merchandise it purchases. Management believes it has good relationships with its suppliers. The 85,000 square foot distribution facility serving the Proffitt's chain is located in metropolitan Knoxville, Tennessee, and the 164,000 square foot distribution center for the McRae's chain is located in Jackson, Mississippi. The Younkers chain is served by two distribution facilities. A 182,000 square foot center in Green Bay, Wisconsin serves Younkers' northern stores, and a 120,000 square foot facility in Ankeny, Iowa serves Younkers' southern stores. Parisian's 125,000 square foot distribution facility is located in Birmingham, Alabama. Herberger's operates a 98,000 square foot distribution center near St. Cloud, Minnesota. The Company believes its distribution centers effectively utilize current technology. The Company utilizes UPC bar code technology which is designed to move merchandise onto the selling floor more quickly and cost-effectively by allowing vendors to deliver floor-ready merchandise to the distribution facilities. For example, high speed automated conveyor systems are capable of scanning bar coded labels and diverting cartons to the proper merchandise processing areas. Some types of merchandise are being processed in the receiving area and immediately "cross-docked" to the shipping dock for delivery to the stores. Certain processing areas are staffed with personnel equipped with hand-held radio frequency terminals that can scan a vendor's bar code and transmit the necessary information to a computer to check-in merchandise. As utilization of this technology increases, it is expected to create a nearly paperless environment for the distribution function. The Company believes that opportunities may arise in the future to reduce the number of its distribution centers, further improving the Company's competitive cost structure. The Company is also undertaking several initiatives to increase the percentage of floor-ready merchandise handled by its distribution centers. Management believes that increases in the percentage of floor-ready merchandise will reduce costs and improve the flow of goods to the stores thereby improving inventory turnover. 46 49 MANAGEMENT INFORMATION SYSTEMS The Company's information systems provide information necessary for: management operating decisions; sales and margin management; inventory control, profitability monitoring by many measures (brand, family of business, buyer, store, division), cost reduction programs; and gauging the success of customer service enhancements. Data processing systems include point-of-sale reporting, purchase order management, receiving, merchandise planning and control, payroll, general ledger, credit card administration, and accounts payable. Bar code ticketing is used, and scanning is utilized at all point-of-sale terminals to ensure timely sales and margin data compilation and to provide for inventory control monitoring. Information is made available on-line to merchandising staff and store management on a timely basis, thereby reducing the need for paper reports. The Company uses electronic data interchange ("EDI") with certain of its vendors to facilitate timely merchandise replenishment. The Company believes that the further use of EDI with its vendors will improve inventory turnover and lower the administrative costs associated with invoice processing and settlement. The Company has historically upgraded, and expects to continue to upgrade, its information systems to improve operations and support future growth. The Company estimates it will make capital expenditures of approximately $20 million to $25 million over the next three years for enhancements to its management information systems. The Company has engaged IBM to lead the structure, design and implementation of state-of-the-art systems. MARKETING The Company's advertising and promotions are coordinated to reinforce its market position as a fashion department store selling quality merchandise at competitive prices. Advertising is divided among fashion advertising, price promotions, and special events. The Company uses a multi-media approach, including newspaper, television, radio, and direct mail. The Company's advertising and special events are produced by each chain's in-house sales promotion staff in conjunction with outside advertising agencies. The Company utilizes data captured through the use of its proprietary credit cards to develop segmented advertising and promotional events targeted at specific customers who have established purchasing patterns for certain brands, departments, and store locations. To promote its image as the fashion leader in its markets, the Company also sponsors fashion shows and in-store special events highlighting the Company's key brands. The Proffitt's Merchandising Group coordinates and assists the stores' marketing and advertising to maintain quality and obtain better advertising rates. See "-- Merchandising." PROPRIETARY CREDIT CARDS The Company issues proprietary credit cards for each of the Proffitt's, McRae's, Younkers, and Parisian chains and introduced a Herberger's credit card on May 15, 1997. Approximately 46.1% of net sales (excluding Herberger's sales because Herberger's did not have a proprietary credit card) in fiscal 1996 were charged to the Company's proprietary credit cards. Frequent use of the Company's proprietary credit cards by customers is an important element in the Company's marketing and growth strategies and generates significant finance charge income which augments the income received from the sale of merchandise. The Company believes that proprietary credit card holders shop more frequently with the Company, purchase more merchandise, and are generally more loyal to the Company than are customers who pay with cash or third-party credit cards. As previously mentioned, the Company also makes frequent use of the names and addresses of its proprietary credit card holders in direct marketing efforts. The introduction of a proprietary credit card will allow Herberger's to participate in the Company's credit card based promotional activities. The Company seeks to expand the number and use of its proprietary credit cards by, among other things, providing incentives to sales associates to open "instant credit" accounts, which can generally be opened within approximately three minutes through use of an automated voice response unit which provides rapid credit checks. Also, customers who open accounts are entitled to certain discounts on initial and subsequent purchases. At Younkers stores, the Company has introduced a "Younkers Gold Card" to preferred customers which enables cardholders to receive "points" for each credit card purchase. Points can be redeemed for 47 50 discounts on subsequent purchases. Historically, cardholders redeeming points have tended to make purchases in addition to the merchandise purchased on redemption of points. Based on its experience with the Younkers Gold Card, the Company is evaluating whether to introduce the gold card concept in its other chains. The Company has approximately 4.0 million credit cards outstanding, of which approximately 2.0 million accounts have been active within the last six months. The Company employs state-of-the-art systems to monitor and administer its credit cards through the Vision 21 system. All credit card service is currently conducted centrally from the Company's facility in Jackson, Mississippi, except the Parisian credit card service which will move to Jackson on or about June 15, 1997. The Company believes that it takes appropriate steps to control losses in its credit card portfolio. For instance, the Company conducts behavior scoring on all active card holders semi-annually and utilizes the results to adjust credit limits and/or terminate certain accounts. PROPOSED CREDIT CARD BANK The origination of receivables at the operating division level subjects the Company to regulatory compliance in each of the 24 states in which it currently operates at least one store. State laws, among other things, impose interest ceilings and may restrict the application of certain other finance charges (e.g., late fees). The Company believes that the formation of a nationally chartered bank (to be created as a wholly-owned subsidiary) as the issuer of its proprietary credit cards would enhance its profitability by: (i) allowing for the standardization of terms across all divisions, (ii) providing for the exportation of interest rates and late fee income across the franchise states, and (iii) allowing for future flexibility and potential income generation through various other programs (e.g., co-branded MasterCard(R) and VISA credit cards). The Company is considering forming a special purpose credit card bank to issue proprietary credit cards on behalf of the Company's various chains. The Company expects that a credit card bank would create efficiencies and cost savings, and enhance finance charge revenue. CUSTOMER SERVICE The Company believes that personal customer attention builds loyalty and that the Company's sales associates provide a level of customer service superior to its competitors. Each store is staffed with knowledgeable, friendly sales associates skilled in salesmanship and customer service. Sales associates maintain customer records, send personalized thank-you notes, and communicate personally with customers to advise them of special promotions and new merchandise offerings. Superior customer service is encouraged through the development and monitoring of sales and productivity goals and through specific award and recognition programs. The Company also builds customer loyalty through various amenities including special parking spaces for expectant mothers, infant changing tables in customer restrooms on each floor of a store, in-store cooking and decorating classes and fashion shows. ASSOCIATES On March 31, 1997, the Company employed approximately 27,000 associates, of which approximately 13,000 were employed on a part-time basis. The Company hires additional temporary employees and increases the hours of part-time employees during seasonal peak selling periods. Approximately 20 associates in a Younkers distribution center are covered by collective bargaining agreements. The Company considers its relations with its employees to be generally good. PROPERTIES Proffitt's leases a 44,000 square foot administrative office and owns an 85,000 square foot distribution center, both of which are located in metropolitan Knoxville, Tennessee. McRae's owns a 272,000 square foot administrative office building and a 164,000 square foot distribution center in Jackson, Mississippi. The Jackson facility also serves as the Company's operations center and houses central support functions for all of the divisions including certain accounting functions, inventory control, management information systems, credit administration and distribution management. 48 51 Younkers leases a 127,000 square foot administrative office located in Des Moines, Iowa. Younkers owns a 120,000 square foot distribution center and a 182,000 square foot distribution center in Ankeny, Iowa and Green Bay, Wisconsin, respectively. Parisian owns a 125,000 square foot administrative office building and a 125,000 square foot distribution facility, both of which are located in Birmingham, Alabama. The Birmingham office building also serves as the Company's administrative headquarters for various support areas for all of the divisions including the Proffitt's Merchandising Group, Finance and Treasury, Budgeting and Planning, Legal, and Human Resources. Herberger's owns a 58,000 square foot administrative office located in its St. Cloud, Minnesota store, and a 98,000 square foot distribution center located in Sartell, Minnesota. The Company operates 175 stores in 24 states with 16.2 million gross square feet and 13.3 million selling square feet. The Company owns 26 of its store locations and leases 149. Store leases generally require the Company to pay a base rent plus an amount based on a percentage of sales. Generally, the Company is responsible under its store leases for a portion of mall promotion and common area maintenance expenses and for certain utility, property tax and insurance expenses. COMPETITION The department store business is highly competitive. The Company's stores compete with national and regional department store chains. The Company also competes with local stores that carry similar categories of merchandise. The Company believes it has a competitive price structure and generally competes on the basis of pricing, quality, merchandise selection, availability of credit under its various proprietary credit card programs, customer service and amenities, and store design and locations. The Company's success also depends in part on its ability to anticipate and respond to changing merchandise trends and customer preferences and demands in a timely manner. See "Risk Factors -- Competition." LEGAL PROCEEDINGS The Company is involved in various legal proceedings arising from its normal business activities. Management believes that none of these legal proceedings will have a material adverse effect on the financial condition or results of operations of the Company. 49 52 MANAGEMENT The Company's directors and executive officers are as follows:
AGE AS OF MAY 15, NAME 1997 POSITION - ---- --------- -------- R. Brad Martin............................ 45 Chairman of the Board of Directors and Chief Executive Officer James A. Coggin........................... 54 President and Chief Operating Officer Julia A. Bentley.......................... 38 Senior Vice President of Investor Relations and Planning and Secretary Douglas E. Coltharp....................... 36 Executive Vice President and Chief Financial Officer Brian J. Martin........................... 40 Executive Vice President of Law and General Counsel Robert M. Mosco........................... 47 President and Chief Executive Officer of Proffitt's Merchandising Group Donald E. Wright.......................... 39 Senior Vice President of Finance and Accounting Dawn H. Robertson......................... 54 President and Chief Executive Officer of McRae's Toni E. Browning.......................... President and Chief Executive Officer of Proffitt's Division William D. Cappiello...................... 53 President and Chief Executive Officer of Parisian Frank E. Kulp, III........................ 53 President and Chief Executive Officer of Herberger's Mark Shulman.............................. President and Chief Executive Officer of Younkers Bernard E. Bernstein...................... 65 Director Edmond D. Cicala.......................... 71 Director Ronald de Waal............................ 44 Vice Chairman of the Board of Directors and Director Gerard K. Donnelly........................ 63 Director Donald F. Dunn............................ 71 Director W. Thomas Gould........................... 50 Director Michael S. Gross.......................... 35 Director Donald E. Hess............................ 48 Director G. David Hurd............................. 67 Director Richard D. McRae.......................... 75 Director C. Warren Neel............................ 58 Director Harwell W. Proffitt....................... 78 Director Marguerite W. Sallee...................... 50 Director Gerald Tsai, Jr........................... 67 Director
R. Brad Martin has served as a Director since 1984 and became Chairman of the Board in February 1987 and Chief Executive Officer in July 1989. Mr. Martin previously served as President from July 1989 until March 1994 and from September 1994 to March 1995. Mr. Martin serves on the Board of Directors of Delta Life Corporation, First Tennessee National Corporation, Harrah's Entertainment, Inc., and Pilot Corporation. Mr. Martin and Brian J. Martin are brothers. James A. Coggin was named President and Chief Operating Officer of the Company in March 1995 and served as Executive Vice President and Chief Administrative Officer of the Company from March 1994 to 50 53 March 1995. From June 1978 to March 1994, Mr. Coggin served as Executive Vice President and Chief Administrative Officer of McRae's. Mr. Coggin joined McRae's in 1971. Julia A. Bentley was named Senior Vice President of Investor Relations and Planning and Secretary of the Company in March 1994. From January 1993 to March 1994, Ms. Bentley served as Senior Vice President of Finance, Chief Financial Officer, Secretary and Treasurer, and from March 1989 to January 1993, she served as Vice President, Chief Financial Officer, Secretary, and Treasurer. Ms. Bentley is a Certified Public Accountant and joined the Company in 1987 after several years with an international public accounting firm. Douglas E. Coltharp joined the Company in November 1996 as Executive Vice President and Chief Financial Officer. Mr. Coltharp was with NationsBank from 1987 to November 1996, where he held a variety of senior positions including his most recent post of Senior Vice President of Corporate Finance. Brian J. Martin was named Executive Vice President of Law and General Counsel in April 1997. He served as Senior Vice President of Human Resources and Law and General Counsel from August 1995 to April 1997 and served as Senior Vice President and General Counsel of the Company from March 1995 to August 1995. He joined the Company in 1994 as Vice President and General Counsel. From June 1990 to May 1994, Mr. Martin was affiliated with the Indianapolis, Indiana law firm of Barnes & Thornburg. Mr. Martin served as Assistant Solicitor General of the United States between January 1988 and June 1990. Mr. Martin and R. Brad Martin are brothers. Robert M. Mosco was promoted to President and Chief Executive Officer of Proffitt's Merchandising Group in October 1996. Between February 1996 and October 1996, Mr. Mosco served as President and Chief Executive Officer of Younkers. Mr. Mosco served as President and Chief Operating Officer of Younkers between 1992 and January 1996. From 1989 to 1992, he held the position of Executive Vice President of Merchandising and Marketing for Younkers. Mr. Mosco joined Younkers in 1987. Mr. Mosco began his retail career with Gimbel's and later worked for Rich's Department Stores. Donald E. Wright joined the Company in April 1997 as Senior Vice President of Finance and Accounting. Mr. Wright is a Certified Public Accountant and was a Partner with the international accounting firm of Coopers & Lybrand. He joined Coopers & Lybrand in 1979. Dawn H. Robertson joined the Company in May 1997 as President and Chief Executive Officer of McRae's. Ms. Robertson previously worked for the Kaufmann's division of May Department Stores, where she most recently held the post of Senior Vice President and General Merchandise Manager. Ms. Robertson joined Kaufmann's in 1985, and prior to that, she held various merchandising positions with the G. Fox division of May and with R.H. Macy. Toni E. Browning was appointed President and Chief Executive Officer of the Proffitt's department stores in May 1997. Ms. Browning was most recently Senior Vice President of Stores for Younkers. She has held previous department store and merchandising positions with Dayton Hudson Corporation and with both the Lazarus and Blocks Divisions of Federated/Allied Stores. William D. Cappiello joined the Company in April 1997 as President and Chief Executive Officer of Parisian. Mr. Cappiello held a variety of management and executive positions in both merchandising and store areas with R.H. Macy & Co. between 1971 and April 1997. From June 1993 to April 1997, he served as President of Macy's West, Inc. and from August 1985 to May 1993, he was Director of Stores for Macy's West. Frank E. Kulp, III was named President and Chief Executive Officer of Herberger's in March 1997. Between November 1995 and March 1997, he was a Senior Vice President and General Merchandise Manager for Younkers. From 1987 to 1995, Mr. Kulp held the post of President and Chief Operating Officer of Lamonts, a department store chain headquartered in Bellevue, Washington. He held previous merchandising management positions with Donaldson's and Lazarus department stores. Lamonts filed a petition for reorganization under the Bankruptcy Code in January 1995. Mark Shulman joined the Company in May 1997 as President and Chief Executive Officer of the Younkers department stores. Prior to joining the Company, Mr. Shulman was Executive Vice President and 51 54 Chief Merchandising Officer of Stage Stores, Inc. since 1994. He was previously the President of the Dress Division for Leslie Fay, Inc., held the posts of President and Chief Operating Officer of Bonjour, Inc., and served as President and Chief Executive Officer of both Henri Bendel and Ann Taylor Stores Corporation. Bernard E. Bernstein has served as a director since 1987. Mr. Bernstein is a partner in the Knoxville, Tennessee law firm of Bernstein, Stair & McAdams. Edmond D. Cicala has served as a director since 1987. Mr. Cicala is President of Edmond Enterprises, Inc., and is the retired Chairman and Chief Executive Officer of the Goldsmith's Division of Federated Department Stores. Mr. Cicala is a Director of National Commerce Bancorporation, Memphis, Tennessee and Evans, Inc. Ronald de Waal has served as a director since 1985. He was elected Vice Chairman of the Board of Directors in April 1997. Mr. de Waal is Chairman of We International, B.V., a Netherlands corporation, which operates more than 250 fashion specialty stores in Belgium, the Netherlands, Switzerland, and Germany. Gerard K. Donnelly has served as a director since 1996. Mr. Donnelly has been Chairman of Princeton Middletown Partners, Inc., a consulting company, since February 1994. From 1990 to January 1994, Mr. Donnelly was President, Chief Executive Officer, and director of H. C. Prange Company, a specialty retailer. H. C. Prange filed a petition for reorganization under the Bankruptcy Code in September 1994. Donald F. Dunn has served as a director since 1996. Mr. Dunn is a retired Senior Vice President and director of Allied Stores Corporation. Mr. Dunn serves on the Board of Directors of Tech Data Corporation. W. Thomas Gould served as Vice Chairman of the Company and Chairman of Younkers from February 1996 to April 1997. Mr. Gould served with Younkers as Chief Executive Officer from 1987 to January 1996. Mr. Gould will retire as a director as of the Company's annual meeting of shareholders scheduled for June 1997. Michael S. Gross has served as a director since 1994. Mr. Gross is Vice President of Apollo Capital Management, Inc., the general partner of Apollo Advisors, L.P. Mr. Gross serves on the Board of Directors of Converse, Inc., Florsheim Group, Inc., Furniture Brands International, Inc., Allied Waste, Inc. and Urohealth, Inc. Donald E. Hess in October 1996 became a Director and was named Chairman of Parisian in April 1997. He served as President and Chief Executive Officer of Parisian from October 1996 to April 1997. Mr. Hess served as President and Chief Executive Officer between 1986 and October 1996. He serves on the Board of Directors of AmSouth Bancorporation. G. David Hurd has served as a director since 1996. Mr. Hurd served as Chairman and Chief Executive Officer of The Principal Financial Group, an insurance and financial services company, from 1989 until his retirement in December 1994. Mr. Hurd is the Emeritus Chairman of The Principal Financial Group. Richard D. McRae has served as a director since 1994. Mr. McRae is the former Chairman, President, and Chief Executive Officer of McRae's. Mr. McRae will retire as a director as of the Company's annual meeting of shareholders scheduled for June 1997. C. Warren Neel has served as a director since 1987. Dr. Neel is Dean of the College of Business Administration at the University of Tennessee, Knoxville. Dr. Neel serves on the Board of Directors of American Healthcorp, Inc., Clayton Homes, Inc., O'Charley's, Inc., and The Promus Companies, Inc. Harwell W. Proffitt has served as a director since 1971. Mr. Proffitt is the former Chairman, President, and Chief Executive Officer of Proffitt's. Mr. Proffitt will retire as a director as of the Company's annual meeting of shareholders scheduled for June 1997. Marguerite W. Sallee has served as a director since 1996. Ms. Sallee is President and Chief Executive Officer of Corporate Family Solutions. Ms. Sallee serves on the Board of Directors of MagneTek, Inc., and NationsBank of Tennessee and Kentucky. 52 55 Gerald Tsai, Jr. has served as a director since 1993. Mr. Tsai is Chairman, President, and Chief Executive Officer of Delta Life Corporation. Mr. Tsai serves on the Board of Directors of Meditrust, Rite Aid Corporation, Sequa Corporation, Triarc Companies, Inc., Delta Life and Annuity Company and Zenith National Insurance Corporation. The business association of the persons as shown has been continued for more than five years unless otherwise noted. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth, for the years ended February 1, 1997, February 3, 1996, and January 28, 1995, the cash compensation paid by the Company, as well as other compensation paid or accrued for these years to the Company's Chief Executive Officer and to each of the other four highest compensated executive officers ("Named Officers").
LONG-TERM COMPENSATION AWARDS --------------------------- SECURITIES ANNUAL COMPENSATION UNDERLYING ------------------------------------------- RESTRICTED OPTIONS NAME & PRINCIPAL OTHER ANNUAL STOCK AWARD(S) GRANTED ALL OTHER POSITION YEAR SALARY ($) BONUS ($)(A) COMPENSATION ($)(B) (#) COMPENSATION($) ---------------- ---- ---------- ------------ --------------- -------------- ---------- ---------------- R. Brad Martin............ 1996 $536,031 $609,382(c) $27,700(d) $683,321(e)(f) $ 7,800(g) Chairman of the Board 1995 445,833 233,250(h) 27,700(d) 312,000(i) 20,000 7,140(g) and Chief Executive 1994 383,334 293,438(i) 27,700(d) 95,000 7,140(g) Officer James A Coggin(k)......... 1996 450,000 376,450(c) 373,750(e)(f) President and Chief 1995 358,333 108,600(h) 20,000 Operating Officer 1994 270,833 208,125(j) 60,000 Robert M. Mosco(k)........ 1996 450,000 229,167 160,430(e) 60,000 37,500(l) President and Chief 1995 Executive Officer 1994 of Proffitt's Merchandising Group W. Thomas Gould(k)........ 1996 750,000 372,799(m) 100,000 Former Vice Chairman 1995 of Board and 1994 Chairman the Younkers Division Tom R. Amerman(k)......... 1996 300,000 87,750 25,000 Former Executive 1995 Vice President 1994 of Special Projects
- --------------- (a) Amounts awarded under the Incentive Compensation Plan for the respective fiscal years, even if deferred. (b) As of February 1, 1997, the number and value (based on the $36.25 closing price of Common Stock as of January 31, 1997) of shares of restricted stock held by each of the Named Officers were as follows: Mr. Martin, 35,000 shares ($1,268,750); Mr. Coggin, 20,000 shares ($725,000); and Mr. Mosco, 12,500 shares ($453,125). Messrs. Gould and Amerman had no restricted stock holdings at that date. (c) Includes stock grants to Messrs. Martin and Coggin of 5,000 and 2,500 shares of the Company's Common Stock, respectively. (d) In February 1989, the Company entered into a compensation agreement with R. Brad Martin which provides for a $500,000 interest-free loan due January 31, 1999 or upon Mr. Martin's termination of 53 56 employment with the Company. Other Annual Compensation represents imputed interest on that interest-free loan. (e) In 1996, Messrs. Martin, Coggin, and Mosco were granted 25,000, 15,000, and 12,500 shares of Company Common Stock under a Restricted Stock Grant Agreement under the Company's 1994 Long-Term Incentive Plan. Restrictions shall lapse as a function of the Company achieving certain performance goals. Under the Plan, shares will be earned ("Earned Shares") on the basis of achieving these goals for 1996, 1997, and 1998. Restrictions will be removed from 25% of such Earned Shares at the time they are earned, and restrictions shall be removed from an additional 25% of such Earned Shares at the end of each of the following three years. As of February 1, 1997, 8,333, 5,000, and 4,167 shares were Earned Shares for Messrs. Martin, Coggin, and Mosco, respectively, and 2,083, 1,250, and 1,042 shares were vested for Messrs. Martin, Coggin, and Mosco, respectively. (f) Includes restricted stock awards of 10,000 and 5,000 shares of the Company's Common Stock for Messrs. Martin and Coggin, respectively, which were granted at the market price of $36.25 on the January 31, 1997 date of grant (valued at $362,500 and $181,250 for Messrs. Martin and Coggin, respectively). The awards will fully vest one year from the date of grant. (g) Economic benefit of split dollar life insurance policy. (h) Includes stock grants to Messrs. Martin and Coggin of 5,000 and 1,500 shares of the Company's Common Stock, respectively, which were granted at the market price of $32.25 on the March 21, 1996 date of grant (valued at $161,250 and $48,375 for Messrs. Martin and Coggin, respectively). (i) Represents a restricted stock award of 13,000 shares of the Company's Common Stock which was granted at the market price of $24.00 on the February 12, 1996 date of grant. The award fully vested one year from the date of grant. (j) Includes stock grants to Messrs. Martin and Coggin of 5,000 and 2,500 shares of the Company's Common Stock, respectively, which were granted at the market price of $21.50 on the February 6, 1995 date of grant (valued at $107,500 and $53,750 for Messrs. Martin and Coggin, respectively). (k) The hire date for Mr. Coggin was April 1, 1994 and for Messrs. Amerman, Gould, and Mosco was February 3, 1996. Mr. Amerman resigned effective February 7, 1997. Mr. Gould terminated his employment effective April 1, 1997. See "-- Mr. Gould's Employment Agreement." (l) One-time relocation bonus. (m) Reimbursement payment of excise, federal, and Medicare taxes. EMPLOYMENT CONTRACTS All of the Named Officers and certain other officers have employment agreements with the Company. All agreements fix the Named Officers minimum base compensation for the fiscal year and provide for participation by such officers in employment benefit plans as the Company may adopt. The agreements for Messrs. Martin, Coggin, and Mosco expire on May 9, 2002, October 11, 1999, and February 5, 2000, respectively. Mr. Amerman resigned on February 7, 1997, and his agreement expired on that date. For terms of Mr. Gould's employment, see "-- Mr. Gould's Employment Agreement." Under the terms of each agreement, each Named Officer (excluding Mr. Gould) is entitled to receive his base salary for the remainder of his employment period in the event he is terminated without cause. If the termination is involuntary and due to a change in control or a potential change in control, he is entitled to receive his base salary then in effect for the greater of the remaining term of his agreement or twenty-four months. Annual base salaries currently in effect are as follows: Messrs. Martin, $625,000; Coggin, $510,000; and Mosco, $500,000. A "Change in Control" is defined as: (i) the acquisition of 25% or more of the combined voting power of the Company's outstanding securities, (ii) a tender offer, merger, sale of assets, or other business combination which results in the transfer of a majority of the combined voting power of the Company or any successor entity, or (iii) during any two consecutive year period, the failure to elect a majority of the individuals constituting the Board of Directors of the Company prior to the commencement of such period, unless the election or nomination of any replacement Directors was approved by vote of at least two-thirds of the Directors of the Company then still in office who were Directors of the Company at the beginning of such period. A "Potential Change in Control" is defined as: (i) the approval by the shareholders of the Company of an agreement which, if consummated, will result in a change of control or (ii) the acquisition of 5% or more of 54 57 the outstanding voting securities of the Company and the adoption by the Company's Directors of a resolution to the effect that a potential change in control of the Company has occurred. The Company also entered into an employment agreement with Robert M. Mosco in conjunction with the Company's February 3, 1996 business combination with Younkers. Under the terms of that Employment Agreement, Mr. Mosco had the right to terminate his employment with the Company in the 13th month after the business combination. In such event, he would have received a lump sum severance payment in an amount equal to (i) salary through the date of termination and bonus for the then-current year, (ii) three times Mr. Mosco's highest annual salary in effect during the 12-month period prior to termination and three times Mr. Mosco's average bonus in respect of the three immediately preceding fiscal years, (iii) any unvested benefit under Younkers' defined benefit pension plan, and (iv) any unvested employer contributions under Younkers' defined contribution plan. In connection with Mr. Mosco's entering into a new Employment Contract that expires on February 5, 2000, Mr. Mosco waived his right to terminate employment and receive such compensation. In connection with that waiver, the Company paid Mr. Mosco $1.1 million on February 3, 1997. MR. GOULD'S EMPLOYMENT AGREEMENT The Company entered into the employment agreement with Mr. Gould in conjunction with the Company's February 3, 1996 acquisition of Younkers. February 3, 1996 was the effective date of the agreement ("Effective Date"). Mr. Gould's employment agreement, as amended ("Employment Agreement") has a five year term and provides that Mr. Gould will be paid a minimum annual base salary of $750,000. Mr. Gould's Employment Agreement provides that each of the Company and Mr. Gould may terminate Mr. Gould's Employment Agreement prior to its expiration upon thirty days prior written notice; provided, however, that such notice may not be provided for at least one year from the Effective Date, and provided further that Mr. Gould's payments thereunder are not terminated by virtue of his notice. Mr. Gould terminated his employment with the Company effective April 1, 1997. Under the terms of the Employment Agreement, the Company will continue to pay Mr. Gould his annual salary and continue to provide Mr. Gould with medical and life insurance coverage during the remaining term of the Employment Agreement. In the event Mr. Gould's payments are subject to an excise tax under Section 4999 of the Internal Revenue Code, he will receive a reimbursement payment to offset such tax. STOCK OPTIONS The following table contains information concerning the grant of stock options under the Proffitt's, Inc. 1994 Long-Term Incentive Plan ("Plan") to the Named Officers as of fiscal year end. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ----------------------------------------------------- POTENTIAL REALIZABLE VALUE % OF AT ASSUMED ANNUAL RATES TOTAL OPTIONS OF STOCK PRICE APPRECIATION OPTIONS GRANTED TO EXERCISE OR FOR OPTION TERM(C) GRANTED EMPLOYEES BASE PRICE EXPIRATION --------------------------- NAME (#)(A) IN FISCAL YEAR ($/SHARE)(B) DATE 5% ($) 10% ($) - ---- ------- -------------- ------------ ---------- ------------ ------------ R. Brad Martin.......... -- -- -- -- -- -- James A. Coggin......... -- -- -- -- -- -- Robert M. Mosco......... 50,000(d) 10.2 $24.50 2/5/06 $ 770,396 $1,952,335 10,000(d) 2.0 39.75 10/28/06 249,986 633,513 W. Thomas Gould......... 100,000(d) 20.4 24.50 4/1/99(e) 1,540,792 3,904,669 Tom R. Amerman.......... 25,000(f) 5.1 24.50 5/8/97(g) 385,198 976,167
- --------------- (a) Under the terms of the Plan, the Stock Option Committee retains discretion, subject to Plan limits, to modify the terms of outstanding options and to reprice the options. 55 58 (b) All options were granted at the market closing price on the date of grant. No incentive stock options were granted. The exercise price and tax withholding obligations related to exercise may be paid by delivery of already owned shares, subject to certain conditions. (c) Potential gains are reported net of the option exercise price but before taxes associated with exercise. These amounts represent certain assumed rates of appreciation only. Actual gains, if any, on stock option exercises are dependent on the future performance of the Common Stock of the Company and overall stock conditions, as well as the optionholder's continued employment through the vesting period. The amounts reflected in this table may not necessarily be achieved. (d) Options are exercisable in cumulative one-fifth installments commencing six months from the date of grant (with each subsequent installment vesting on the anniversary date of grant) with full vesting occurring on the fourth anniversary of the date of grant. (e) Mr. Gould resigned April 1, 1997. Under the terms of his Employment Agreement, all options fully vest upon termination of employment, and he has two years from the termination date to exercise the vested portion of these options. (f) Options are exercisable in cumulative one-third installments commencing six months from the date of grant (with each subsequent installment vesting on the anniversary date of grant) with full vesting occurring on the second anniversary of the date of grant. (g) Mr. Amerman resigned on February 7, 1997, and under terms of the Plan, he had 90 days from that date to exercise the vested portion of these options. OPTION EXERCISES AND HOLDINGS The following table sets forth information with respect to the Named Officers concerning the exercise of options during 1996 and unexercised options held at fiscal year end. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR END AND FISCAL YEAR-END OPTION VALUES
UNEXERCISED VALUE OF UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS AT FISCAL YEAR END (#) FISCAL YEAR END ($)(A) SHARES ------------------- ----------------------- ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE - ---- ------------ ------------ ------------------- ----------------------- R. Brad Martin........ 0 $ 0 150,000/70,000 $1,870,000/$820,000 James A. Coggin....... 0 0 44,000/36,000 510,000/412,500 Robert M. Mosco....... 0 0 89,106/50,000 2,046,108/470,000 W. Thomas Gould....... 127,500 3,744,215 185,824/80,000 4,349,520/940,000 Tom R. Amerman........ 65,324 993,847 0/16,667 0/195,837 ------- ---------- ---------------- -------------------
- --------------- (a) Represents the difference between the closing price of the Company's Common Stock on January 31, 1997 and the exercise price of the options. CERTAIN TRANSACTIONS Director Michael S. Gross is one of the founding principals of Apollo Advisors, L.P., the managing general partner of Apollo Investment Fund, L.P., the general partner of Apollo Specialty Retail Partners, L.P. ("Apollo Specialty"), the holder of the Company's Series A Preferred Stock, which was converted into Common Stock in June 1996. The Company paid Apollo Specialty $0.8 million in regular dividends and a one-time $3.0 million payment for the early conversion of the Preferred Stock for the fiscal year ended February 1, 1997. Bernard E. Bernstein, Chairman of the Human Resources/Compensation Committee, is a partner in Bernstein, Stair & McAdams, which serves, on occasion, as legal counsel for the Company. 56 59 In February 1989, the Company made a $500,000 unsecured, interest-free loan to R. Brad Martin as a supplement to his base pay. Under Mr. Martin's new employment contract, this loan will be forgiven over a five-year period provided that he remains employed by the Company. In February 1997 the Company paid $1.1 million to Robert M. Mosco in connection with his waiver of his right to terminate an employment agreement and receive compensation provided for under such agreement. Mr. Mosco entered into a new Employment Contract at the same time. See "Executive Compensation -- Employment Contracts." 57 60 PRINCIPAL SHAREHOLDERS Listed in the following table are the number of shares owned by each Director, the executive officers named in the Summary Compensation Table above, and all Directors and officers of the Company as a group as of April 25, 1997. The table also includes the beneficial owners as of April 25, 1997 of more than 5% of the Company's outstanding Common Stock who are known to the Company.
NAME OF BENEFICIAL OWNER TOTAL SHARES PERCENTAGE OF (AND ADDRESS IF BENEFICIAL BENEFICIALLY COMMON STOCK OWNERSHIP EXCEEDS 5%) TITLE OWNED(A) OWNERSHIP - --------------------------------- ----- ------------ ------------- R. Brad Martin................... Chairman of the Board and Chief 1,327,423(b) 4.67% Executive Officer James A. Coggin.................. President and Chief Operating 85,129 * Officer Robert M. Mosco.................. President and Chief Executive 131,527(c) * Officer of Proffitt's Merchandising Group W. Thomas Gould.................. Vice Chairman and Chairman of 315,456(d) 1.11 Younkers Tom R. Amerman................... Executive Vice President of 16,886(e) * Special Projects Bernard E. Bernstein............. Director 16,401(f) * Edmond D. Cicala................. Director 9,589 * Ronald de Waal................... Vice Chairman of the Board and 1,250,713 4.43 Director Gerard K. Donnelly............... Director 5,049 * Donald F. Dunn................... Director 8,950 * Michael S. Gross................. Director 2,200(g) * Donald E. Hess................... Director 407,664(h) 1.44 G. David Hurd.................... Director 6,843 * Richard D. McRae................. Director C. Warren Neel................... Director 7,450 * Harwell W. Proffitt.............. Director Marguerite W. Sallee............. Director 2,200 * Gerald Tsai, Jr.................. Director 5,200 * Fidelity Management and Research Corporation.................... 1,698,206(i) 6.02 82 Devonshire Street Boston, Massachusetts Norwest Bank Minnesota, as 2,913,716(j) 10.32 trustee........................ Investors Building 733 Marquette Minneapolis, MN All Directors and Officers as a group (24 persons)............. 3,803,906 13.15
- --------------- * Owns less than 1% of the total outstanding Common Stock of the Company. (a) Includes shares that the following persons have a right to acquire within sixty days after April 25, 1997 through the exercise of stock options: Bernstein (3,200), Cicala (2,200), de Waal (2,200), Donnelly (2,070), Dunn (2,070), Gross (1,200), Hurd (2,070), Martin (173,000), Neel (3,200), Sallee (200), Tsai (2,200), Amerman (8,333), Coggin (58,000), Gould (215,824), and Mosco (101,106). (b) Includes: (i) 2,000 shares held by Mr. Martin for his children, (ii) 1,900 shares owned by RBM Venture Company, a company of which Mr. Martin is sole shareholder, (iii) 100,000 shares held by Mr. Martin as trustee or co-trustee for his children, (iv) 4,774 shares owned by the R. Brad and Jean L. Martin Family Foundation, (v) 10,000 shares of restricted stock which will vest on January 31, 1998, and (vi) 25,000 58 61 shares of restricted stock, the restrictions on which will lapse based on performance measurements and length of service. (c) Includes 3,158 shares held in a Company profit sharing and savings plan for the account of Mr. Mosco. Excludes 16,282 shares reserved by the Company for issuance to Mr. Mosco with respect to a deferred compensation arrangement. (d) Includes 3,577 shares owned by Mr. Gould's wife as to which he disclaims beneficial ownership. Also includes 18,033 shares held in a Company profit sharing and savings plan for the account of Mr. Gould. Excludes 84,735 shares reserved by the Company for issuance to Mr. Gould with respect to a deferred compensation arrangement. Mr. Gould terminated his employment with the Company effective April 1, 1997. (e) Mr. Amerman resigned on February 7, 1997. He has 90 days from that date to exercise the vested portion of his stock options, which total 8,333 shares. (f) Includes 3,000 shares owned by the Bernard E. Bernstein Defined Benefit Pension Plan. (g) Does not include 1,211,801 shares held by Apollo Specialty. Mr. Gross is one of the founding principals of Apollo Advisors, L.P., the managing general partner of Apollo Investment Fund, L.P., the general partner of Apollo Specialty. Mr. Gross disclaims beneficial ownership of all securities held by Apollo Specialty. (h) Includes: (i) 180,908 shares owned directly by Mr. Hess, (ii) 174,222 shares held by Mr. Hess as trustee or co-trustee for his children, and (iii) 52,534 shares held by him as trustee for the children of his sister, Jo Ann H. Morrison. Does not include: (i) 2,290 shares owned directly by his wife, (ii) 7,330 shares held by his wife as co-trustee for one of their children, and (iii) 88,058 shares held by another individual as trustee for Mr. Hess' children, with respect to which shares Mr. Hess disclaims beneficial ownership. (i) Based solely on information provided by the beneficial owner. (j) Represents shares held in trust for the G.R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan. 59 62 DESCRIPTION OF OTHER INDEBTEDNESS The following summary of certain agreements and instruments of the Company does not purport to be complete and is qualified in its entirety by reference to the various agreements and instruments described, copies of certain of which have been included as exhibits to various filings by the Company with the Commission. See "Available Information." BANK CREDIT FACILITIES Credit Facility. The Company has entered into the Credit Facility with the lenders named therein (the "Lenders") and NationsBank, as agent for the Lenders (the "Agent"). Capitalized terms that are used but not defined in this section have the meanings given such terms in the Credit Facility. The Credit Facility provides for a revolving credit facility (the "Revolving Credit Facility") of up to $275.0 million (the "Total Revolving Credit Commitment"), which includes subfacilities of up to $15.0 million for Letters of Credit and up to $20.0 million for short-term borrowings ("Swing Line Loans"). The total amount of (i) Revolving Credit Loans, (ii) Swing Line Loans, (iii) undrawn amounts of Letters of Credit and (iv) reimbursement obligations in respect of Letters of Credit, may not exceed the lesser of the Total Revolving Credit Commitment and the Borrowing Base. The "Borrowing Base" is defined as 55.0% of the difference between (x) Eligible Inventory and (y) subject to certain qualifications, the face amount of all letters of credit issued in connection with the purchase of inventory by the Company. As of February 1, 1997 and May 30, 1997, the Borrowing Base was equal to approximately $246.0 million and approximately $278.5 million, respectively. The Total Revolving Credit Commitment expires on October 11, 1999. In addition, the Credit Facility requires that the Total Revolving Credit Commitment be reduced upon the receipt of the net proceeds from one or more of certain non-ordinary course asset sales. Revolving Credit Loans bear interest at a variable rate equal, at the option of the Company, to (i) the Eurodollar Rate plus the Applicable Interest Addition or (ii) the Base Rate. Swing Line Loans bear interest at a rate agreed to by the Company and NationsBank from time to time. Under the terms of the Credit Facility, the Applicable Interest Addition is adjusted based on the financial performance of the Company. The Credit Facility contains a number of covenants, including, among others, covenants restricting the Company and its subsidiaries with respect to the incurrence of indebtedness (including contingent obligations); the creation of liens; the sale, lease, transfer or other disposition of assets; the making of certain investments and loans; the making of acquisitions; the consummation of certain transactions such as sales of substantial assets, mergers or consolidations; transactions with affiliates; the making of capital expenditures; the taking or failing to take certain actions with respect to employee pension benefit plans; changing the Company's fiscal year; winding up, liquidating or dissolving; and entering into agreements which limit the ability to create liens. In addition, the Credit Facility contains affirmative covenants including, among others, requirements regarding compliance with laws; preservation of corporate existence; maintenance of insurance; payment of taxes and other obligations; maintenance of properties; environmental compliance; the keeping of books and records; the maintenance of intellectual property; the continuance in the same or complementary lines of business; and the delivery of financial and other information to the Agent and the Lenders. The Company and its subsidiaries are also required to comply with certain financial tests and maintain certain financial ratios. Certain of these financial tests and ratios include: (i) maintaining a minimum Consolidated Net Worth; (ii) preventing the ratio of Consolidated Senior Indebtedness to Consolidated Capitalization from exceeding agreed upon ratios set forth in the Credit Facility; (iii) maintaining a minimum Consolidated Fixed Charge Ratio; and (iv) preventing the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA from exceeding agreed upon ratios set forth in the Credit Facility. The Credit Facility contains customary events of default. An event of default under the Credit Facility would allow the lenders thereunder to accelerate or, in certain cases, would automatically cause the acceleration of, the maturity of the indebtedness under the Credit Facility and would restrict the ability of the Company to meet its obligations with respect to the Exchange Notes. 60 63 The payment of principal and interest on indebtedness under the Credit Facility is guaranteed on a senior basis by each of the Company's existing and future, direct and indirect subsidiaries (except for Securitization Subsidiaries). Amended Credit Facility. The Company has engaged NationsBank and NCMI in connection with the Company's efforts to amend its existing $275 million Credit Facility. The proposed amendment seeks, among other things, to increase the facility to up to $400 million, extend the termination to five years from the closing of the amended credit facility and otherwise provide greater flexibility for the Company. In addition, the amended credit facility, when compared with the Credit Facility, is expected to have (i) more favorable interest rates for the Company and (ii) fewer covenants and more favorable covenant terms for the Company. In all other material respects, the amended credit facility is expected to be substantially similar to the Credit Facility. The Company also expects that the payment of principal and interest on indebtedness under the amended credit facility will continue to be guaranteed on a senior basis by each of the Company's existing and future, direct and indirect subsidiaries (except for securitization subsidiaries, banking subsidiaries and foreign subsidiaries). Although there is no assurance that the Credit Facility will be amended, that the amended credit facility will be successfully syndicated or as to the final terms of the amended credit facility, it is currently anticipated that such amendment will be completed during or shortly after the Exchange Offer. OTHER SENIOR INDEBTEDNESS In addition to the senior indebtedness of the Company under the Indenture and as described above under "-- Bank Credit Facilities," after giving effect to the issuance of the Series A Notes and the application of the net proceeds therefrom, the Company and its subsidiaries have an aggregate of approximately $60.3 million of outstanding senior indebtedness (which includes approximately $10.7 million of capitalized lease obligations and approximately $49.6 million of secured indebtedness) under various agreements and instruments having interest rates ranging from 3.6% to 9.0% per annum (or from 8.63% to 12.05% per annum for the implicit interest rates of such capitalized lease obligations) and maturities ranging from September 1, 1998 to April 1, 2007. The issuance of the Exchange Notes in the Exchange Offer will not change the Company's total indebtedness or its total senior indebtedness. See "Use of Proceeds." SUBORDINATED INDEBTEDNESS Senior Subordinated Notes. Pursuant to the Amended and Restated Indenture dated as of September 12, 1996 (the "Senior Subordinated Indenture") among the Company, Parisian and AmSouth Bank of Alabama, Birmingham, Alabama, as trustee, the Company guaranteed on a senior subordinated basis the Senior Subordinated Notes previously issued by the Company's wholly-owned subsidiary, Parisian. Capitalized terms that are used but not defined in this section have the meanings given such terms in the Senior Subordinated Indenture. An aggregate of approximately $93 million principal amount of the Senior Subordinated Notes were outstanding as of June 9, 1997 and accrue interest at a fixed rate of 9 7/8% per annum. The Senior Subordinated Notes mature and become payable on July 15, 2003. On or after July 15, 1998, Parisian may, at its option, redeem all or any part of the Senior Subordinated Notes at a premium equal to 104.938% in 1998 and 102.469% in 1999, in each case of the principal amount thereof, together with accrued and unpaid interest. Beginning in the year 2000 and thereafter, the Senior Subordinated Notes are redeemable at 100% of the principal amount thereof, together with accrued and unpaid interest. In addition, if a Change of Control Triggering Event occurs at any time, each holder of the Senior Subordinated Notes has the right to require Parisian to repurchase such holder's Senior Subordinated Notes in whole or in part at 101% of the principal amount thereof, together with accrued and unpaid interest. The Senior Subordinated Indenture contains customary covenants which are applicable to the Company and its subsidiaries (including Parisian) and are similar to the covenants contained in the Indenture. However, certain of these covenants are more restrictive than those contained in the Indenture. In addition, the Senior 61 64 Subordinated Indenture contains customary events of default. An event of default under the Senior Subordinated Indenture would allow the holders of the Senior Subordinated Notes to accelerate or, in certain cases, would automatically cause the acceleration of, the maturity of the Senior Subordinated Notes and would cause an event of default under the Indenture. The guaranty by the Company under the Senior Subordinated Indenture is a senior subordinated obligation of the Company and is subordinate in right of payment to all Parent Senior Indebtedness of the Company, including the Exchange Notes. The Senior Subordinated Notes are also senior subordinated obligations of Parisian and are subordinate in right of payment to all Senior Indebtedness of Parisian, including the guaranty by Parisian of the Exchange Notes. Convertible Subordinated Debentures. The Company has issued $86.3 million of 4 3/4% Convertible Subordinated Debentures due 2003 (the "Convertible Debentures") under the Indenture dated as of October 6, 1993 (the "Convertible Debenture Indenture") between the Company and Union Planters National Bank, Memphis, Tennessee, as trustee. Capitalized terms that are used but not defined in this section have the meanings given such terms in the Convertible Debenture Indenture. The Convertible Debentures accrue interest at a fixed rate of 4 3/4% per annum and mature and become payable on November 1, 2003. The Company may, at its option, redeem all or any part of the Convertible Debentures at a premium equal to (i) 102.6369% in 1997, (ii) 102.1111% in 1998, (iii) 101.5833% in 1999, (iv) 101.0556% in 2000 and (v) 100.5278% in 2001, in each case of the principal amount thereof, together with accrued and unpaid interest. Beginning in the year 2002 and thereafter, the Convertible Debentures are redeemable at 100% of the principal amount thereof, together with accrued and unpaid interest. In addition, if a Change of Control occurs at any time, each holder of the Convertible Debentures has the right to require the Company to repurchase such holder's Convertible Debentures in whole or in part at 100% of the principal amount thereof, together with accrued and unpaid interest. The Convertible Debenture Indenture contains covenants which are, in most cases, less restrictive than the covenants contained in the Indenture. The Convertible Debenture Indenture also contains customary events of default. An event of default under the Convertible Debenture Indenture would allow the holders of the Convertible Debentures to accelerate or, in certain cases, would automatically cause the acceleration of, the maturity of the Convertible Debentures and would cause an event of default under the Indenture. The Convertible Debentures are subordinated obligations of the Company and are subordinate in right of payment to all Senior Indebtedness of the Company, including the Exchange Notes. In addition, on or before November 1, 2003, each holder of Convertible Debentures may, at its option and upon the terms set forth in the Convertible Debenture Indenture, convert its Convertible Debentures into shares of Common Stock. Junior Subordinated Debentures. As of May 3, 1997, the Company had outstanding approximately $14.6 million principal amounts of 7.5% Junior Subordinated Debentures due 2004 (the "Junior Debentures"). Capitalized terms that are used but not defined in this section have the meanings given such terms in the Junior Debentures. The Junior Debentures, which were issued at a discount, have a principal amount at maturity of $17.5 million and accrue interest at an effective rate of 11.0% per annum. The Junior Debentures mature and become payable on March 31, 2004. The Company may, at its option, prepay, without premium, all or any part of the Junior Debentures at any time, together with accrued and unpaid interest, although repayment of the Junior Debentures is restricted by the terms of other indebtedness of the Company. The Junior Debentures contain covenants which are, in most cases, less restrictive than the covenants contained in the Indenture. The Junior Debentures also contain customary events of default. An event of default under the Junior Debentures would allow the holders of the Junior Debentures to accelerate or, in certain cases, would automatically cause the acceleration of, the maturity of the Junior Debentures and would cause an event of default under the Indenture. The Junior Debentures are junior subordinated obligations of the Company and are subordinate in right of payment to all Senior Indebtedness of the Company, including the Exchange Notes. 62 65 RECEIVABLES SECURITIZATION FACILITIES Proffitt's Accounts Receivable Facility. NationsBank, N.A. ("NationsBank"), through Enterprise Funding Corporation ("Enterprise"), has provided the Company with the $300 million Proffitt's Accounts Receivable Facility for the securitization of certain trade accounts receivable (the "Receivables") originated by Proffitt's, McRae's, Herberger's and Parisian and sold to Proffitt's Credit Corporation ("PCC"), a wholly-owned, bankruptcy-remote, special purpose Accounts Receivable Subsidiary of the Company. McRae's acts as the servicer for the Receivables. The Proffitt's Accounts Receivable Facility expires in January 1998 and contains covenants, representations and warranties customary for such facilities. The Proffitt's Accounts Receivable Facility requires a portion of the Receivables' finance charges earned to be allocated to Enterprise, as purchaser of the receivables interests, sufficient to cover the yield on commercial paper utilized by Enterprise to finance the purchase of such interests, plus fees and expenses. As of May 30, 1997 and February 1, 1997, the weighted average interest rate of the commercial paper issued under the Proffitt's Accounts Receivables Facility plus the program fee was 6.0% and 5.8%, respectively. As of May 30, 1997 and February 1, 1997, the outstanding amount invested by Enterprise in the Receivables under the Proffitt's Accounts Receivable Facility was $219.5 million and $234.0 million, respectively. Younkers Master Trust Facility. In June 1995, the Younkers Master Trust originated by the Younkers Credit Corporation ("YCC"), a wholly-owned, bankruptcy-remote special purpose Accounts Receivable Subsidiary of the Company, issued to third parties a total of $75 million of asset-backed securities in two separate classes: (i) $67.0 million in aggregate principal amount of 6.43% Series 1995-1 Class A Certificates and (ii) $8.0 million in aggregate principal amount of 6.61% Series 1995-1 Class B Certificates. Concurrently therewith, the Younkers Master Trust issued to YCC $16.5 million in aggregate principal amount of Series 1995-1 Class C Certificates. YCC is required to maintain the principal amount of the Younkers receivables in the Trust in an amount not less than $91.5 million, subject to reduction in the event of principal repayments on the Series 1995-1 Class A and Class B Certificates. YCC may from time to time create other series of certificates that evidence undivided interests in the assets of the Younkers Master Trust. A percentage of finance charges and certain other amounts earned on the assets in the Younkers Master Trust are allocated to pay interest charges on the Series 1995-1 Class A and Class B Certificates. During the accumulation period (which is anticipated to begin in December 1999), a percentage of the principal repayments made on the assets in the Younkers Master Trust will be allocated to repay the $75.0 million principal amount of the Series 1995-1 Class A and Class B Certificates. Principal payments will be made on the Series 1995-1 Class A and Class B Certificates in June 2000, to the extent then available, subject to an earlier payment obligation resulting from certain defaults and breaches by YCC or the servicer or the failure to satisfy certain portfolio yield requirements or to generate sufficient eligible receivables. In July 1995, a second series was established under the Younkers Master Trust ("Series 1995-2 Certificates"). Under this Series 1995-2 program, Receivables Capital Corporation or certain other unaffiliated purchasers may from time to time purchase Series 1995-2 Certificates (Class A Certificates and Class B Certificates) in an aggregate amount of up to $50.0 million, which represent fractional undivided interests in the assets of the Younkers Master Trust. The sales of the Series 1995-2 Certificates are limited by the level of eligible receivables in the Younkers Master Trust in excess of the $91.5 million supporting the Series 1995-1 Certificates and a minimum ownership interest to be retained by the Company. The interest rate on the Series 1995-2 Certificates will be a variable rate based upon either commercial paper rates or Eurodollar rates over a fixed period. A percentage of finance charges and certain other amounts earned on the assets in the Younkers Master Trust will be allocated to pay interest charges on the Series 1995-2 Certificates. During the amortization period (which is anticipated to begin in June 1999), a percentage of the principal repayments made on the assets in the Younkers Master Trust will be allocated to repay the then outstanding principal amount of the Series 1995-2 Certificates. Principal payments will be made on the Class A and Class B Certificates beginning in June 2000, to the extent then available, subject to an earlier payment obligation resulting from certain defaults and breaches by YCC or the servicer, including certain cross defaults, or the failure to satisfy certain portfolio yield requirements or to generate sufficient receivables. As of April 28, 1997 and February 1, 1997, the weighted average interest rate of the Series 1995-2 Certificates was 6.0% and 5.9%, 63 66 respectively. As of April 28, 1997 and February 1, 1997, the outstanding amount invested in the Series 1995-2 Certificates was $5.0 million and $15.0, respectively. New Asset Securitization Facility. The Company has engaged NCMI to restructure and combine its existing accounts receivable securitization facilities into a new master trust, with a view to issuing approximately $200 million of investment grade securities having terms of up to five years secured by the Company's credit card receivables and related property, while continuing to provide the Company with the ability to sell a variable interest in proprietary credit card receivables to asset-backed commercial paper conduits. Although there is no assurance that a new accounts receivable securitization facility will be successfully established, or as to the final terms of such a facility, it is currently anticipated that such a facility will be established during Summer 1997. DESCRIPTION OF THE NOTES The Exchange Notes are substantially identical (including principal amount, interest rate, maturity and redemption rights) to the Series A Notes for which they may be exchanged pursuant to this offer, except that (i) the offering and sale of the Exchange Notes will have been registered under the Securities Act, and (ii) holders of Exchange Notes will not be entitled to certain rights of holders of the Series A Notes under the Registration Rights Agreement. The Exchange Notes will be issued under the Indenture among the Company, the Guarantors and the Trustee. For purposes of this section, references to the "Company" mean only Proffitt's, Inc. and not any of its subsidiaries. The following summary of the material provisions of the Indenture does not purport to be complete and is subject to, and qualified by, reference to the provisions of the Indenture, including the definitions of certain terms contained therein and those terms made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended, as in effect on the date of the Indenture. The definition of certain terms used in the following summary are set forth below under "-- Certain Definitions." GENERAL The Notes will be general unsecured senior obligations of the Company limited to $125,000,000 aggregate principal amount. The Notes will rank pari passu in right of payment with all unsubordinated indebtedness of the Company and will be senior in right of payment to all subordinated indebtedness of the Company. The Notes will be issued only in fully registered form without coupons, in denominations of $1,000 and integral multiples thereof. Principal of, premium, if any, and interest on the Notes are payable, and the Notes are transferable, at the office or agency of the Company in the City of New York maintained for such purposes (which initially will be the corporate trust office of the Trustee); provided, however, that payment of interest may be made at the option of the Company by check mailed to the Person entitled thereto as shown on the security register. No service charge will be made for any registration of transfer, exchange or redemption of the Notes, except in certain circumstances for any tax or other governmental charge that may be imposed in connection therewith. The Company will not be required to make any sinking fund payments with respect to the Notes. MATURITY, INTEREST AND PRINCIPAL The Notes will mature on May 15, 2004. Interest on the Notes will accrue at the rate of 8 1/8% per annum and will be payable semi-annually on each May 15 and November 15, commencing on November 15, 1997, to the holders of record of Notes at the close of business on the May 1 and November 1, respectively, immediately preceding such interest payment dates. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 64 67 CHANGE OF CONTROL TRIGGERING EVENT The Indenture provides that, following the occurrence of a Change of Control Triggering Event (the date of such occurrence being the "Change of Control Date"), the Company will be obligated, within 20 days after the Change of Control Date, to make an offer to purchase (a "Change of Control Offer") all of the then outstanding Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date. If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the purchase price for all of the Notes that might be tendered by holders of Notes seeking to accept the Change of Control Offer. If the Company fails to repurchase all of the Notes tendered for purchase, such failure will constitute an Event of Default under the Indenture. See "-- Events of Default" below. The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act, and any other applicable securities laws or regulations and any applicable requirements of any securities exchange on which the Notes are listed, in connection with the repurchase of Notes pursuant to a Change of Control Offer, and any violation of the provisions of the Indenture relating to such Change of Control Offer occurring as a result of such compliance, shall not be deemed a Default under the Indenture. NOTE GUARANTEES All of the Company's subsidiaries (other than the Accounts Receivable Subsidiaries and any Foreign Subsidiaries) on the Issue Date have, jointly and severally, fully and unconditionally guaranteed the Company's obligations under the Notes. In addition, if any Restricted Subsidiary of the Company becomes a guarantor or obligor in respect of any other Indebtedness of the Company or any of the Restricted Subsidiaries, the Company shall cause such Restricted Subsidiary to enter into a supplemental indenture pursuant to which such Restricted Subsidiary shall agree to guarantee the Company's obligations under the Notes. If the Company defaults in payment of the principal of, premium, if any, or interest on the Notes, each of the Guarantors will be unconditionally, jointly and severally obligated to duly and punctually pay the same. The obligations of each Guarantor under its Guarantee are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor, and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under Federal or state law. Each Guarantor that makes a payment or distribution under its Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the net assets of each Guarantor determined in accordance with GAAP. See "-- Certain Covenants -- Limitation on Guarantees by Restricted Subsidiaries." Notwithstanding the foregoing, but subject to the requirements described under "-- Consolidation, Merger, Sale of Assets, Etc.," any Guarantee by a Guarantor shall be automatically and unconditionally released and discharged (i) upon any sale, exchange or transfer, to any Person (other than an Affiliate of the Company), of all of the Capital Stock of such Restricted Subsidiary, or all or substantially all of the assets of such Restricted Subsidiary, pursuant to a transaction which is in compliance with the Indenture (including, but not limited to, the covenant described in "-- Disposition of Proceeds of Asset Sales" above) or (ii) at the request of the Company, in the event that the lenders under the Credit Facility (or any other revolving credit or term loan facility entitled to a guarantee from such Guarantor) unconditionally release such Guarantor from its guarantee obligations under such facility, if such Guarantor is not a Leveraged Subsidiary; provided, however, that a release of a Guarantor that is a Leveraged Subsidiary may only be obtained under the circumstances described in this clause (ii) if, after giving effect to the release, either (x) such Guarantor would have been permitted to incur all of its then outstanding Indebtedness under the covenant "Limitation on Indebtedness" or (y) the "Limitation on Indebtedness" covenant has been terminated pursuant to the terms of the Indenture. The Company may, at any time, cause a Restricted Subsidiary to become a Guarantor 65 68 by executing and delivering a supplemental indenture providing for the guarantee of payment of the Notes by such Restricted Subsidiary on the basis provided in the Indenture. The Indebtedness evidenced by each Guarantee (including the payment of principal of, premium, if any, and interest on the Notes) will rank pari passu in right of payment with all other unsubordinated indebtedness of such Guarantor and will rank senior in right of payment to all subordinated indebtedness of such Guarantor. As of May 3, 1997, on a pro forma basis after giving effect to the Exchange Offer and the issuance of the Notes and the application of the net proceeds therefrom, the Company and the Guarantors would have had approximately $521.2 million of indebtedness outstanding, of which approximately $295.3 million was senior indebtedness and approximately $60.3 million was secured indebtedness. At such date, the Company would have had outstanding approximately $225.9 million of indebtedness subordinated in right of payment to the Notes. The prepayment of the Parisian Notes is not restricted under the covenant "-- Limitation on Restricted Payments." CERTAIN COVENANTS The Indenture provides that the covenants set forth herein are applicable to the Company; provided, however, that if no Default has occurred and is continuing, after the ratings assigned to the Notes by both Rating Agencies are equal to or higher than BBB- and Baa3, or the equivalents thereof, respectively (the "Investment Grade Ratings"), and notwithstanding that the Notes may later cease to have an Investment Grade Rating, the Company and the Restricted Subsidiaries will not be subject to the provisions of the Indenture described under "Limitation on Indebtedness," "Disposition of Proceeds of Assets Sales," "Limitation on Restricted Payments," clause (c) of the first and fourth paragraphs of "Limitation on Designations of Unrestricted Subsidiaries," "Limitation on Preferred Stock of Restricted Subsidiaries," "Limitation on Transactions with Affiliates," "Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries" and clause (iii) of "Consolidation, Merger, Sale of Assets, Etc." Limitation on Indebtedness. The Indenture provides that the Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume, issue, guarantee or in any manner become liable for or with respect to, contingently or otherwise (in each case, to "incur"), the payment of any Indebtedness (including any Acquired Indebtedness); provided, however, that (i) the Company and any Guarantor may incur Indebtedness (including Acquired Indebtedness) and (ii) any Restricted Subsidiary may incur Acquired Indebtedness, if, in either case, immediately after giving pro forma effect thereto, the Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2.00:1. Notwithstanding the foregoing, the Company and, to the extent specifically set forth below, the Restricted Subsidiaries may incur each and all of the following (collectively, "Permitted Indebtedness"): (i) Indebtedness of the Company and the Guarantors under the Credit Facility in an aggregate principal amount at any one time outstanding not to exceed the greater of (i) $400 million and (ii) 65% of Eligible Inventory (as defined under the Credit Facility) of the Company and the Restricted Subsidiaries (determined on a consolidated basis); (ii) Indebtedness of the Company or any Guarantor under the Indenture, the Notes and the Guarantees; (iii) Indebtedness of the Company or any Restricted Subsidiary not otherwise referred to in this paragraph that is outstanding on the Issue Date, except Indebtedness to be repaid as described under "Use of Proceeds" (other than Indebtedness repaid that is permitted to be reborrowed under clause (i) above); (iv) Indebtedness of the Company or any Restricted Subsidiary in respect of performance bonds, bankers' acceptances, trade letters of credit of the Company or any Restricted Subsidiary and surety bonds provided by the Company or any Restricted Subsidiary in the ordinary course of business; (v) Indebtedness of any Restricted Subsidiary owed to and held by the Company or any Subsidiary that is a Guarantor, and Indebtedness of the Company owed to and held by any Subsidiary that is a 66 69 Guarantor which is unsecured and subordinated in right of payment to the payment and performance of the Company's obligations under the Indenture and the Notes; provided, however, that an incurrence of Indebtedness that is not permitted by this clause (v) shall be deemed to have occurred upon (a) any sale or other disposition of any Indebtedness of the Company or any Restricted Subsidiary referred to in this clause (v) to a Person (other than the Company or any Subsidiary that is a Guarantor), (b) any sale or other disposition of Capital Stock of any Restricted Subsidiary which holds Indebtedness of the Company or another Restricted Subsidiary such that such Restricted Subsidiary ceases to be a Restricted Subsidiary and (c) the designation of a Restricted Subsidiary which holds Indebtedness of the Company or any other Restricted Subsidiary as an Unrestricted Subsidiary; (vi) Any guarantees of Indebtedness by a Restricted Subsidiary incurred in compliance with the covenant described under "-- Limitations on Guarantees by Restricted Subsidiaries"; (vii) Interest Rate Protection Obligations of the Company or any Restricted Subsidiary covering Indebtedness of the Company or any Restricted Subsidiary (which Indebtedness is otherwise permitted to be incurred under this covenant) to the extent the notional principal amount of such Interest Rate Protection Obligations does not exceed the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate; (viii) Indebtedness of the Company or any Restricted Subsidiary under Currency Agreements relating to (a) Indebtedness of the Company or any Restricted Subsidiary and/or (b) obligations to purchase or sell assets or properties, in each case, incurred in the ordinary course of business of the Company or any Restricted Subsidiary; provided, however, that such Currency Agreements do not increase the Indebtedness or other obligations of the Company or any Restricted Subsidiary outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (ix) Purchase Money Indebtedness (other than Indebtedness incurred in connection with an Asset Acquisition) and Capitalized Lease Obligations of the Company or any Restricted Subsidiary in an aggregate amount not exceeding (i) $25.0 million incurred in any one year and (ii) $50.0 million outstanding at any time; (x) (a) Indebtedness of the Company or any Guarantor to the extent the proceeds thereof are used to Refinance Indebtedness of the Company or any Guarantor or any Restricted Subsidiary incurred under the first paragraph of this covenant or Indebtedness referred to under clause (ii) or (iii) above and (b) Indebtedness of any Restricted Subsidiary that is not a Guarantor to the extent the proceeds thereof are used to Refinance Indebtedness of any Restricted Subsidiary that is not a Guarantor incurred under the first paragraph of this covenant or Indebtedness referred to under clause (iii) above; provided, however, that, in the case of either clause (a) or (b), the principal amount of Indebtedness incurred pursuant to this clause (x) (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of the principal amount of Indebtedness so refinanced (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness, plus any accreted value attributable thereto since the original issuance of such Indebtedness), plus the amount of any premium required to be paid in connection with such Refinancing pursuant to the terms of such Indebtedness or the amount of any premium reasonably determined by the Company or a Restricted Subsidiary, as applicable, as necessary to accomplish such Refinancing by means of a tender offer or privately negotiated purchase, plus the amount of expenses in connection therewith; and (xi) in addition to the items referred to in clauses (i) through (x) above, additional Indebtedness of the Company and the Restricted Subsidiaries not to exceed an aggregate principal amount at any time outstanding of $50.0 million. 67 70 For purposes of determining compliance with this "Limitation on Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness permitted by this covenant, the Company in its sole discretion shall classify such item of Indebtedness and only be required to include the amount of such Indebtedness as one of such types. Limitation on Restricted Payments. The Indenture provides that the Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock of the Company or any Restricted Subsidiary or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any Restricted Subsidiary (other than dividends or distributions made to the Company or a Restricted Subsidiary and dividends and distributions payable solely in Capital Stock of the Company (other than Redeemable Capital Stock) or in rights to purchase Capital Stock of the Company (other than Redeemable Capital Stock) or dividends and distributions made by a Restricted Subsidiary on a pro rata basis to all shareholders of such Restricted Subsidiary); or (ii) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company (other than any such Capital Stock owned by the Company or a Restricted Subsidiary that is a Guarantor); or (iii) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Subordinated Indebtedness (other than any Subordinated Indebtedness owed to and held by the Company or a Restricted Subsidiary that is a Guarantor); or (iv) make any Investment (other than a Permitted Investment) (such payments or Investments (other than an exception thereto) described in the preceding clauses (i), (ii), (iii) and (iv) are collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than in cash, shall be the Fair Market Value of the asset(s) proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment): (A) no Default shall have occurred and be continuing; (B) the aggregate amount of all Restricted Payments declared or made from and after the Issue Date and all Designation Amounts would not exceed the sum of (1) 50% of cumulative Consolidated Net Income of the Company during the period (treated as one accounting period) beginning on the Issue Date and ending on the last day of the fiscal quarter of the Company immediately preceding the date of such proposed Restricted Payment for which consolidated financial information of the Company is available (or, if such cumulative Consolidated Net Income of the Company for such period shall be a deficit, minus 100% of such deficit), plus (2) the aggregate net cash proceeds received by the Company either (x) as capital contributions to the Company increasing its common equity after the Issue Date or (y) from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock but including Capital Stock issued upon the conversion of convertible Indebtedness, in exchange for outstanding Indebtedness or from the exercise of options, warrants or rights to purchase Capital Stock (other than Redeemable Capital Stock)) of the Company to any Person (other than to a Restricted Subsidiary of the Company) after the Issue Date (excluding the net cash proceeds from any issuance and sale of Capital Stock financed, directly or indirectly, using funds borrowed from the Company or any Restricted Subsidiary until and to the extent such borrowing is repaid), plus (3) without duplication of any amounts included in clause (1) above, in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount (to the extent not included in Consolidated Net Income) equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment which was treated as a Restricted Payment, in either case, less the cost of the disposition of such Investment and net of taxes, plus (4) without 68 71 duplication of any amounts included in clause (1) above so long as the Designation thereof was treated as a Restricted Payment made after the Issue Date, with respect to any Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in accordance with "Limitation on Designations of Unrestricted Subsidiaries" below, the Fair Market Value of the Company's interest in such Subsidiary; provided, however, that such amount shall not in any case exceed the Designation Amount with respect to such Restricted Subsidiary at the time of its Designation, plus (5) $25.0 million, minus (6) the Designation Amount (measured as of the date of Designation) with respect to any Subsidiary of the Company which has been designated as an Unrestricted Subsidiary after the Issue Date in accordance with "Limitation on Designations of Unrestricted Subsidiaries" below; and (C) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the "Limitation on Indebtedness" covenant described above. For purposes of the preceding clause (B)(2), upon the issuance of Capital Stock either from the conversion of convertible Indebtedness or exchange for outstanding Indebtedness or upon the exercise of options, warrants or rights, the amount counted as net cash proceeds received will be the cash amount received by the Company at the original issuance of the Indebtedness that is so converted or exchanged or from the issuance of options, warrants or rights, as the case may be, plus the incremental amount of cash received by the Company, if any, upon the conversion, exchange or exercise thereof. None of the foregoing provisions of this covenant will prohibit or restrict (i) the payment of any dividend within 60 days after the date of its declaration, if at the date of declaration such payment would be permitted by the provisions of the Indenture; (ii) so long as no Default shall have occurred and be continuing or would arise therefrom, the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company in exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of other shares of Capital Stock (other than Redeemable Capital Stock) of the Company to any Person (other than to a Restricted Subsidiary); provided, however, that any such net proceeds and the value of any Capital Stock issued in exchange for such retired Capital Stock are excluded from clause (B)(2) of the preceding paragraph; (iii) so long as no Default shall have occurred and be continuing or would arise therefrom, any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness made by exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of (A) Capital Stock (other than Redeemable Capital Stock) of the Company to any Person (other than to a Restricted Subsidiary); provided, however, that any such net cash proceeds and the value of any Capital Stock issued in exchange for Subordinated Indebtedness are excluded from clause (B)(2) of the preceding paragraph or (B) Indebtedness of the Company or any Guarantor so long as such Indebtedness (1) is subordinated to the Notes or the Guarantees of such Guarantor, as the case may be, at least to the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased, acquired or retired and (2) does not have a Stated Maturity earlier than the Stated Maturity for the Subordinated Indebtedness being redeemed, repurchased or otherwise acquired or retired; (iv) Investments constituting Restricted Payments made as a result of the receipt of noncash consideration from any Asset Sale made pursuant to and in compliance with the covenant "-- Disposition of Proceeds of Asset Sales"; (v) so long as no Default shall have occurred and be continuing, the Refinancing of the Parisian Notes; (vi) so long as no Default shall have occurred and be continuing, any purchase, redemption or other acquisition or retirement for value of any Capital Stock (including any option, warrant or right to purchase Capital Stock) (other than Redeemable Capital Stock) of the Company for purposes of making contributions of such Capital Stock of the Company to employees of the Company or its Subsidiaries pursuant to any qualified employee benefit or similar plan; (vii) a Restricted Payment to pay for the repurchase, retirement or other acquisition or retirement for value of Capital Stock (or warrants or options convertible into or exchangeable for such Capital Stock) of the Company held by any future, present or former employee, director or consultant of the Company or any Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement; provided, however, that the aggregate amount of Restricted Payments made pursuant to this clause (vii) does not exceed in any calendar year $2.5 million (with the unused amount in any calendar year being carried over to succeeding calendar years subject to a maximum of $5.0 million in 69 72 any calendar year); (viii) payments or distributions to dissenting stockholders pursuant to applicable law, pursuant to or in connection with an Asset Sale or Asset Acquisition that complies with the provisions of the Indenture; (ix) repurchases of Capital Stock (or warrants or options convertible into or exchangeable for such Capital Stock) deemed to occur upon exercise of stock options to the extent that shares of such Capital Stock (or warrants or options convertible into or exchangeable for such Capital Stock) represents a portion of the exercise price of such options; and (x) the repurchase or retirement of Capital Stock of the Company in exchange for the cancellation of Indebtedness owed to the Company or any Restricted Subsidiary; provided, however, that the Fair Market Value of such Capital Stock is not less than the outstanding principal balance of and accrued and unpaid interest on, the Indebtedness so cancelled. In computing the amount of Restricted Payments previously made for purposes of clause (B) of the preceding paragraph, Restricted Payments under the immediately preceding clauses (i), (iv), (vi), (vii) and (viii) shall be included. Limitation on Transactions with Affiliates. The Indenture provides that the Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, conduct any business or enter into or suffer to exist any transaction or series of related transactions with, or for the benefit of, any of their respective Affiliates or any beneficial holder of 10% or more of any class of Voting Stock of the Company or any officer or director of the Company or any Restricted Subsidiary (each, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the Restricted Subsidiary, as the case may be, than those which could have been obtained in a comparable transaction at such time from Persons who do not have such a relationship and (ii) with respect to any Affiliate Transaction or series of Affiliate Transactions involving aggregate payments or value equal to or greater than $5.0 million, the Company shall have delivered an officer's certificate to the Trustee certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with the preceding clause (i) and, with respect to any Affiliate Transaction or series of Affiliate Transactions involving aggregate payments or value equal to or greater than $10.0 million, further certifying that such Affiliate Transaction or series of Affiliate Transactions has been approved by a majority of the Board of Directors of the Company, including a majority of the disinterested directors of the Board of Directors of the Company. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to (i) transactions with or among the Company and the Restricted Subsidiaries who are Guarantors; (ii) customary directors' fees, indemnification and similar arrangements, consulting fees, employee salaries, bonuses or employment agreements, compensation or employee benefit arrangements and incentive arrangements with any officer, director or employee of the Company or any Restricted Subsidiary entered into in the ordinary course of business (including customary benefits thereunder) and payments under any indemnification arrangements permitted by applicable law; (iii) the issue and sale by the Company to its stockholders of Capital Stock (other than Redeemable Capital Stock); (iv) any dividends made in compliance with "Limitation on Restricted Payments" above; (v) loans and advances to officers, directors, employees and consultants of the Company or any Restricted Subsidiary for travel, entertainment, moving and other relocation expenses, in each case made in the ordinary course of business; (vi) transactions with or by any Accounts Receivable Subsidiary made in the ordinary course of business and transactions related to any proprietary credit card issued by or for the benefit of the Company or an Affiliate of the Company in the ordinary course of business; (vii) any agreement or Affiliate Transactions as in effect on the Issue Date and any transaction contemplated thereby; and (viii) tax sharing agreements between the Company and any of its Subsidiaries providing for the payment by such Subsidiary of an amount equal to the hypothetical United States tax liability of the Subsidiary as if such Subsidiary had filed its own U.S. federal tax return for any given taxable year. Disposition of Proceeds of Asset Sales. The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, make any Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of and (ii) at least 75% of such consideration consists of (A) cash or Cash Equivalents, (B) properties and capital assets to be used in the same line of business being conducted by the Company or any Restricted Subsidiary at such time or (C) Capital Stock in any Person which thereby becomes a Wholly Owned Restricted Subsidiary whose assets 70 73 consist primarily of properties and capital assets used in the same line of business being conducted by the Company or any Restricted Subsidiary at such time. In lieu of the consideration described in clause (ii) above, the Company or any Restricted Subsidiary may receive consideration from an Asset Sale or Asset Sales consisting of obligations payable to the sellers of such asset or assets in an aggregate amount not to exceed $25.0 million at any time outstanding; provided, however, that all consideration received from an Asset Sale or Asset Sales in excess of such $25.0 million shall be subject to the next preceding sentence. The amount of any (i) Indebtedness of a Restricted Subsidiary that is not a Guarantor that is actually assumed by the transferee in such Asset Sale and from which the Company and the Restricted Subsidiaries are fully released shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or the Restricted Subsidiaries (and excluding any liabilities that are incurred in connection with or in anticipation of such Asset Sale) and (ii) notes or other similar obligations received by the Company or any Restricted Subsidiary from such transferee that are immediately converted, sold or exchanged (or are converted, sold or exchanged within thirty days of the related Asset Sale) by the Company or the Restricted Subsidiaries into cash shall be deemed to be cash, in an amount equal to the net cash proceeds realized upon such conversion, sale or exchange for purposes of determining the percentage of cash consideration received by the Company or the Restricted Subsidiaries. The Company or such Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof to (i) repay Indebtedness of the Company or any Guarantor which is secured by a Lien on the assets or property of the Company or any Guarantor which was the subject of such Asset Sale and permanently reduce any related commitment, (ii) repay Indebtedness (other than Subordinated Indebtedness) of any Restricted Subsidiary that is not a Guarantor in respect of which neither the Company nor any Guarantor is liable and permanently reduce any related commitment, (iii) repay any Indebtedness (other than Subordinated Indebtedness) of the Company or any Guarantor not repaid pursuant to the preceding clause (i) or (ii), or (iv) make Asset Acquisitions or acquire, construct or improve properties or capital assets, in each case, to be used in the same line of business being conducted by the Company or any Restricted Subsidiary at such time. To the extent all or part of the Net Cash Proceeds of any Asset Sale are not applied within 365 days of such Asset Sale as described in clause (i), (ii), (iii) or (iv) of the immediately preceding paragraph (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days after such 365th day, make an offer to purchase (the "Asset Sale Offer") all outstanding Notes up to a maximum principal amount (expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date; provided, however, that the Asset Sale Offer may be deferred until there are aggregate Unutilized Net Cash Proceeds equal to or in excess of $10.0 million, at which time the entire amount of such Unutilized Net Cash Proceeds, and not just the amount in excess of $10.0 million, shall be applied as required pursuant to this paragraph. Notwithstanding the foregoing, the Company may retain up to $20.0 million of Net Cash Proceeds of Asset Sales without applying it as required by the foregoing. With respect to any Asset Sale Offer effected pursuant to this covenant, among the Notes, to the extent the aggregate principal amount of Notes tendered pursuant to such Asset Sale Offer exceeds the Unutilized Net Cash Proceeds to be applied to the repurchase thereof, such Notes shall be purchased pro rata based on the aggregate principal amount of such Notes tendered by each holder. To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of Notes tendered by the holders of the Notes pursuant to such Asset Sale Offer, the Company may retain and utilize any portion of the Unutilized Net Cash Proceeds not applied to repurchase the Notes for any purpose consistent with the other terms of the Indenture. In the event that the Company makes an Asset Sale Offer, the Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act, and any other applicable securities laws or regulations and any applicable requirements of any securities exchange on which the Notes are listed, and any violation of the provisions of the Indenture relating to such Asset Sale Offer occurring as a result of such compliance shall not be deemed a Default or an Event of Default. 71 74 Limitation on Liens. The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind (other than Permitted Liens), upon any of its property or assets, whether now owned or acquired after the Issue Date, or any proceeds therefrom, or assign or convey any right to receive income therefrom to secure either (i) Subordinated Indebtedness, unless the Notes, in the case of the Company, and the Guarantees, in the case of a Restricted Subsidiary that is a Guarantor, are secured by a Lien on such property, assets or proceeds that is senior in priority to the Liens securing such Subordinated Indebtedness or (ii) any other Indebtedness, unless the Notes and the Guarantees, in the case of a Restricted Subsidiary that is a Guarantor, are equally and ratably secured thereby. Limitation on Guarantees by Restricted Subsidiaries. The Indenture provides that the Company will not cause or permit any of the Restricted Subsidiaries, directly or indirectly, to guarantee the payment of any Indebtedness of the Company or any Restricted Subsidiary ("Other Indebtedness"), except for guarantees to suppliers, lessors, licensees, contractors, franchises or customers incurred in the ordinary course of business, unless such Subsidiary (A) is a Guarantor or (B) simultaneously executes and delivers a supplemental indenture to the Indenture pursuant to which it will become a Guarantor under the Indenture; provided, however, that if such Other Indebtedness is (i) Indebtedness that is ranked pari passu in right of payment with the Notes or the Guarantee of such Restricted Subsidiary, as the case may be, the Guarantee of such Subsidiary shall be pari passu in right of payment with the guarantee of the Other Indebtedness; or (ii) Subordinated Indebtedness, the Guarantee of such Subsidiary shall be senior in right of payment to the guarantee of the Other Indebtedness (which guarantee of such Subordinated Indebtedness shall provide that such guarantee is subordinated to the Guarantees of such Subsidiary to the same extent and in the same manner as the other Indebtedness is subordinated to the Notes or the Guarantee of such Restricted Subsidiary, as the case may be). Restrictions on Preferred Stock of Restricted Subsidiaries. The Indenture provides that the Company will not sell, and will not cause or permit any of the Restricted Subsidiaries to issue, any Preferred Stock of any Restricted Subsidiary (other than to the Company or to a Wholly-Owned Restricted Subsidiary) or permit any Person (other than the Company or a Wholly-Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist, or enter into any agreement with any Person that would cause to become effective, any consensual encumbrance or restriction of any kind, on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distribution on or in respect of its Capital Stock or any other interest or participation in, or measured by, its profits, to the Company or any other Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make loans or advances to, or guarantee any Indebtedness or other obligations of, the Company or any other Restricted Subsidiary or (d) transfer any of its property or assets to the Company or any other Restricted Subsidiary, except any encumbrance or restriction (i) with respect to a Restricted Subsidiary that is not a Restricted Subsidiary on the Issue Date, in existence at the time such Person becomes a Restricted Subsidiary (but not created in contemplation thereof); provided, however, that such encumbrances and restrictions are not applicable to the Company or any Restricted Subsidiary, or the properties or assets of the Company or any Restricted Subsidiary, other than such Person; (ii) arising as a result of customary non-assignment provisions in leases entered into in the ordinary course of business; (iii) existing under any agreement governing the terms of or otherwise arising as a result of Purchase Money Indebtedness (other than Indebtedness incurred to finance an Asset Acquisition) for property acquired in the ordinary course of business that only imposes encumbrances and restrictions on the property so acquired; (iv) contained in any agreement for the sale or disposition of the Capital Stock or assets of any Restricted Subsidiary; provided, however, that such encumbrances and restrictions described in this clause (iv) are only applicable to such Restricted Subsidiary or assets, as applicable, and any such sale or disposition is made in compliance with "Disposition of Proceeds of Asset Sales" above to the extent applicable thereto; or (v) existing under any agreement that refinances or replaces the agreements containing the encumbrance or 72 75 restrictions in the foregoing clause (i); provided, however, that the terms and conditions of any such restrictions permitted under this clause (v) are not materially less favorable to the holders of the Notes than those under or pursuant to the agreement evidencing the Indebtedness refinanced. Limitation on Designations of Unrestricted Subsidiaries. The Indenture provides that the Company may designate after the Issue Date any Subsidiary (other than a Guarantor) as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if: (a) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (b) the Company would be permitted to make an Investment (other than a Permitted Investment) at the time of Designation (assuming the effectiveness of such Designation) pursuant to the first paragraph of "Limitation on Restricted Payments" above in an amount (the "Designation Amount") equal to the Fair Market Value of the Company's interest in such Subsidiary on such date calculated in accordance with GAAP; (c) the Company would be permitted under the Indenture to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Indebtedness" at the time of such Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to the covenant "-- Limitation on Restricted Payments" for all purposes of the Indenture in the Designation Amount. The Indenture further provides that (i) the Company shall not and shall not cause or permit any Restricted Subsidiary to at any time (x) provide credit support for, or subject any of its property or assets (other than the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) (other than Permitted Investments in Unrestricted Subsidiaries) or (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary and (ii) no Unrestricted Subsidiary shall at any time guarantee or otherwise provide credit support for any obligation of the Company or any Restricted Subsidiary. For purposes of the foregoing, the Designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be deemed to be the Designation of all of the Subsidiaries of such Subsidiary. The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: (a) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; (b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of the Indenture; (c) unless such redesignated Subsidiary shall not have any Indebtedness outstanding (other than Indebtedness that would be Permitted Indebtedness), immediately after giving effect to such proposed Revocation, and the incurrence of any such additional Indebtedness, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Indebtedness"; and (d) any transaction (or series of related transactions) between such Subsidiary and any of its Affiliates that occurred while such Subsidiary was an Unrestricted Subsidiary would be permitted by "-- Limitation on Transactions with Affiliates" above as if such transaction (or series of related transactions) had occurred at the time of such Revocation. All Designations and Revocations must be evidenced by Board Resolutions of the Company delivered to the Trustee certifying compliance with the foregoing provisions. 73 76 Reporting Requirements. The Indenture provides that the Company will file with the Commission, the Trustee and the Initial Purchasers, the annual reports, quarterly reports and other documents required to be filed with the Commission pursuant to Sections 13 and 15 of the Exchange Act, whether or not the Company has a class of securities registered under the Exchange Act. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The Indenture provides that the Company will not, in any transaction or series of related transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to, any Person or Persons, and that the Company will not permit any of the Restricted Subsidiaries to enter into any such transaction or series of related transactions if such transaction or series of related transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and the Restricted Subsidiaries (determined on a consolidated basis for the Company and the Restricted Subsidiary), to any other Person or Persons, unless at the time and after giving effect thereto (i) either (A)(1) if the transaction or transactions is a merger or consolidation involving the Company, the Company shall be the surviving Person of such merger or consolidation or (2) if the transaction or transactions is a merger or consolidation involving a Restricted Subsidiary, such Restricted Subsidiary shall be the surviving Person of such merger or consolidation, or (B)(1) the Person formed by such consolidation or into which the Company or such Restricted Subsidiary is merged or to which the properties and assets of the Company or such Restricted Subsidiary, as the case may be, substantially as an entirety, are transferred (any such surviving Person or transferee Person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and (2)(x) in the case of a transaction involving the Company, the Surviving Entity shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes, the Notes and the Indenture and the Registration Rights Agreement and, in each case, the Notes, the Notes, the Indenture and the Registration Rights Agreement shall remain in full force and effect, or (y) in the case of a transaction involving a Restricted Subsidiary that is a Guarantor, the Surviving Entity shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of such Restricted Subsidiary under its Guarantee, the Indenture and the Registration Rights Agreement, and, in each case, such Guarantee, the Indenture and the Registration Rights Agreement shall remain in full force and effect; (ii) immediately after giving effect to such transaction or series of related transactions on a pro forma basis, no Default shall have occurred and be continuing; and (iii) the Company, or the Surviving Entity, as the case may be, immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the "Limitation on Indebtedness" covenant described above. No Guarantor (other than a Guarantor whose Guarantee is to be released in accordance with the terms of its Guarantee and the Indenture as provided in the second sentence under "Limitation on Guarantees by Restricted Subsidiaries" above) shall, in any transaction or series of related transactions, consolidate with or merge with or into another Person, whether or not such Person is affiliated with such Guarantor and whether or not such Guarantor is the Surviving Entity, unless (i) the Surviving Entity (if other than such Guarantor) is a corporation organized and validly existing under the laws of the United States, any State thereof or the District of Columbia; (ii) the Surviving Entity (if other than such Guarantor) expressly assumes by a supplemental indenture all the obligations of such Guarantor under its Guarantee and the performance and observance of every covenant of the Indenture and the Registration Rights Agreement to be performed or observed by such Guarantor and (iii) immediately after giving effect to such transaction or series of related transactions on a pro forma basis, no Default shall have occurred and be continuing. In connection with any consolidation, merger, transfer, lease or other disposition contemplated hereby, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an officers' certificate and an opinion of counsel, each stating that such 74 77 consolidation, merger, transfer, lease or other disposition and the supplemental indenture in respect thereof comply with the requirements under the Indenture. In addition, each Guarantor, unless it is the other party to the transaction or unless its Guarantee will be released and discharged in accordance with its terms as a result of the transaction, will be required to confirm, by supplemental indenture, that its Guarantee will continue to apply to the obligations of the Company or the Surviving Entity under the Indenture. Upon any consolidation or merger of the Company or any Guarantor or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company or a Guarantor is not the continuing corporation, the successor corporation formed by such a consolidation or into which the Company or such Guarantor is merged or to which such transfer is made, shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, the Notes and the Registration Rights Agreement, as the case may be, or such Guarantor, as the case may be, under the Indenture, and the Guarantee of such Guarantor and the Registration Rights Agreement, as the case may be, with the same effect as if such successor corporation had been named as the Company or Guarantor, as the case may be, therein; and thereafter, except in the case of (a) a lease or (b) any sale, assignment, conveyance, transfer, lease or other disposition to a Restricted Subsidiary of the Company or such Guarantor, the Company or such Guarantor, as the case may be, shall be discharged from all obligations and covenants under the Indenture and the Notes and/or the Guarantee of such Guarantor, as the case may be. The Indenture provides that for all purposes of the Indenture and the Notes (including the provision of this covenant and the covenants described in "-- Limitation on Indebtedness", "-- Limitation on Restricted Payments" and "-- Limitation on Liens"), Subsidiaries of any Surviving Entity shall, upon such transaction or series of related transactions, become Restricted Subsidiaries unless and until designated as Unrestricted Subsidiaries pursuant to and in accordance with "-- Limitation on Designations of Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property or assets, of the Company and the Restricted Subsidiaries in existence immediately prior to such transaction or series of related transactions will be deemed to have been incurred upon such transaction or series of related transactions. EVENTS OF DEFAULT The following will be "Events of Default" under the Indenture: (i) default in the payment of the principal of or premium, if any, when due and payable, on any of the Notes (at its Stated Maturity, upon optional redemption, required purchase, sinking fund, scheduled principal payment or otherwise); or (ii) default in the payment of an installment of interest on any of the Notes, when due and payable, continued for 30 days or more; or (iii) the Company or any Guarantor fails to comply with any of its obligations described under "-- Consolidation, Merger, Sale of Assets, Etc.," "Certain Covenants -- Change of Control" or "-- Certain Covenants -- Disposition of Proceeds of Asset Sales"; or (iv) the Company or any Guarantor fails to perform or observe any other term, covenant or agreement contained in the Notes, the Guarantees or the Indenture (other than a default specified in (i), (ii) or (iii) above) for a period of 45 days after written notice of such failure requiring the Company to remedy the same shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by the holders of 25% in aggregate principal amount of the Notes then outstanding; or (v) default or defaults under one or more agreements, indentures or instruments under which the Company or any Restricted Subsidiary then has outstanding Indebtedness in excess of $25.0 million individually or in the aggregate and either (a) such Indebtedness is already due and payable in full or (b) such default or defaults results in the acceleration of the maturity of such Indebtedness; or (vi) any Guarantee ceases to be in full force and effect or is declared null and void or any Guarantor denies that it has any further liability under any Guarantee, or gives notice to such effect (other than by 75 78 reason of the termination of the Indenture or the release of any such Guarantee in accordance with the terms of the Indenture); or (vii) one or more judgments, orders or decrees of any court or regulatory or administrative agency for the payment of money in excess of $25.0 million either individually or in the aggregate shall have been rendered against the Company or any Restricted Subsidiary or any of their respective properties and shall not have been discharged and either (a) any creditor shall have commenced an enforcement proceeding upon such judgment, order or decree or (b) there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment, order or decree, by reason of a pending appeal or otherwise, shall not be in effect; or (viii) certain events of bankruptcy, insolvency or reorganization with respect to the Company or any Material Subsidiary shall have occurred. If an Event of Default (other than as specified in clause (viii) with respect to the Company), shall occur and be continuing, the Trustee, by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding, by notice to the Trustee and the Company, may declare the principal of, premium, if any, and accrued interest on all of the outstanding Notes due and payable immediately, upon which declaration, all such amounts payable in respect of the Notes will become and be immediately due and payable. If an Event of Default specified in clause (viii) above with respect to the Company occurs and is continuing, then the principal of, premium, if any, and accrued interest on all of the outstanding Notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of Notes. After a declaration of acceleration, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind such declaration if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and premium, if any, on any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Notes; and (b) all Events of Default, other than the non-payment of principal of, premium, if any, and interest on the Notes that has become due solely by such declaration of acceleration, have been cured or waived. The holders of not less than a majority in aggregate principal amount of the outstanding Notes may on behalf of the holders of all the Notes waive any past defaults under the Indenture, except a default in the payment of the principal of, premium, if any, or interest on any Note, or in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each Note outstanding. No holder of any of the Notes has any right to institute any proceeding with respect to the Indenture or any remedy thereunder, unless the holders of at least 25% in aggregate principal amount of the outstanding Notes have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee under the Notes and the Indenture, the Trustee has failed to institute such proceeding within 15 days after receipt of such notice and the Trustee, within such 15-day period, has not received directions inconsistent with such written request by holders of a majority in aggregate principal amount of the outstanding Notes. Such limitations do not apply, however, to a suit instituted by a holder of a Note for the enforcement of the payment of the principal of, premium, if any, or interest on such Note on or after the respective due dates expressed in such Note. During the existence of an Event of Default, the Trustee is required to exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise thereof as a prudent Person would exercise under the circumstances in the conduct of such Person's own affairs. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be 76 79 continuing, the Trustee under the Indenture is not under any obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders unless such holders shall have offered to the Trustee reasonable security or indemnity. Subject to certain provisions concerning the rights of the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under the Indenture. The Company is required to furnish to the Trustee annual and quarterly statements as to the performance by the Company and the Guarantors of their respective obligations under the Indenture and as to any default in such performance. The Company is also required to notify the Trustee within five business days of any event which is, or after notice or lapse of time or both would become, an Event of Default. DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE The Company may, at its option and at any time, terminate the obligations of the Company and the Guarantors with respect to the outstanding Notes ("defeasance"). Such defeasance means that the Company will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, except for (i) the rights of holders of outstanding Notes to receive payment in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency for payments in respect of the Notes, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to terminate the obligations of the Company and any Guarantor with respect to certain covenants that are set forth in the Indenture, some of which are described under "-- Certain Covenants" above, and any omission to comply with such obligations will not constitute a Default or an Event of Default with respect to the Notes ("covenant defeasance"). In order to exercise either defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash in United States dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes at maturity; (ii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred (in the case of defeasance, such opinion must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable federal income tax laws); (iii) no Default shall have occurred and be continuing on the date of such deposit or insofar as clause (viii) under the first paragraph under "-- Events of Default" is concerned, at any time during the period ending on the 91st day after the date of deposit; (iv) such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to any securities of the Company or any Guarantor; (v) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company or any Guarantor is a party or by which it is bound; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (vii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent under the Indenture to either defeasance or covenant defeasance, as the case may be, have been complied with. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights of registration or transfer of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed 77 80 Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company or any Guarantor has paid all other sums payable under the Indenture by the Company and the Guarantors; and (iii) the Company and each of the Guarantors have delivered to the Trustee an officers' certificate and an opinion of counsel each stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. AMENDMENTS AND WAIVERS From time to time, the Company and the Guarantors, when authorized by resolutions of their boards of directors, and the Trustee may, without the consent of the holders of any outstanding Notes, amend, waive or supplement the Indenture or the Notes for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act of 1939, as amended, or making any change that does not materially adversely affect the legal rights of any holder; provided, however, that the Company has delivered to the Trustee an Opinion of Counsel (as such term is defined in the Indenture) stating that such change does not materially adversely affect the legal rights of any holder. Other amendments and modifications of the Indenture or the Notes may be made by the Company, the Guarantors and the Trustee with the consent of the holders of not less than a majority of the aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note affected thereby, (i) reduce the principal of or change the Stated Maturity of any Note, or alter the provisions with respect to the redemption or repurchase of the Notes in any manner adverse to the holders of the Notes; (ii) reduce the rate of or change the time for payment of interest on any such Note; (iii) change the place or currency of payment of principal of (or premium) or interest on any such Note; (iv) modify any provisions of the Indenture relating to the waiver of past defaults (other than to add sections of the Indenture or the Notes subject thereto) or the right of the holders of Notes to institute suit for the enforcement of any payment on or with respect to any such Note or any Guarantee in respect thereof or the modification and amendment provisions of the Indenture and the Notes (other than to add sections of the Indenture or the Notes which may not be amended, supplemented or waived without the consent of each holder therein affected); (v) reduce the percentage of the principal amount of outstanding Notes necessary for amendment to or waiver of compliance with any provision of the Indenture or the Notes or for waiver of any Default in respect thereof; (vi) waive a default in the payment of principal of, interest on, or redemption payment with respect to, the Notes (except a rescission of acceleration of the Notes by the holders thereof as provided in the Indenture and a waiver of the payment default that resulted from such acceleration); (vii) modify the ranking or priority of any Note or the Guarantee in respect thereof of any Guarantor in any manner adverse to the holders of the Notes; (viii) modify the provisions of any covenant (or the related definitions) in the Indenture requiring the Company to make and consummate a Change of Control Offer upon a Change of Control Triggering Event or an Asset Sale Offer in respect of an Asset Sale or modify any of the provisions or definitions with respect thereto in a manner materially adverse to the holders of Notes affected thereby otherwise than in accordance with the Indenture; or (ix) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the Indenture. The holders of a majority in aggregate principal amount of the outstanding Notes, on behalf of all holders of Notes, may waive compliance by the Company and the Guarantors with certain restrictive provisions of the Indenture. Subject to certain rights of the Trustee, as provided in the Indenture, the holders of a majority in aggregate principal amount of the Notes, on behalf of all holders of the Notes, may waive any past default under the Indenture (including any such waiver obtained in connection with a tender offer or exchange offer 78 81 for the Notes), except a default in the payment of principal, premium or interest or a default arising from failure to purchase any Notes tendered pursuant to an Offer to Purchase pursuant thereto, or a default in respect of a provision that under the Indenture cannot be modified or amended without the consent of the holder of each Note that is affected. GOVERNING LAW The Indenture and the Notes and the Guarantees are governed by the laws of the State of New York, without regard to the principles of conflicts of law. CERTAIN DEFINITIONS "Accounts Receivable Subsidiary" means Younkers Credit Corporation and Proffitt's Credit Corporation and any other present or future Subsidiary (including any credit card bank) of the Company that is, directly or indirectly, wholly owned by the Company (other than director qualifying shares) and organized for the purpose of and engaged in (i) purchasing, financing, and collecting accounts receivable obligations of customers of the Company or its Subsidiaries, (ii) issuing credit cards and financing accounts receivable obligations of customers of the Company and its Subsidiaries, (iii) the sale or financing of such accounts receivable or interests therein and (iv) other activities incident thereto. "Acquired Indebtedness" means, with respect to any specified Person Indebtedness of any other Person (i) assumed in connection with an Asset Acquisition from such Person or (ii) existing at the time such Person becomes a Restricted Subsidiary of any other Person (other than any Indebtedness incurred in connection with, or in contemplation of, such Asset Acquisition or such Person becoming such a Restricted Subsidiary). "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person (other than the G.R. Herberger's 401(k) Employee Stock Purchase Plan and Employment Stock Ownership Plan). For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Affiliate Transaction" has the meaning set forth under "-- Limitation on Transactions with Affiliates." "Asset Acquisition" means (i) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person will become a Restricted Subsidiary or will be merged or consolidated with or into the Company or any Restricted Subsidiary or (ii) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person which constitute substantially all of the assets of such Person, or any division or line of business of such Person, or which is otherwise outside of the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance or transfer or other disposition (including, without limitation, any merger, consolidation or sale-leaseback transaction) to any Person other than the Company or a Restricted Subsidiary, in one or a series of related transactions, of (i) any Capital Stock of any Restricted Subsidiary; (ii) all or substantially all of the assets of any division or line of business of the Company or any Restricted Subsidiary; or (iii) any other properties or assets of the Company or any Restricted Subsidiary other than in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" will not include (a) any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is governed by the provisions described under the first paragraph of "Consolidation, Merger, Sale of Assets, Etc."; (b) sales of surplus and other property or equipment that has become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Restricted Subsidiary, as the case may be; or (c) any transaction consummated in compliance with "-- Certain Covenants -- Limitation on Restricted Payments." For purposes of the covenant described under "Disposition of Proceeds of Asset Sales," the term "Asset Sale" shall not include any sale, conveyance, transfer, lease or other disposition of (x) any property or asset, whether in one transaction or a series of related 79 82 transactions (1) constituting a Capitalized Lease Obligation or a transfer consisting solely of a grant of a security interest permitted by the Indenture or (2) involving assets with a Fair Market Value not in excess of $1.0 million, (y) accounts receivable to an Accounts Receivable Subsidiary or to third parties that are not Affiliates of the Company or any Subsidiary of the Company in the ordinary course of business or (z) the sale, transfer or other disposition of shares of Capital Stock or Indebtedness of an Unrestricted Subsidiary or Permitted Investments (other than Permitted Investments of the type described under clause (f) of the definition thereof) to a third party that is not an Affiliate of the Company or any Subsidiary of the Company. "Asset Sale Offer" has the meaning set forth under "-- Disposition of Proceeds of Asset Sales." "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness multiplied by (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person's capital stock, any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed ) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP consistently applied. "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with a maturity of not more than one year issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit, Eurodollar time deposits or bankers' acceptances with a maturity of not more than one year of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500.0 million; (iii) commercial paper with a maturity of not more than one year issued by a corporation that is not an Affiliate of the Company organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by Standard & Poor's Ratings Group, at least P-1 by Moody's Investors Service, Inc. the equivalent of any such category of Standard & Poor's Ratings Group or Moody's Investor Services, Inc. used by another nationally recognized Rating Agency; (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (ii) above; and (v) transaction deposit accounts with domestic commercial banks. "Change of Control" means the occurrence of any of the following events (whether or not approved by the Board of Directors of the Company): (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person will be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the then outstanding Voting Stock of the Company; (ii) the Company consolidates with, or merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, other than any such transaction where the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the total voting power of the then outstanding Voting Stock of the surviving or transferee corporation immediately after such transaction and the preceding clause (i) is not applicable; (iii) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such board or whose nomination for election by the stockholders of the Company 80 83 was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (iv) any order, judgment or decree shall be entered against the Company decreeing the dissolution or liquidation of the Company and such order shall remain undischarged or unstayed for a period in excess of sixty days. "Change of Control Triggering Event" means the occurrence of both a Change of Control and a Rating Decline. "Change of Control Offer" has the meaning set forth under "-- Change of Control Triggering Event." "Consolidated Cash Flow Available for Fixed Charges" means, for any period, (i) the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) to the extent reducing Consolidated Net Income, Consolidated Non-cash Charges, (c) to the extent reducing Consolidated Net Income, Consolidated Interest Expense, and (d) to the extent reducing Consolidated Net Income, Consolidated Income Tax Expense less (ii)(A) all non-cash items increasing Consolidated Net Income for such period and (B) all cash payments during such period relating to non-cash charges that were added back in determining Consolidated Cash Flow Available for Fixed Charges in any prior period. "Consolidated Fixed Charge Coverage Ratio" means the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of the Company for the four full fiscal quarters immediately preceding the date of the transaction for which consolidated financial information of the Company is available (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of the Company for such Four Quarter Period. For purposes of this definition, "Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Fixed Charges" will be calculated, without duplication, after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence of any Indebtedness of the Company or any of the Restricted Subsidiaries during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the "Reference Period"), including, without limitation, the incurrence of the Indebtedness giving rise to the need to make such calculation, as if such incurrence occurred on the first day of the Reference Period, (ii) an adjustment to eliminate or include, as applicable, the Consolidated Cash Flow Available for Fixed Charges and Consolidated Fixed Charges of the Company directly attributable to assets which are the subject of any Asset Sale or Asset Acquisition (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or one of the Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if such Asset Sale or Asset Acquisition occurred on the first day of the Reference Period, (iii) the retirement of Indebtedness during the Reference Period which cannot thereafter be reborrowed occurring as if retired on the first day of the Reference Period and (iv) an adjustment to eliminate the Restructuring Charges. For purposes of calculating "Consolidated Fixed Charges" for this "Consolidated Fixed Charge Coverage Ratio," interest on Indebtedness incurred during the Reference Period under any revolving credit facility which may be borrowed and repaid without reducing the commitments thereunder shall be the actual interest during the Reference Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter will be deemed to accrue at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined on a fluctuating basis like prime or a similar rate or a factor thereof, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date shall be deemed to have been in effect during the Reference Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Rate Protection Obligations, will be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. If the Company or any Restricted Subsidiary 81 84 directly or indirectly guarantees Indebtedness of a third Person, the above definition will give effect to the incurrence of such guaranteed Indebtedness as if the Company or any Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. "Consolidated Fixed Charges" means, for any period, the sum of, without duplication, the amounts for such period of (i) Consolidated Interest Expense; and (ii) the product of (x) the aggregate amount of cash dividends and other distributions paid, accrued or scheduled to be paid or accrued during such period in respect of Redeemable Capital Stock times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then-current effective consolidated federal, state and local tax rate of such Person expressed as a decimal. "Consolidated Income Tax Expense" means, for any period, the provision for federal, state, local and foreign income taxes payable by the Company and the Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any period, without duplication, the sum of (a) the interest expense of the Company and the Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (i) any amortization of debt discount attributable to such period, (ii) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (iii) the interest portion of any deferred payment obligation, (iv) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (v) all capitalized interest and all accrued interest, and (b) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and the Restricted Subsidiaries during such period and as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, for any period, the consolidated net income (or net loss) of the Company and the Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto), (ii) income of the Company and the Restricted Subsidiaries derived from or in respect of Investments in Unrestricted Subsidiaries, except to the extent that cash dividends or distributions are actually received by the Company or a Restricted Subsidiary, (iii) the portion of net income (or net loss) of the Company and the Restricted Subsidiaries allocable to minority interests in unconsolidated Persons, except to the extent that cash dividends or distributions are actually received by the Company or one of the Restricted Subsidiaries, (iv) net income (or net loss) of any Person combined with the Company or one of the Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (v) gains or losses in respect of any Asset Sales by the Company or any of the Restricted Subsidiaries (on an after-tax basis and net of fees and expenses relating to the transaction giving rise thereto), and (vi) the net income of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Restricted Subsidiary or its stockholders. "Consolidated Non-cash Charges" means, for any period, the aggregate depreciation, amortization and other noncash expenses of the Company and the Restricted Subsidiaries reducing Consolidated Net Income for such period (other than any non-cash item requiring an accrual or reserve for cash disbursements in any future period), determined on a consolidated basis in accordance with GAAP. "covenant defeasance" has the meaning set forth under "-- Defeasance or Covenant Defeasance of Indenture." "Credit Facility" means the Credit Agreement dated as of October 11, 1996, among the Company, NationsBank of Texas, National Association, as Agent, and the other financial institutions signatory thereto, as in effect on the Issue Date, and as such agreement may be amended, renewed, extended, substituted, refinanced, replaced, supplemented or otherwise modified from time to time, and includes related notes, guarantees and other agreements executed in connection therewith. 82 85 "Currency Agreement" means the obligations of any Person pursuant to any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "defeasance" has the meaning set forth under "-- Defeasance or Covenant Defeasance of Indenture." "Designation" has the meaning set forth under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." "Designation Amount" has the meaning set forth under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." "Event of Default" has the meaning set forth under "-- Events of Default." "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. "Fair Market Value" means, with respect to any asset, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company acting in good faith conclusively evidenced by a board resolution thereof delivered to the Trustee or, with respect to any asset valued at up to $1.0 million, such determination may be made by a duly authorized officer of the Company evidenced by an officer's certificate delivered to the Trustee. "Foreign Subsidiary" means a Restricted Subsidiary not organized or existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof. "Four Quarter Period" has the meaning set forth in the definition of "Consolidated Fixed Charge Coverage Ratio." "GAAP" means, at any date of determination, generally accepted accounting principles in effect in the United States which are applicable at the date of determination and which are consistently applied for all applicable periods. "Guarantee" means the guarantee by each of the Subsidiary Guarantors of the Notes and the Company's obligations under the Indenture. "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. A guarantee shall include, without limitation, any agreement to maintain or preserve any other Person's financial condition or to cause any other Person to achieve certain levels of operating results. "Guarantor" means (i) each of G.R. Herberger's Inc., Parisian, Inc., McRae's, Inc., McRae's Stores Partnership and McRae's of Alabama, Inc., and their respective successors and (ii) each other Subsidiary formed, created or acquired before or after the Issue Date required to become a Guarantor after the Issue Date pursuant to "-- Certain Covenants -- Limitation on Guarantees by Restricted Subsidiaries." "incur" has the meaning set forth in "-- Certain Covenants -- Limitation on Indebtedness." "Indebtedness" means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade payable and other accrued current liabilities incurred in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit (but 83 86 excluding obligations with respect to trade letters of credit to the extent such trade letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed not later than the third business day following receipt by such Person of a demand for reimbursement), bankers' acceptances or other similar credit transaction and in connection with any agreement obligating such Person to purchase, redeem, exchange, convert or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, now or hereafter outstanding, (ii) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (iv) all Capitalized Lease Obligations of such Person, (v) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (vi) all guarantees by such Person of Indebtedness of another Person (other than guarantees of operating leases of a Restricted Subsidiary of such Person), (vii) all Redeemable Capital Stock valued at its involuntary maximum fixed repurchase price plus accrued and unpaid dividends, (viii) all net payment obligations under or in respect of Currency Agreements and Interest Rate Protection Obligations of such Person, and (ix) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (i) through (viii) above. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price will be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness will be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair Market Value to be determined in good faith by the Board of Directors of the issuer of such Redeemable Capital Stock. Sales (on a "true-sale" non-recourse basis) and the servicing of receivables transferred from the Company or a Restricted Subsidiary, or transfers of cash, to an Accounts Receivable Subsidiary as a capital contribution or in exchange for Indebtedness of such Accounts Receivable Subsidiary or cash shall not be deemed Indebtedness hereunder. "Interest Rate Protection Obligations" means the obligations of any Person pursuant to any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or a floating rate of interest on the same notional amount or any other arrangement involving payments by or to such Person based upon fluctuations in interest rates. "Investment" means, with respect to any Person, any direct or indirect advance, loan or other extension of credit (including by means of a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others or otherwise), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by any other Person. Investments shall exclude extensions of trade credit in accordance with normal trade practices. In addition to the foregoing, any foreign exchange contract, Currency Agreement, Interest Rate Protection Obligation or similar agreement shall constitute an Investment. "Issue Date" means the original issue date of the Notes under the Indenture. "Leveraged Subsidiary" means any Restricted Subsidiary that has incurred Indebtedness (other than Acquired Indebtedness pursuant to the first paragraph of the covenant "Limitation on Indebtedness" and Indebtedness described in clauses (iv), (v), (vii), (viii), (ix) and (xi) of the second paragraph of the covenant "Limitation on Indebtedness" and any permitted refinancings or replacements thereof incurred 84 87 under clause (x)) pursuant to such covenant for so long as such Indebtedness, or any refinancing thereof, is outstanding. "Lien" means any mortgage, charge, pledge, lien (statutory or other), privilege, security interest, hypothecation, cessation and transfer, assignment for security, claim, deposit arrangement or other encumbrance upon or with respect to any property of any kind, whether real, personal or mixed, movable or immovable, now owned or hereafter acquired. A Person will be deemed to own subject to a Lien any property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease Obligation or other title retention agreement. "Material Subsidiary" means each Restricted Subsidiary of the Company that is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the Issue Date). "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage commissions and other reasonable fees and expenses (including fees and expenses of legal counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP consistently applied against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale (provided that the amount of any such reserves shall be deemed to constitute Net Cash Proceeds at the time such reserves shall have been released or are not otherwise required to be retained as a reserve). "Other Indebtedness" has the meaning set forth under "-- Certain Covenants -- Limitation on Guarantees of Restricted Subsidiaries." "Parisian Notes" means the 9 7/8% Senior Subordinated Notes due 2003 of Parisian. "Permitted Indebtedness" has the meaning set forth under "-- Certain Covenants -- Limitation on Indebtedness." "Permitted Investment" means (a) Cash Equivalents; (b) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers' compensation, performance and other similar deposits; (c) loans, extensions of credit and advances to officers, directors and employees which are outstanding on the Issue Date or which do not exceed $7.5 million in the aggregate at any one time outstanding and payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; (d) Interest Rate Protection Obligations permitted under clause (vii) of the second paragraph under "-- Limitation on Indebtedness" and Currency Agreements; (e) Investments by any Restricted Subsidiary in the Company; (f) Investments by the Company or any Restricted Subsidiary in a Restricted Subsidiary that is a Guarantor or another Person, if as a result of or in connection with such Investment such other Person becomes a Restricted Subsidiary; (g) Investments represented by accounts receivable created or acquired in the ordinary course of business; (h) Investments in the form of the sale (on a "true-sale" non-recourse basis) or the servicing of receivables transferred from the Company or any Restricted Subsidiary, or transfers of cash, to an Accounts Receivable Subsidiary as a capital contribution or in exchange for Indebtedness of such Accounts Receivable Subsidiary or cash in the ordinary course of business; (i) Investments representing capital stock or obligations issued to the Company or any Restricted Subsidiary in settlement of claims against any other Person by reason of a composition or readjustment of debt or a reorganization of any debtor of the Company or such Restricted Subsidiary; (j) loans or other advances to vendors in connection with in-store merchandising to be repaid 85 88 either on a lump-sum basis or over a period of time by delivery of merchandise; (k) Investments in credit card receivables arising from any proprietary credit card issued by or for the benefit of the Company or an Affiliate of the Company and (l) Investments acquired by the Company or any Restricted Subsidiary in connection with an Asset Sale permitted under "-- Disposition of Proceeds of Asset Sales" (other than pursuant to the second sentence of the first paragraph thereof). "Permitted Liens" means (a) Liens on property of (or on shares of Capital Stock or debt securities of) a Person existing at the time such Person (i) is merged into or consolidated with the Company or any Restricted Subsidiary or (ii) becomes a Restricted Subsidiary; provided, however, that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not secure any property or assets of the Company or any Restricted Subsidiary other than the property or assets subject to the Liens prior to such merger, consolidation or acquisition; (b) Liens imposed by law such as landlords', carriers', warehousemen's and mechanics' Liens and other similar Liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith and by appropriate proceedings; (c) Liens existing on the Issue Date; (d) Liens securing only the Notes; (e) Liens in favor of the Company or Liens on any property or assets of a Subsidiary (or on shares of Capital Stock or debt securities of a Subsidiary) in favor of the Company or any Restricted Subsidiary; (f) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent for more than 90 days or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided, however, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (g) easements, reservation of rights of way, restrictions and other similar easements, licenses, restrictions on the use of properties, or imperfections of title that in the aggregate are not material in amount and do not in any case materially detract from the properties subject thereto or interfere with the ordinary conduct of the business of the Company and the Restricted Subsidiaries; (h) Liens resulting from the deposit of cash or notes in connection with contracts, tenders or expropriation proceedings, or to secure workers' compensation, surety or appeal bonds, costs of litigation when required by law, public and statutory obligations, obligations under franchise arrangements entered into in the ordinary course of business and other obligations of a similar nature arising in the ordinary course of business; (i) Liens securing any revolving credit facility under the Credit Facility; (j) Liens securing Indebtedness consisting of Capitalized Lease Obligations, Purchase Money Indebtedness (other than Indebtedness incurred to finance an Asset Acquisition), mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred solely for the purpose of financing all or any part of the purchase price or cost of construction or installation of assets used in the business of the Company or the Restricted Subsidiaries, or repairs, additions or improvements to such assets; provided, however, that (I) such Liens secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such assets or repair, addition or improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the incurrence of such Indebtedness), (II) such Liens do not extend to any other assets of the Company or the Restricted Subsidiaries (and, in the case of repair, addition or improvements to any such assets, such Lien extends only to the assets (and improvements thereto or thereon) repaired, added to or improved), (III) the incurrence of such Indebtedness is permitted by "-- Certain Covenants -- Limitation on Indebtedness" above and (IV) such Liens attach prior to 90 days after such purchase, construction, installation, repair, addition or improvement; (k) Liens to secure any Refinancings (or successive Refinancings), in whole or in part, of any Indebtedness secured by Liens referred to in the clauses above so long as such Lien does not extend to any other property (other than improvements thereto); (l) Liens securing letters of credit entered into in the ordinary course of business and consistent with past business practice; (m) Liens on and pledges of the capital stock of (A) any Unrestricted Subsidiary securing any Indebtedness of such Unrestricted Subsidiary and (B) an Accounts Receivable Subsidiary; (n) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and the Restricted Subsidiaries, taken as a whole; (o) any interest or title of a lessor in any property that is (i) subject to any lease or (ii) located on the real property subject to any lease; (p) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary that does not give rise to an Event of Default; (q) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any Restricted Subsidiary in the ordinary course of business and (r) Liens on the property or assets or Capital 86 89 Stock of Accounts Receivable Subsidiaries and Liens arising out of any sale of accounts receivable in the ordinary course to or by an Accounts Receivable Subsidiary. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" means, with respect to any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person. "Purchase Money Indebtedness" means Indebtedness of the Company or any Restricted Subsidiary incurred for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of any real or personal property; provided, however, that the aggregate principal amount of such Indebtedness does not exceed the lesser of the Fair Market Value of such property or the original purchase price or the original cost of any such assets or repair, addition or improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the incurrence of such Indebtedness). "Rating Agencies" means (i) Standard & Poor's Ratings Group and (ii) Moody's Investor Service, Inc. or (iii) if Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or both shall not make a rating of the Notes publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by the Company, which shall be substituted for Standard & Poor's Ratings Group, Moody's Investors Service, Inc. or both, as the case may be. "Rating Category" means (i) with respect to Standard & Poor's Ratings Group, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's Investors Service, Inc., any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such category of Standard & Poor's Ratings Group or Moody's Investors Service, Inc. used by another Rating Agency. In determining whether the rating of the Notes has decreased by one or more gradations, gradations within Rating Categories (+ and - for Standard & Poor's Ratings Group; 1, 2 and 3 for Moody's Investors Service, Inc.; or the equivalent gradations for another Rating Agency) shall be taken into account (e.g., with respect to Standard & Poor's Ratings Group, a decline in a rating from BB- to BB, as well as from BB- to B+, will constitute a decrease of one gradation). "Rating Date" means the date which is 90 days prior to the earlier of (i) a Change of Control and (ii) public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control. "Rating Decline" means the occurrence of the following on, or within 90 days after, the earlier of (i) the occurrence of a Change of Control and (ii) the date of public notice of the occurrence of a Change of Control or of the public notice of the intention of the Company to effect a Change of Control (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrading by any of the Rating Agencies): (a) in the event that the Notes have an Investment Grade Rating, the rating of the Notes by both such Rating Agencies shall be reduced below Investment Grade, or (b) in the event the Notes are rated below Investment Grade by both such Rating Agencies on the Rating Date, the rating of the Notes by either Rating Agency shall be decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "Redeemable Capital Stock" means any class or series of Capital Stock to the extent that, either by its terms, by the terms of any security into which it is convertible or exchangeable, or by contract or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to the final stated maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to such maturity, or is convertible into or exchangeable for debt securities at any time prior to such maturity. "Reference Period" has the meaning set forth under the definition of "Consolidated Fixed Charge Coverage Ratio." 87 90 "Refinance" means, with respect to any Indebtedness, any refinancing, redemption, retirement, renewal, replacement, extension or refunding of such Indebtedness. "Restricted Payment" has the meaning set forth under "-- Certain Covenants -- Limitation on Restricted Payments." "Restricted Subsidiary" means any Subsidiary of the Company that has not been designated by the Board of Directors of the Company, by a Board Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with the covenant described under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant. "Restructuring Charges" means all nonrecurring charges related to Asset Acquisitions and Asset Sales, including merger, restructuring and integration charges incurred or accrued during the last full fiscal year of the Company ending prior to the Issue Date. "Revocation" has the meaning set forth under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." "Securities Act" mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder. "Stated Maturity" means, with respect to any Note or any installment of interest thereon, the dates specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness or any installment of interest is due and payable. "Subsidiary" means, with respect to any Person, (a) any corporation of which the outstanding shares of Voting Stock having at least a majority of the votes entitled to be cast in the election of directors shall at the time be owned, directly or indirectly, by such Person, or (b) any other Person of which at least a majority of the shares of Voting Stock are at the time, directly or indirectly, owned by such first named Person. "Subordinated Indebtedness" means, with respect to the Company, Indebtedness of the Company which is expressly subordinated in right of payment to the Notes or, with respect to any Guarantor, Indebtedness of such Guarantor which is expressly subordinated in right of payment to the Guarantee of such Guarantor. "Surviving Entity" has the meaning set forth under "Consolidations, Mergers, Sale of Assets, Etc." "Transaction Date" has the meaning set forth in the definition of "Consolidated Fixed Charge Coverage Ratio." "Unrestricted Subsidiary" means each Accounts Receivable Subsidiary and each Subsidiary of the Company (other than a Guarantor) designated as such pursuant to and in compliance with the covenant described under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such Designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant. "Unutilized Net Available Proceeds" has the meaning set forth under "-- Certain Covenants -- Disposition of Proceeds of Asset Sales." "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of which 100% of the outstanding Capital Stock is owned by the Company and/or another Wholly-Owned Restricted Subsidiary. For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Restricted Subsidiary. 88 91 BOOK-ENTRY; DELIVERY AND FORM Series A Notes Series A Notes originally offered and sold to QIBs in reliance on Rule 144A under the Securities Act, are represented by a single, permanent Global Note in definitive, fully registered book-entry form (the "Rule 144A Global Note") which has been registered in the name of Cede & Co., as nominee of DTC on behalf of purchasers of the Series A Notes represented thereby for credit to the respective accounts of such purchasers (or to such other accounts as they may direct) at DTC. Series A Notes originally offered and sold in reliance on Regulation S under the Securities Act, if any, were initially represented by a single, permanent Global Note in definitive, fully registered book-entry form (the "Regulation S Global Note") which was registered in the name of Cede & Co., as nominee of DTC and deposited on behalf of the purchasers of the Series A Notes represented thereby with a custodian for DTC for credit to the respective accounts of such purchasers (or to such other accounts as they directed) at the Euroclear System ("Euroclear") or Cedel Bank, societe anonyme ("Cedel"). Prior to the 40th day after the later of the commencement of the issuance of the Series A Notes and the Issue Date, interests in the Regulation S Global Note may only be held through Euroclear or Cedel. Series A Notes (a) originally purchased by or transferred to Accredited Investors who are not QIBs or (b) held by QIBs who elected to take physical delivery of their certificates instead of holding their interest through the Rule 144A Global Note (and which are thus ineligible to trade through DTC) (the "Series A Non-Global Purchasers") will be issued in fully registered form ("Series A Certificated Notes"). Upon the transfer of such Series A Certificated Notes to a QIB or in an offshore transaction under Rule 903 or 904 of Regulation S under the Securities Act, such Series A Certificated Notes will, unless such Rule 144A Global Note has previously been exchanged in whole for Series A Certificated Notes, be exchanged for an interest in the Rule 144A Global Note and/or the Regulation S Global Note upon delivery of appropriate certifications to the Trustee. Transfers of Series A Certificated Notes, any interest in the Rule 144A Global Note and any interest in the Regulation S Global Note will be subject to certain restrictions. Exchange Notes Exchange Notes issued in exchange for Series A Notes originally offered and sold (i) to QIBs in reliance on Rule 144A under the Securities Act, (ii) to Accredited Investors or (iii) in reliance on Regulation S under the Securities Act will be represented by a single, permanent Global Note in definitive, fully registered book-entry form (the "Exchange Global Note"; and together with the Rule 144A Global Note and the Regulation S Global Note, the "Global Notes"), which will be registered in the name of Cede & Co., as nominee of DTC on behalf of persons who receive Exchange Notes represented thereby for credit to the respective accounts of such persons (or to such other accounts as they may direct) at DTC. Exchange Notes issued in exchange for Series A Notes will be issued, upon request, in fully registered form (together with the Series A Certificated Notes, the "Certificated Notes"), but otherwise such holders will only be entitled to registration of their respective Exchange Notes in book-entry form under the Exchange Global Note. The Global Notes The Company expects that pursuant to procedures established by DTC (a) upon deposit of the Global Notes, DTC or its custodian will credit on its internal system portions of the Global Notes, which shall be comprised of the corresponding respective amount of the Global Notes to the respective accounts of persons who have accounts with such depositary and (b) ownership of the Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC or its nominee (with respect to interests of Participants (as defined below) and the records of Participants (with respect to interests of persons other than Participants)). Ownership of beneficial interests in the Global Notes will be limited to persons who have accounts with DTC ("Participants") or persons who hold interests through Participants. Holders may 89 92 hold their interests in the Global Notes directly through DTC if they are Participants in such system, or indirectly through organizations which are Participants in such system. So long as DTC or its nominee is the registered owner or holder of any of the Notes, DTC or such nominee will be considered the sole owner or holder of such Notes represented by the Global Notes for all purposes under the Indenture and under the Notes represented thereby. No beneficial owner of an interest in the Global Notes will be able to transfer such interest except in accordance with the applicable procedures of DTC in addition to those provided for under the Indenture. Payments of the principal of, premium, if any, and interest (including Additional Interest, if any) on the Global Notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any Paying Agent under the Indenture will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company expects that DTC or its nominee, upon receipt of any payment of the principal of, premium, if any, and interest (including Additional Interest, if any) on the Global Notes will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Notes as shown on the records of DTC or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in the Global Notes held through such Participants will be governed by standing instructions and customary practice as is now the case with Notes held for the accounts of customers registered in the names of nominees for such customers. Such payment will be the responsibility of such Participants. Transfers between Participants in DTC will be effected in accordance with DTC rules and will be settled in immediately available funds. If a holder requires physical delivery of a Certificated Note for any reason, including to sell Notes to persons in states which require physical delivery of such Notes or to pledge such Notes, such holder must transfer its interest in the Global Notes in accordance with the normal procedures of DTC and in accordance with the procedures set forth in the Indenture. Before the 40th day after the later of the commencement of the issuance of the Series A Notes and the Issue Date, transfers by an owner of a beneficial interest in the Regulation S Global Note to a transferee who takes delivery of such interest through the Rule 144A Global Note will be made only in accordance with the applicable procedures and upon receipt by the Trustee and the Company of a written certification from the transferor of the beneficial interest in the form provided in the Indenture to the effect that such transfer is being made to a person whom the transferor reasonably believes is a QIB within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and as permitted consistent with Regulation S. Transfers by an owner of a beneficial interest in the Rule 144A Global Note to a transferee who takes delivery of such interest through the Regulation S Global Note, whether before, on or after the 40th day after the later of the commencement of the issuance of the Series A Notes and the Issue Date, will be made only upon receipt by the Trustee and the Company of a certification to the effect that such transfer is being made in accordance with Regulation S. Transfers of Series A Certificated Notes held by institutional Accredited Investors to persons who will hold beneficial interests in the Rule 144A Global Note or the Regulation S Global Note will be subject to certifications provided by the Trustee. Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in the other Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. DTC has advised the Company that DTC will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more Participants to whose account the DTC interests in the Global Notes are credited and only in respect of the aggregate principal amount as to which such Participant or Participants has or have given such direction. 90 93 However, if there is an Event of Default under the Indenture, DTC will exchange the Global Notes for Certificated Notes, which it will distribute to its Participants and which, in the case of Series A Certificated Notes, will be legended. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold Notes for its Participants and facilitate the clearance and settlement of Notes transactions between Participants through electronic book-entry changes in accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include Notes brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Although DTC, Euroclear and Cedel are expected to follow the foregoing procedures in order to facilitate transfers of interests in the Global Notes among Participants of DTC, Euroclear and Cedel, as applicable, they are under no obligation to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Trustee, Registrar or the Paying Agent will have any responsibility for the performance by DTC, Euroclear or Cedel or their respective direct or indirect Participants of their respective obligations under the rules and procedures governing their operations. Certificated Notes Interests in Global Notes will be exchanged for Certificated Notes if (i) DTC notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes, or DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a successor depositary is not appointed by the Company within 90 days, or (ii) an Event of Default has occurred and is continuing with respect to the Notes. Upon the occurrence of any of the events described in the preceding sentence, the Company will cause the appropriate Certificated Notes to be delivered. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS GENERAL This summary discusses the material United States federal tax considerations applicable to persons that acquire the Exchange Notes in exchange for Series A Notes that were sold to the Initial Purchasers and to subsequent owners of the Exchange Notes. It is not intended to be tax advice to any person, nor is it binding upon the Internal Revenue Service (the "IRS"). This summary is based on the Internal Revenue Code of 1986, as amended (the "Code") and existing and proposed Treasury Regulations, revenue rulings and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action, and such changes may be applied retroactively in a manner that could adversely affect holders of Exchange Notes. This summary deals only with Exchange Notes held as capital assets (within the meaning of Section 1221 of the Code) by a holder that is (i) a citizen or resident of the United States, (ii) a domestic corporation or (iii) otherwise subject to United States federal income taxation on a net income basis in respect of the Exchange Notes of such holder (for the purposes of this section only, holders of Notes are referred to as "Holders"), and does not purport to address all aspects of the possible federal income tax consequences of ownership of Exchange Notes. In particular, and without limiting the foregoing, this summary does not address tax consequences of ownership of an Exchange Note that may be relevant to investors in special tax situations, such as dealers in securities or currencies, tax-exempt persons, certain financial institutions, life insurance companies, persons holding Exchange Notes as part of a "straddle" (as defined in Section 1092 of the Code), a "hedge" (as defined in Section 1256 of the Code), or a "conversion transaction" (as defined in Section 1258 of the Code), persons whose "functional currency" as defined in Section 985 of the Code is not United States dollars, or foreign persons. 91 94 INVESTORS CONSIDERING TENDERING SERIES A NOTES FOR EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND OTHER TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. The Company has not sought and will not seek any rulings from the IRS with respect to the positions of the Company discussed below. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the acquisition, ownership or disposition of the Exchange Notes or that any such position would not be sustained. EXCHANGE OF SENIOR NOTES FOR EXCHANGE NOTES The exchange of Series A Notes for Exchange Notes pursuant to the Exchange Offer will not be considered a taxable exchange for U.S. federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Series A Notes. Exchange Notes received by a Holder of Series A Notes will be treated as a continuation of the Series A Notes in the hands of such Holder. Accordingly, there will not be any U.S. federal income tax consequences to Holders exchanging Series A Notes for Exchange Notes in the Exchange Offer. Holders of Exchange Notes will have identical United States federal income tax consequences to Holders of the Series A Notes. INTEREST PAYMENTS Interest on an Exchange Note, other than interest that is not a payment of "qualified stated interest" (as defined below under "Original Issue Discount"), will be taxable to a Holder as ordinary income at the time it is received or accrued, depending on the Holder's method of accounting for tax purposes. ORIGINAL ISSUE DISCOUNT The Series A Notes were issued with certain original issue discount ("OID"). The amount of OID is considered de minimus because the stated redemption price at maturity (100% of par) did not exceed the issue price of the Series A Notes (99.427% of par) by more than 0.25% of the stated redemption price at maturity multiplied by the number of complete years to maturity. Similarly, the Exchange Notes will be treated as having a de minimus amount of OID. Accordingly, under applicable Treasury Regulations, a Holder of Exchange Notes must include any such OID in income as stated principal payments are made. The "issue price" of the Notes is the first price at which a substantial number of Series A Notes were sold for money, excluding sales to underwriters, placement agents or wholesalers. The "stated redemption price at maturity" is the sum of all payments to be made on the Series A Notes other than "qualified stated interest". The term "qualified stated interest" means, generally, stated interest that is unconditionally payable in cash or in property (other than debt instruments of the issuer) at least annually at a single fixed rate or, subject to certain conditions, based on one or more interest indices. Interest is payable at a single fixed rate only if the rate appropriately takes into account the length of the interval between payments. The OID regulations provide that options relating to a debt instrument may affect whether an instrument has been issued with OID. In the event of a Change of Control Triggering Event, the Company is required to offer to redeem all of the Exchange Notes. The right of Holders of the Exchange Notes to require redemption of the Exchange Notes upon the occurrence of a Change of Control Triggering Event should not affect the yield or maturity date of the Exchange Notes, provided, based on all the facts and circumstances as of the issue date, the likelihood is remote that a Change of Control Triggering Event giving rise to the redemption will occur. The Company has no present intention of treating the redemption provisions of the Exchange Notes as affecting the computation of the yield to maturity of any Exchange Note. See "Description of the Notes -- Change of Control Triggering Event." 92 95 EXCHANGE NOTES PURCHASED AT A PREMIUM In general, if a Holder acquires an Exchange Note for an amount in excess of its principal amount, the Holder may elect to treat such excess as "amortizable bond premium," in which case the amount required to be included in the holder's income each year with respect to interest on the Exchange Note is reduced by the amount of amortizable bond premium allocable to such year based on the Exchange Note's yield to maturity. Any such election applies to all debt instruments (other than debt instruments the interest on which is excludable from gross income) held by the Holder at the beginning of the first taxable year to which the election applies or which are acquired thereafter by the Holder, and such election is irrevocable without the consent of the IRS. MARKET DISCOUNT ON RESALE OF EXCHANGE NOTES A Holder of an Exchange Note should be aware that the acquisition or resale of an Exchange Note may be affected by the "market discount" provisions of the Code. The market discount rules generally provide that if a Holder of an Exchange Note acquires the Exchange Note at a market discount (i.e., a discount other than at original issue), any gain recognized upon the disposition of the Exchange Note by the Holder is taxable as ordinary interest income, rather than as capital gain, to the extent such gain does not exceed the accrued market discount on the Exchange Note at the time of the disposition. "Market discount" generally means the excess, if any, of an Exchange Note's stated redemption price at maturity over the price paid by the holder therefor, subject to a de minimis exception. A Holder who acquires an Exchange Note at a market discount also may be required to defer the deduction of a portion of the amount of interest that the Holder paid or accrued during the taxable year on indebtedness incurred or maintained to purchase or carry such Exchange Note, if any. Any principal payment on an Exchange Note acquired by a Holder at a market discount is included in gross income as ordinary income (generally, as interest income) to the extent that it does not exceed the accrued market discount at the time of such payment. The amount of the accrued market discount for purposes of determining the tax treatment of subsequent payments on, or dispositions of, the Exchange Note is reduced by the amounts so treated as ordinary income. A Holder of an Exchange Note acquired at a market discount may elect to include market discount in gross income, for federal income tax purposes, as such market discount accrues, either on a straight-line basis or on a constant interest rate basis. This current inclusion election, once made, applies to all market discount obligations acquired on or after the first day of the first taxable year to which the election applies, and may not be revoked without the consent of the IRS. If a Holder makes such an election, the foregoing rules regarding the recognition of ordinary interest income on sales and other dispositions and the receipt of principal payments with respect to such Exchange Note, and regarding the deferral of interest deductions on indebtedness incurred or maintained to purchase or carry such Exchange Note, will not apply. SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES A Holder will generally recognize gain or loss on the sale or retirement of an Exchange Note equal to the difference between the amount realized on the sale, exchange or retirement of the Exchange Note and the Holder's adjusted tax basis in the Exchange Note. A Holder's adjusted tax basis in an Exchange Note is its cost (or, if applicable, the tax basis of the Series A Note exchanged for the Exchange Note), increased by the amount of any OID included in the Holder's income with respect to the Exchange Note and reduced by the amount of any interest payments on the Exchange Note that are not payments of qualified stated interest. Except to the extent described above under "Original Issue Discount" and "Market Discount," and except to the extent attributable to accrued but unpaid interest, gain or loss recognized on the sale or retirement of an Exchange Note is capital gain or loss, provided the Exchange Note was a capital asset in the hands of the Holder, and is long-term capital gain or loss if the Exchange Note was held for more than one year. BACKUP WITHHOLDING AND INFORMATION REPORTING In general, information reporting requirements will apply to payments of principal, premium, if any, and interest on an Exchange Note and payments of the proceeds of the sale of an Exchange Note to certain 93 96 noncorporate Holders, and a 31% backup withholding tax may apply to such payments if the Holder (i) fails to furnish or certify his correct taxpayer identification number to the payor in the manner required, (ii) is notified by the IRS that he has failed to report payments of interest and dividends properly or (iii) under certain circumstances, fails to certify that he has not been notified by the IRS that he is subject to backup withholding for failure to report interest and dividend payments. Any amounts withheld under the backup withholding rules from a payment to a Holder will be allowed as a credit against such Holder's United States federal income tax and may entitle the Holder to a refund, provided that the required minimum information is furnished to the IRS. ADDITIONAL INTEREST The Company intends to take the position that Additional Interest, if any, on the Notes will be taxable to the Holder as ordinary income in accordance with the Holder's method of accounting for federal income tax purposes. The IRS may take a different position, however, which could affect the timing of both a Holder's income and the Company's deduction with respect to such Additional Interest, if any. LEGAL MATTERS The validity of the Exchange Notes and the Exchange Note Guarantees being offered hereby and certain other legal matters in connection with the Exchange Offer have been passed upon for the Company by Alston & Bird LLP, Atlanta, Georgia, and Sommer & Barnard, PC, Indianapolis Indiana. EXPERTS The consolidated financial statements of Proffitt's appearing elsewhere herein as of February 1, 1997 and February 3, 1996 and for each of the three years in the period ended February 1, 1997, have been audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in their report thereon and included herein. Such consolidated financial statements are included herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements included in this prospectus in the registration statement for the year ended January 28, 1995 as it relates to Younkers, Inc. and subsidiary, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and elsewhere in the registration statement, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of Parisian, Inc. as of February 3, 1996 and January 28, 1995, and for each of the three years in the period ended February 3, 1996, appearing herein, have been audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in their report thereon, included herein. Such consolidated financial statements are included herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 94 97 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Consolidated Financial Statements of Proffitt's, Inc.: Report of Independent Accountants -- Coopers & Lybrand L.L.P.................................................. F-2 Independent Auditors' Report -- Deloitte & Touche LLP..... F-3 Consolidated Statements of Income for the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995............................................... F-4 Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996....................................... F-5 Consolidated Statements of Shareholders' Equity for the fiscal years ended February 1, 1997, February 3, 1996, and February 28, 1995.................................. F-6 Consolidated Statements of Cash Flows for the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995............................................... F-7 Notes to Consolidated Financial Statements................ F-8 to F-22 Condensed Consolidated Financial Statements of Proffitt's, Inc.: Condensed Consolidated Balance Sheets as of May 3, 1997, February 1, 1997 and May 4, 1996 (unaudited)........... F-23 Condensed Consolidated Statements of Income for the three months ended May 3, 1997 and May 4, 1996 (unaudited)... F-24 Condensed Consolidated Statements of Cash Flows for the three months ended May 3, 1997 and May 4, 1996 (unaudited)............................................ F-25 Notes to Condensed Consolidated Financial Statements (unaudited)............................................ F-26 to F-27 Consolidated Financial Statements of Parisian, Inc.: Report of Independent Accountants......................... F-28 Consolidated Balance Sheets as of January 28, 1995 and February 3, 1996....................................... F-29 Consolidated Statements of Operations for the fiscal years ended January 29, 1994, January 28, 1995 and February 3, 1996................................................ F-30 Consolidated Statements of Changes in Shareholders' Equity for the fiscal years ended January 29, 1994, January 28, 1995 and February 3, 1996.......................... F-31 Consolidated Statements of Cash Flows for the fiscal years ended January 29, 1994, January 28, 1995 and February 3, 1996................................................ F-32 Notes to Consolidated Financial Statements................ F-33 to F-42
F-1 98 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors Proffitt's, Inc. We have audited the accompanying consolidated balance sheets of Proffitt's, Inc. and Subsidiaries as of February 1, 1997 and February 3, 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended February 1, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger with Younkers, Inc., which has been accounted for as a pooling of interests as described in Note 2 to the consolidated financial statements. We did not audit the financial statements of Younkers for the year ended January 28, 1995. Such statements reflect total revenues constituting 39.6% of the related consolidated totals in 1994. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Younkers, Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Proffitt's, Inc. and Subsidiaries as of February 1, 1997 and February 3, 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 1, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Birmingham, Alabama March 20, 1997 F-2 99 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Younkers, Inc. We have audited the accompanying consolidated balance sheet of Younkers, Inc. and subsidiary as of January 28, 1995, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The Company's financial statements as of January 29, 1994 and January 30, 1993 were audited by other auditors whose report, dated March 3, 1994, expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1995 consolidated financial statements present fairly, in all material respects, the consolidated financial position of Younkers, Inc. and subsidiary at January 28, 1995, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Des Moines, Iowa March 3, 1995 F-3 100 PROFFITT'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED ----------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 ----------- ----------- ----------- NET SALES.............................................. $1,889,779 $1,661,056 $1,513,444 COSTS AND EXPENSES Cost of sales........................................ 1,230,454 1,087,619 986,028 Selling, general and administrative expenses......... 440,502 398,999 352,448 Other operating expenses Property and equipment rentals.................... 60,684 50,609 47,857 Depreciation and amortization..................... 41,037 43,013 40,305 Taxes other than income taxes..................... 40,403 36,938 34,421 Expenses related to hostile takeover defense......... 3,182 (Gains) losses from long-lived assets................ (1,094) 19,121 Merger, restructuring and integration costs.......... 15,929 20,822 ---------- ---------- ---------- OPERATING INCOME............................. 61,864 753 52,385 OTHER INCOME (EXPENSE) Finance charge income, net........................... 32,305 31,273 27,934 Interest expense..................................... (26,756) (29,389) (23,286) Other income, net.................................... 1,572 4,051 4,826 ---------- ---------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY LOSS......................... 68,985 6,688 61,859 Provision for income taxes............................. 31,586 6,047 24,411 ---------- ---------- ---------- INCOME BEFORE EXTRAORDINARY LOSS............. 37,399 641 37,448 Extraordinary loss on early extinguishment of debt (net of tax).............................................. (2,060) ---------- ---------- ---------- NET INCOME (LOSS)............................ 37,399 (1,419) 37,448 Preferred stock dividends.............................. 796 1,950 1,694 Payment for early conversion of preferred stock........ 3,032 ---------- ---------- ---------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS............................... $ 33,571 $ (3,369) $ 35,754 ========== ========== ========== Earnings (loss) per common share Primary.............................................. $ 1.31 $ (0.15)* $ 1.55 ========== ========== ========== Fully diluted........................................ $ 1.41 $ (0.15)* $ 1.52 ========== ========== ========== Weighted average common shares Primary.............................................. 25,564 23,157 23,046 ========== ========== ========== Fully diluted........................................ 28,204 23,166 26,301 ========== ========== ==========
- --------------- * Loss per share before extraordinary item was $.06, and the loss per share attributable to the extraordinary item was $.09. The accompanying notes are an integral part of these consolidated financial statements. F-4 101 PROFFITT'S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
FEBRUARY 1, FEBRUARY 3, 1997 1996 ----------- ----------- ASSETS Current assets Cash and cash equivalents................................. $ 3,382 $ 29,178 Residual interest in trade accounts receivable............ 85,400 44,878 Accounts receivable -- other.............................. 20,659 12,158 Merchandise inventories................................... 447,164 329,733 Other current assets...................................... 27,658 10,106 Deferred income taxes..................................... 11,700 4,961 ---------- -------- Total current assets.............................. 595,963 431,014 Property and equipment, net of depreciation................. 510,502 410,256 Goodwill and tradenames, net of amortization................ 277,472 52,838 Other assets................................................ 19,859 24,905 ---------- -------- Total assets...................................... $1,403,796 $919,013 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable.................................... $ 116,434 $ 87,026 Accrued expenses.......................................... 86,220 60,516 Accrued compensation and related items.................... 19,188 16,155 Sales taxes payable....................................... 17,196 12,005 Current portion of long-term debt......................... 12,515 20,118 ---------- -------- Total current liabilities......................... 251,553 195,820 Senior debt................................................. 276,810 168,937 Deferred income taxes....................................... 62,000 53,171 Other long-term liabilities................................. 47,768 14,328 Subordinated debt........................................... 225,767 100,505 Redeemable common stock held in ESOP........................ 58,881 Commitments and contingencies Shareholders' equity Preferred stock........................................... 28,850 Common stock.............................................. 2,802 2,711 Additional paid-in capital................................ 378,016 243,822 Retained earnings......................................... 168,858 73,469 Treasury stock at cost (6,811 shares in 1995)............. (21,481) Deferred ESOP compensation................................ (9,778) ---------- -------- Total shareholders' equity........................ 539,898 327,371 ---------- -------- Total liabilities and shareholders' equity........ $1,403,796 $919,013 ========== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 102 PROFFITT'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ADDITIONAL DEFERRED TOTAL PREFERRED COMMON PAID-IN RETAINED TREASURY ESOP SHAREHOLDERS' STOCK STOCK CAPITAL EARNINGS STOCK COMPENSATION EQUITY --------- ------ ---------- -------- -------- ------------ ------------- Balance at January 29, 1994............. $ -- $2,651 $223,829 $ 62,701 $(14,076) $ -- $275,105 Net income............................ 37,448 37,448 Issuance of common stock.............. 53 9,941 9,994 Issuance of Series B preferred stock............................... 3,296 3,296 Issuance of Series A preferred stock............................... 28,850 28,850 Income tax benefits related to exercised stock options............. 112 112 Purchase of treasury stock............ (3,361) (3,361) Increase in stock held in ESOP........ (30) (11,588) (11,618) Conversion of Series B preferred stock............................... (3,296) 16 3,280 Preferred stock dividends............. (1,694) (1,694) Unrealized gain on released ESOP shares.............................. 1 1 Common stock dividends, $.28 per Herberger's share................... (1,126) (1,126) -------- ------ -------- -------- -------- ------- -------- Balance at January 28, 1995............. 28,850 2,690 237,163 85,741 (17,437) -- 337,007 Net loss.............................. (1,419) (1,419) Issuance of common stock.............. 36 6,241 6,277 Income tax benefits related to exercised stock options............. 373 373 Purchase of treasury stock............ (4,044) (4,044) Increase in stock held in ESOP........ (15) (7,857) (7,872) Preferred stock dividends............. (1,950) (1,950) Unrealized gain on released ESOP shares.............................. 45 45 Common stock dividends, $.28 per Herberger's share................... (1,046) (1,046) -------- ------ -------- -------- -------- ------- -------- Balance at February 3, 1996............. 28,850 2,711 243,822 73,469 (21,481) -- 327,371 Net income............................ 37,399 37,399 Issuance of common stock.............. 348 117,437 117,785 Income tax benefits related to exercised stock options............. 3,818 3,818 Purchase of treasury stock............ (2,056) (2,056) Retirement of treasury stock.......... (689) (15,789) (7,059) 23,537 Reclassification of ESOP stock........ 290 (57) 69,907 (9,778) 60,362 Unrealized gain on released ESOP shares.............................. 122 122 Preferred stock dividends............. (796) (796) Payment for early conversion of preferred stock..................... (3,032) (3,032) Conversion of Series A preferred stock............................... (28,850) 142 28,663 (45) Common stock dividends, $.28 per Herberger's share................... (1,030) (1,030) -------- ------ -------- -------- -------- ------- -------- Balance at February 1, 1997............. $ -- $2,802 $378,016 $168,858 $ -- $(9,778) $539,898 ======== ====== ======== ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 103 PROFFITT'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED --------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 ----------- ----------- ----------- Operating activities Net income (loss)......................................... $ 37,399 $ (1,419) $ 37,448 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary loss on extinguishment of debt........... 3,433 Depreciation and amortization.......................... 41,257 43,626 41,013 Deferred income taxes.................................. 17,802 (13,477) 4,480 (Gains) losses from long-lived assets.................. (1,094) 19,121 Amortization of deferred compensation.................. 1,481 1,363 1,034 Changes in operating assets and liabilities: Trade accounts receivable............................ 3,162 5,608 52,580 Merchandise inventories.............................. 17,940 (7,411) 1,219 Other current assets................................. (14,351) 710 (952) Accounts payable and accrued expenses................ (20,709) 15,553 5,861 Other................................................ (375) (503) 580 --------- -------- --------- Net cash provided by operating activities......... 82,512 66,604 143,263 Investing activities Purchases of property and equipment, net.................. (61,031) (51,469) (53,293) Proceeds from sale of assets.............................. 5,410 Acquisition of Parisian (1996)/Parks-Belk (1995)/McRae's (1994)................................................. (119,070) (10,483) (184,067) Other..................................................... (1,719) --------- -------- --------- Net cash used in investing activities............. (174,691) (61,952) (239,079) Financing activities Proceeds from long-term borrowings........................ 113,037 32,273 90,983 Payments on long-term debt................................ (49,318) (20,345) (35,161) Proceeds from issuance of stock........................... 9,578 2,210 29,166 Purchase of treasury stock................................ (2,056) (4,043) (3,361) Payments to preferred and common shareholders............. (4,858) (3,139) (1,954) --------- -------- --------- Net cash provided by financing activities......... 66,383 6,956 79,673 --------- -------- --------- (Decrease) increase in cash and cash equivalents..................................... (25,796) 11,608 (16,143) Cash and cash equivalents at beginning of year.............. 29,178 17,570 33,713 --------- -------- --------- Cash and cash equivalents at end of year.................... $ 3,382 $ 29,178 $ 17,570 ========= ======== =========
- --------------- Noncash investing and financing activities are further described in the accompanying notes. The accompanying notes are an integral part of these consolidated financial statements. F-7 104 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The Company is a retail organization operating regional department store divisions under the store names of Proffitt's, McRae's, Younkers, Parisian, and Herberger's. The Company's fiscal year ends on the Saturday nearest January 31. Years 1996 and 1994 consisted of 52 weeks and ended on February 1, 1997 and January 28, 1995, respectively. Year 1995 consisted of 53 weeks and ended on February 3, 1996. The financial statements include the accounts of Proffitt's and its subsidiaries. All significant intercompany balances and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. RESIDUAL INTEREST IN TRADE ACCOUNTS RECEIVABLE Residual interest in trade accounts receivable represents an owned residual interest in two special purpose subsidiaries that own the Company's proprietary revolving charge accounts. In some cases, the account's terms provide for payments exceeding one year. In accordance with usual industry practice, such receivables are included in current assets. A portion of the finance charge income on these receivables is earned by financial institutions in connection with the sales of interests in accounts receivable (see Note 4). INVENTORIES Inventories are valued at the lower of cost or market as determined by the retail inventory method using last-in, first-out (LIFO) costs for approximately 69% and 86% of the inventories at February 1, 1997 and February 3, 1996, respectively, and using first-in, first-out (FIFO) costs for the balance. At February 3, 1996 the LIFO value of inventory exceeded market, and as a result, inventory was stated at the lower market amount. At February 1, 1997 the LIFO value approximated the FIFO value. Inventory costs include invoice cost, freight, and certain purchasing and distribution costs. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets for financial reporting purposes. Gains or losses on the sales of assets are recorded at disposal. At each balance sheet date, the Company evaluates recoverability of property and equipment based upon expectations of nondiscounted cash flows and operating income. F-8 105 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GOODWILL AND TRADENAMES The Company has allocated substantially all the cost in excess of fair value of net tangible assets acquired in purchase transactions to goodwill and tradenames, which is being amortized on a straight-line method over 15 to 40 years. The Company recognized amortization charges of $3,369, $1,523 and $1,100 for 1996, 1995 and 1994, respectively. As of February 1, 1997, the accumulated amortization of intangible assets was $6,206. At each balance sheet date, the Company evaluates the recoverability of intangible assets based upon expectations of nondiscounted cash flows and operating income. Based upon its most recent analysis, the Company believes that no impairment of intangible assets exists at February 1, 1997. EMPLOYEE STOCK OWNERSHIP PLANS Shares acquired after January 30, 1994 are accounted for in accordance with SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans." All other unreleased shares are accounted for in accordance with SOP 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans." STOCK-BASED COMPENSATION Compensation cost is measured under the intrinsic value method in accordance with Accounting Principles Bulletin No. 25. Pro forma disclosures of net income and earnings per share are presented, as if the fair value method had been applied, as required by SFAS No. 123. REVENUES Retail sales are recorded on the accrual basis and profits on installment sales are recognized in full when the sales are recorded. Sales are net of returns which are reflected as a period cost at the time of return. LEASED DEPARTMENT SALES The Company includes leased department sales as part of net sales. Leased department sales were $62,804, $73,977 and $71,369 for 1996, 1995 and 1994, respectively. STORE PRE-OPENING COSTS Store pre-opening costs are expensed when incurred. ADVERTISING COSTS Advertising and sales promotion costs are expensed as incurred. Advertising and sales promotion costs were $68,602, $60,232 and $52,206, for 1996, 1995 and 1994, respectively. INCOME TAXES Deferred income taxes reflect the impact of "temporary differences" between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by enacted tax rules and regulations. EARNINGS PER COMMON SHARE Primary earnings per common share have been computed based on the weighted average number of common shares outstanding, including common stock equivalents, after recognition of preferred stock dividends of $796, $1,950 and $1,694 for 1996, 1995 and 1994, respectively, and a payment of $3,032 for early conversion of the preferred stock in 1996. F-9 106 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's convertible subordinated debentures are not common stock equivalents and are therefore considered only in fully diluted earnings per share when dilutive. Common stock issued upon the conversion of the preferred stock in June 1996 has been included in the weighted average number of shares outstanding subsequent to that date for computing primary earnings per share. Fully diluted earnings per share for 1996 have been presented based upon an "as if the shares issued in the conversion were outstanding from the beginning of the year" basis. Common shares acquired after January 30, 1994 and held by the ESOP are not considered outstanding for earnings per share calculations until the shares are committed to be released and the related compensation expense recognized. NEW ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The new standard, which was effective for all sales of accounts receivable beginning January 1, 1997, requires that a gain be recognized at the time of sale to the extent the fair value of the undivided interest in the receivables sold and the servicing rights retained exceed the carrying value of the receivables. Historically, the Company has recognized the excess interest earned on sold receivables over the life of the receivables. The effect of this accounting change was immaterial to 1996. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The new standard changes the presentation and method in which earnings per share are computed and is effective for the Company's year ending January 31, 1998. The new standard will be applied on a "retroactive restatement of all prior periods" basis. The Company is currently in the process of ascertaining the impact the new standard will have on its earnings per share amounts for 1996 and prior periods. NOTE 2 -- MERGERS WITH HERBERGER'S AND YOUNKERS On February 1, 1997, Proffitt's, Inc. ("Proffitt's") issued 4,000 shares of its common stock for all the outstanding common stock of G.R. Herberger's, Inc. ("Herberger's") (collectively, the "Company"). Herberger's operated 39 stores in the Midwest. The merger has been accounted for as a pooling of interests and, accordingly, these consolidated financial statements have been restated for all periods to include the results of operations and financial position of Herberger's. F-10 107 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Separate results of the combined entities were as follows:
YEAR ENDED ----------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 ----------- ----------- ----------- Revenue: Proffitt's................................... $1,567,995 $1,333,498 $1,216,498 Herberger's.................................. 321,784 327,558 296,946 ---------- ---------- ---------- 1,889,779 1,661,056 1,513,444 Extraordinary loss: Proffitt's................................... 0 (2,060) 0 Herberger's.................................. 0 0 0 ---------- ---------- ---------- 0 (2,060) 0 ========== ========== ========== Net income (loss): Proffitt's................................... 43,598 (8,459) 29,744 Herberger's.................................. (6,199) 7,040 7,704 ---------- ---------- ---------- $ 37,399 $ (1,419) $ 37,448 ========== ========== ==========
Herberger's financial statements have been restated to conform to Proffitt's accounting methods and to reflect certain reclassifications with an immaterial effect on Herberger's previously reported income and shareholders' equity. On February 3, 1996, Proffitt's issued 8,816 shares of its common stock for all the outstanding common stock of Younkers, Inc. ("Younkers"). Younkers operated 51 stores in the Midwest. The merger was accounted for as a pooling of interests and, accordingly, the consolidated financial statements were restated for all periods to include the results of operations and financial position of Younkers. NOTE 3 -- ACQUISITIONS OF MCRAE'S, PARKS-BELK AND PARISIAN MCRAE'S On March 31, 1994, Proffitt's acquired McRae's, Inc. ("McRae's") which operated 28 stores in the Southeast. The total acquisition price was approximately $212 million and is detailed below. The McRae's transaction was accounted for as a purchase and, accordingly, the results of the operations of McRae's have been included in the Company's results of operations since the date of acquisition. The purchase price has been allocated to McRae's tangible assets and liabilities based on their estimated fair values at the date of acquisition, with the remaining $45,574 allocated principally to goodwill. PARKS-BELK In April 1995, Proffitt's acquired the Parks-Belk Company, which operated four department stores in northeast Tennessee. Consideration of less than $20 million was paid in Proffitt's, Inc. common stock and cash. Three of the Parks-Belk locations were converted into Proffitt's Division stores, and one was permanently closed. PARISIAN On October 11, 1996, Proffitt's acquired Parisian, Inc. ("Parisian"), which operated 38 stores in the Southeast and Midwest. The total purchase price of the Parisian transaction was approximately $224,000 (detailed below) plus the assumption of Parisian's liabilities aggregating $289,000. F-11 108 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Parisian transaction was accounted for as a purchase and, accordingly, the financial results of the operations of Parisian have been included in the Company's results of operations since the acquisition date. The purchase price has been allocated to Parisian's tangible assets and liabilities based on their estimated fair values at the date of acquisition, with the remaining $225,000 allocated to its tradename and goodwill. The following unaudited pro forma summary presents the consolidated results of operations as if the Parisian acquisition had occurred at the beginning of the periods presented and does not purport to be indicative of what would have occurred had the acquisition been made as of those dates or results which may occur in the future.
1996 1995 ---------- ---------- (UNAUDITED) Pro forma: Net sales................................................. $2,320,955 $2,324,884 Income before extraordinary loss.......................... 29,768 2,425 Net income................................................ 29,768 365 Earnings (loss) per common share: Primary earnings before extraordinary loss............. 0.94 0.02 Primary earnings (loss)................................ 0.94 (0.06) Fully diluted earnings before extraordinary loss....... 1.05 0.02 Fully diluted earnings (loss).......................... 1.05 (0.06)
The purchase price of the Parisian and McRae's acquisitions consisted of the following consideration paid plus the assumption of Parisian's and McRae's liabilities:
PARISIAN MCRAE'S -------- -------- Cash payments and transaction costs......................... $119,000 $184,000 Issuance of 2,947 and 436 shares of common stock, respectively.............................................. 101,000 10,000 Issuance of Series B preferred stock........................ 3,000 Issuance of promissory notes................................ 2,000 Issuance of subordinated debt............................... 13,000 Issuance of 406 replacement stock options................... 4,000 -------- -------- Consideration Paid.......................................... $224,000 $212,000* ======== ========
- --------------- * In connection with the acquisition, the Company purchased four regional mall stores owned by McRae family partnerships for $18.5 million. NOTE 4 -- ACCOUNTS RECEIVABLE SECURITIZATION In April 1994, the Company began selling an undivided ownership interest in its accounts receivable. In January 1997, the Company, through its subsidiary Proffitt's Credit Corporation (a qualifying special purpose entity), entered into an agreement to sell a revolving undivided ownership interest in the accounts receivable of the Proffitt's, McRae's and Parisian Divisions. The agreement, which expires in January 1998, provides for the sales of receivables up to $300,000 and contains certain covenants requiring the maintenance of various financial ratios. Prior to February 3, 1996, Younkers utilized an accounts receivable securitization program under which its receivables were used as collateral for commercial paper issued by a wholly-owned special purpose subsidiary. Effective with the February 3, 1996 merger, Younkers, through its subsidiary Younkers Credit Corporation (a qualifying special purpose entity), replaced amounts borrowed under the securitization F-12 109 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) program by selling a revolving undivided ownership interest in its accounts receivable. The agreement expires in 2000 and provides for the sales of receivables up to $125,000, of which $75,000 is a fixed ownership interest and remains fixed until 2000 at which time a portion of collections of outstanding receivables will be retained by the purchaser until the $75,000 is extinguished. The ownership interest transferred to the purchasers was $324,000 and $220,229 at February 1, 1997 and February 3, 1996, respectively. Finance charges earned by the purchasers were $16,013, $8,809 and $5,567 for 1996, 1995 and 1994, respectively. NOTE 5 -- PROPERTY AND EQUIPMENT A summary of property and equipment was as follows:
FEBRUARY 1, FEBRUARY 3, 1997 1996 ----------- ----------- Land and land improvements................................. $ 59,140 $ 39,442 Buildings.................................................. 178,265 146,792 Leasehold improvements..................................... 98,697 91,795 Fixtures and equipment..................................... 304,479 286,225 Construction in progress................................... 8,242 17,134 --------- --------- 648,823 581,388 Accumulated depreciation................................... (159,668) (171,132) --------- --------- 489,155 410,256 Stores held for sale, net of accumulated depreciation...... 21,347 --------- --------- $ 510,502 $ 410,256 ========= =========
The Company realized gains (losses) from store sales or closings and impairment charges as follows:
1996 1995 ------- -------- Write-down in carrying value of operating stores (3 Proffitt's, 1 McRae's and 2 Younkers in 1995; 1 Herberger's in 1996) due to recurring poor operating results................................................... $(1,010) $(15,897) Abandonment of stores and duplicate warehouses related to the Parks-Belk acquisition and the Younkers merger........ (1,797) Gain (loss) related to closed or sold stores, net........... 2,104 (1,427) ------- -------- $ 1,094 $(19,121) ======= ========
F-13 110 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6 -- INCOME TAXES The components of income tax expense were as follows:
YEAR ENDED --------------------------------------- FEBRUARY 1, FEBRUARY 3, JANUARY 28, 1997 1996 1995 ----------- ----------- ----------- Current: Federal............................................. $10,026 $ 14,432 $15,753 State............................................... 3,758 3,719 4,178 ------- -------- ------- 13,784 18,151 19,931 Deferred: Federal............................................. 16,272 (10,962) 3,858 State............................................... 1,530 (2,515) 622 ------- -------- ------- 17,802 (13,477) 4,480 ------- -------- ------- $31,586 $ 4,674 $24,411 ======= ======== =======
Components of the net deferred tax asset or liability recognized in the consolidated balance sheets were as follows:
FEBRUARY 1, FEBRUARY 3, 1997 1996 ----------- ----------- Current: Deferred tax assets: Trade accounts receivable.............................. $ 3,350 $ 2,400 Accrued expenses....................................... 18,700 10,972 Other.................................................. 250 552 -------- -------- 22,300 13,924 Deferred tax liabilities: Inventory.............................................. (9,100) (8,463) Other.................................................. (1,500) (500) -------- -------- (10,600) (8,963) -------- -------- Net current deferred tax asset.................... $ 11,700 $ 4,961 ======== ======== Noncurrent: Deferred tax assets: Capital leases......................................... $ 950 $ 900 Other long-term liabilities............................ 21,150 4,021 Deferred compensation.................................. 2,200 950 -------- -------- 24,300 5,871 Deferred tax liabilities: Property and equipment................................. (77,000) (52,342) Other assets........................................... (8,100) (5,400) Junior subordinated debentures......................... (1,200) (1,300) -------- -------- (86,300) (59,042) -------- -------- Net noncurrent deferred tax liability............. $(62,000) $(53,171) ======== ========
F-14 111 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense varies from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference were as follows:
1996 1995 1994 ---- ----- ---- Expected tax rate......................................... 35.0% 35.0% 35.0% State income taxes, net of federal benefit................ 4.0 (6.5) 4.4 Nondeductible merger related costs........................ 2.7 92.1 Amortization of goodwill.................................. 1.9 15.9 Other items, net.......................................... 2.2 7.1 0.1 ---- ----- ---- Actual tax rate........................................... 45.8% 143.6% 39.5% ==== ===== ====
The Company made income tax payments, net of refunds received, of $33,884, $12,263 and $16,882 during 1996, 1995 and 1994, respectively. NOTE 7 -- SENIOR DEBT A summary of senior debt was as follows:
FEBRUARY 1, FEBRUARY 3, 1997 1996 ----------- ----------- Real estate and mortgage notes, interest ranging from 3.6% to 10.38%, maturing 1998 to 2007, collateralized by property and equipment.................................... $120,317 $ 97,365 Revolving credit agreement.................................. 154,437 41,400 Capital lease obligations, implicit interest ranging from 8.63% to 12.05%........................................... 10,735 11,318 Notes payable, interest ranging from 7.88% to 13.0%, maturing 1997 to 2000..................................... 3,836 38,972 -------- -------- 289,325 189,055 Current portion............................................. (12,515) (20,118) -------- -------- $276,810 $168,937 ======== ========
Effective with the February 3, 1996 merger, Younkers replaced debt collateralized by its trade accounts receivable with the sale of a revolving undivided interest in its accounts receivable and canceled its revolving credit facility. As a result of this early extinguishment of debt, certain deferred debt costs aggregating $3,433 ($2,060 net of income taxes) were written off as an extraordinary item. In conjunction with a real estate mortgage note having a balance of $5,850 at February 1, 1997, the Company has an interest rate swap agreement for the management of interest rate exposure. This agreement extends to June 30, 2003 and swaps the variable rate for a fixed rate of 5.7%. The differential to be paid or received is included in interest expense. In connection with the Parisian merger, the Company amended and restated its existing revolving credit agreement ("Revolver") with certain banks. The agreement provides for borrowings limited to 55% of merchandise inventories up to an aggregate principal amount of $275,000, including a standby letter of credit facility of $15,000. The Revolver includes interest rate options of prime and Eurodollar. The agreement, which expires in 1999, requires the Company to meet specific covenants related to net worth, capitalization, fixed charges, capital expenditures, indebtedness and earnings. Certain other notes also impose restrictions and financial covenants. F-15 112 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At February 1, 1997, maturities of senior debt for the next five years and thereafter, giving consideration to lenders' call privileges, were as follows: 1997........................................................ $ 12,515 1998........................................................ 35,010 1999........................................................ 185,524 2000........................................................ 10,192 2001........................................................ 23,304 Thereafter.................................................. 22,780 -------- $289,325 ========
The Company made interest payments of $28,304, $29,516 and $20,494 during 1996, 1995 and 1994, respectively. Capitalized interest was $368, $285 and $467 during 1996, 1995 and 1994, respectively. NOTE 8 -- SUBORDINATED DEBT Subordinated debt represents uncollateralized obligations subordinated in right of payment to all senior debt and was composed of the following:
FEBRUARY 1, FEBRUARY 3, 1997 1996 ----------- ----------- Convertible debentures, interest at 4.75%, maturing November 2003...................................................... $ 86,250 $ 86,250 Notes, interest at 9.875%, maturing July 2003............... 125,000 Junior debentures, interest at 7.5%, maturing March 2004.... 14,517 14,255 -------- -------- $225,767 $100,505 ======== ========
The subordinated convertible debentures are convertible into the Company's common stock at any time prior to maturity, unless previously redeemed, at a conversion price of $42.70 per share. The debentures are redeemable for cash at the option of the Company at specified redemption prices. Effective with the Parisian acquisition, the Company assumed the existing Parisian 9.875% subordinated notes. The notes are redeemable at the option of the Company, in whole or in part, after July 15, 1998, 1999 and 2000 at approximately 105%, 102.5% and 100% of face value, respectively. The notes contain certain covenants, the most restrictive of which limits indebtedness, dividends and transactions with Proffitt's and its other subsidiaries. The 7.5% junior subordinated debentures were discounted at the date of issue to reflect their fair value and are being accreted to a face value of $17,500. NOTE 9 -- OPERATING LEASES The Company is committed under long-term leases primarily for the rentals of retail stores. The leases generally provide for minimum annual rentals (including executory costs such as real estate taxes and insurance) and contingent rentals based on a percentage of sales in excess of stated amounts. Generally, the leases have primary terms ranging from 20 to 30 years and include renewal options ranging from 10 to 15 years. F-16 113 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At February 1, 1997, minimum rental commitments under operating leases with terms in excess of one year were as follows: 1997........................................................ $ 58,821 1998........................................................ 56,592 1999........................................................ 54,252 2000........................................................ 50,988 2001........................................................ 49,338 Thereafter.................................................. 445,972 -------- $715,963 ========
Total rental expense for operating leases was $60,684, $50,609 and $47,857 during 1996, 1995 and 1994, respectively, including contingent rents of approximately $7,400, $5,600 and $4,800. NOTE 10 -- RETIREMENT AND SAVINGS PLAN The Company sponsors various profit sharing and savings plans that cover substantially all full-time employees. Company contributions charged to expense under these plans, or similar predecessor plans, excluding the Herberger's employee stock ownership plan ("ESOP"; Note 12) for 1996, 1995 and 1994 were $735, $1,382 and $1,106, respectively. As a part of a 1987 acquisition, Younkers assumed certain obligations under a frozen defined benefit pension plan. During 1996, the Company terminated the plan realizing non-cash expenses of $1,362. NOTE 11 -- SHAREHOLDERS' EQUITY PREFERRED STOCK On March 31, 1994, Proffitt's issued 600 shares of Series A Cumulative Convertible Exchangeable Preferred Stock in a private offering (10,000 total shares authorized). Net proceeds to the Company were approximately $28.9 million after offering expenses. Dividends were cumulative and were paid at $3.25 per annum per share. On June 28, 1996, the holder converted the preferred stock into 1,422 shares of common stock. The Company paid $3,032 to the holder of the preferred stock to induce early conversion. The Company has available 33 shares of authorized, unissued Series B Preferred Stock. COMMON STOCK The Company has 100,000 shares of $.10 par value common shares authorized of which 28,016 and 23,206 shares were issued and outstanding at February 1, 1997 and February 3, 1996, respectively. Each outstanding share of common stock has one preferred stock purchase right attached. The rights generally become exercisable ten days after an outside party acquires, or makes an offer for, 20% or more of the common stock. Each right entitles its holder to buy 1/100 share of Series C Junior Preferred Stock at an exercise price of $85. Once exercisable, if the Company is involved in a merger or other business combination or an outside party acquires 20% or more of the common stock, each right will be modified to entitle its holder (other than the acquiror) to purchase common stock of the acquiring company or, in certain circumstances, common stock of the Company having a market value of twice the exercise price of the right. The rights expire on March 28, 2005. TREASURY STOCK Previously, Herberger's was required to repurchase shares from inactive participants of the ESOP at fair value. Treasury stock transactions were accounted for under the cost method with gains or losses on F-17 114 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) transactions credited or charged to additional paid-in capital. Total shares purchased in 1996, 1995 and 1994 were 85, 179 and 164, respectively. In connection with the rescission of the put option on the ESOP shares (see Note 12), the Company retired all 6,897 shares of the Company's common stock held in treasury. NOTE 12 -- EMPLOYEE STOCK PLANS ESOP Herberger's sponsors an employee stock ownership plan ("ESOP") for the benefit of its employees. Contributions to the ESOP are made at the discretion of the Board of Directors and were $3,670, $3,418 and $3,103 in 1996, 1995 and 1994, respectively. At various times, the ESOP has purchased shares of the Company's common stock using the proceeds of ESOP loans (leveraged shares). These shares are initially held in a suspense account by the Plan Trustee (unallocated shares). As contributions are made and dividends are paid and the ESOP debt is repaid, leveraged shares are released from suspense and allocated to the accounts of participants, and the Company recognizes compensation expense. Dividends earned on all shares acquired prior to January 30, 1994 are recorded as a reduction of retained earnings, while dividends on unallocated shares acquired after January 30, 1994 are reflected as a reduction of compensation expense. Dividends on ESOP shares used for debt service were $264, $226 and $130 in 1996, 1995 and 1994, respectively. For shares acquired after January 30, 1994, expense is recorded equal to the estimated fair value of shares allocated and those shares become outstanding for earnings per share computations. For all other shares, expense is recorded equal to the cost of the shares released. All shares acquired prior to January 30, 1994 are considered outstanding for earnings per share calculations. Total ESOP expense recognized was $4,130, $4,013 and $3,287 for 1996, 1995 and 1994, respectively, and compensation expense recognized in 1996 reflects the increase in value of Herberger's stock related to its merger with Proffitt's. As of February 1, 1997, the number of shares held by the ESOP was as follows:
NUMBER OF SHARES ------------------------ ALLOCATED UNALLOCATED --------- ----------- Shares acquired on or prior to January 30, 1994............. 387 152 Shares acquired after January 30, 1994...................... 68 332
Prior to the merger, Herberger's shares distributed from the ESOP could be put to Herberger's at fair value for cash under certain conditions. As such, the shares were carried at fair value and not reflected on the balance sheet in shareholders' equity. Effective with the merger, the put option was rescinded, and accordingly, the ESOP shares are reflected in shareholders' equity. STOCK OPTIONS AND GRANTS The Company utilizes the intrinsic value method of accounting for stock option grants. As the option exercise price is generally equal to or above fair value of the common shares at the date of the option grant, no compensation cost is recognized. Had compensation cost for the two stock-based compensation plans been determined under the fair value method provided in SFAS No. 123 (using the Black-Scholes option-pricing model), the Company's net income (loss) and earnings (loss) per share would have been reduced (increased) to the pro forma amounts indicated below.
1996 1995 ----------------------- ----------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- Net income (loss).................................. $37,399 $35,756 $(1,419) $(2,540) Primary earnings (loss) per share.................. 1.31 1.25 (0.15) (0.19) Fully diluted earnings (loss) per share............ 1.41 1.36 (0.15) (0.19)
F-18 115 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The assumptions for determining compensation costs under the fair value method included (i) a risk-free interest rate based on zero-coupon governmental issues on each grant date with the maturity equal to the expected term of the option (6.84% and 5.74% for 1996 and 1995, respectively), (ii) an expected term of five years, (iii) an expected volatility of 37.1% and 39.9% for 1996 and 1995, respectively, and (iv) no expected dividend yield. The Company maintains stock option plans for the granting of options, stock appreciation rights and restricted shares to officers, key employees and Directors. At February 1, 1997 the Company has available for grant 350 shares of common stock. Options granted generally vest over a four-year period after issue and have an exercise term of ten years from the grant date. Restricted shares generally vest ten years after grant date with accelerated vesting if the Company meets certain performance objectives. A summary of the stock option plans for 1996, 1995 and 1994 is presented below:
1996 ------------------------- WEIGHTED-AVERAGE EXERCISE 1995 1994 SHARES PRICE SHARES SHARES ------ ---------------- ------ ------ Outstanding at beginning of year............... 1,840 $19.25 1,652 1,030 Granted........................................ 490 34.00 455 783 Converted in acquisition....................... 406 22.50 Exercised...................................... (487) 19.67 (178) (118) Forfeited...................................... (84) 25.00 (89) (43) ------ ------- ------ ------ Outstanding at end of year..................... 2,165 22.88 1,840 1,652 ====== ======= ====== ====== Options exercisable at year end................ 1,466 $20.76 ====== ======= Weighted average fair value of options granted during the year.............................. $12.62 $11.71 ====== ======
Contemporaneous with the Parisian acquisition, outstanding Parisian stock options were converted into Proffitt's options. The following table summarizes information about stock options outstanding at February 1, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------- -------------------------- WEIGHTED- AVERAGE NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED- OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE RANGE OF AT FEBRUARY 1, LIFE EXERCISE AT FEBRUARY 1, EXERCISE EXERCISE PRICES 1997 (YEARS) PRICE 1997 PRICE - --------------- -------------- ----------- --------- -------------- --------- $7.50 to $11.25................ 266 5 $ 9.40 266 $ 9.40 $11.26 to $16.88................ 39 6 12.00 39 12.00 $16.89 to $25.31................ 1,374 7 23.26 1,015 22.97 $25.32 to $37.97................ 467 8 29.64 142 28.30 $37.98 to $39.88................ 19 9 39.88 4 39.88 ----- ------ ----- ------ 2,165 $22.88 1,466 $20.76 ===== ====== ===== ======
The Company also granted restricted stock awards of 129, 20 and 8 shares to certain employees in 1996, 1995 and 1994, respectively. The fair value of these awards on the dates of grants was $3,763, $499 and $120 for 1996, 1995 and 1994, respectively. During 1996, 1995 and 1994, compensation cost of $2,239, $449 and $120, respectively, has been recognized in connection with these awards. F-19 116 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK PURCHASE PLAN The stock purchase plan (the "Plan") provides that an aggregate of 350 shares of the Company's common stock is available for purchase. Under the Plan, an eligible employee may elect to participate by authorizing limited payroll deductions to be applied toward the purchase of common stock at a 15% discount to market value. Under the Plan, 14 and 13 shares of the Company's common stock were purchased by employees in 1996 and 1995, respectively. At January 31, 1997 the Plan has available 323 shares for future offerings. NOTE 13 -- RELATED PARTY TRANSACTIONS In 1989, an unsecured $500 interest-free loan was made as a supplement to the Chairman of the Board and Chief Executive Officer's base compensation. The loan is due January 31, 1999. During 1996, 1995 and 1994, the Company paid $796, $1,950 and $1,694 of preferred stock dividends and a $3,032 payment for early conversion of the preferred stock to an investment group in which a Director is a partner. NOTE 14 -- FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument: The fair values of cash and cash equivalents and short-term debt approximates cost due to the immediate or short-term maturity of these instruments. For variable rate notes that reprice frequently, fair value approximates carrying value. The fair value of fixed rate notes are estimated using discounted cash flow analyses with interest rates currently offered for loans with similar terms and credit risk. As of February 1, 1997, the fair value of fixed rate notes approximated the carrying value. The fair values of the 4.75% convertible debentures and the 9.875% notes are based on quoted market prices. For the junior debentures, the fair value is estimated using discounted cash flow analyses with interest rates currently offered for financial instruments with similar terms and credit risk. The fair values of the Company's aforementioned financial instruments at February 1, 1997 were as follows:
CARRYING ESTIMATED AMOUNT FAIR VALUE -------- ---------- 4.75% convertible debentures................................ $ 86,250 $ 84,525 9.875% notes................................................ $125,000 $127,500 7.5% junior debentures...................................... $ 14,517 $ 14,517
F-20 117 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 15 -- MERGER, RESTRUCTURING AND INTEGRATION COSTS Merger, restructuring and integration costs incurred in 1996 and 1995 were as follows:
1996 ------- Merger transaction costs, principally investment banking, legal and other direct merger costs -- Herberger's........ $ 2,649 Severance and related benefits -- Herberger's............... 3,129 Conversion and consolidation of information systems and administrative operations -- Herberger's.................. 3,355 Abandonment of duplicate data processing equipment and software and other assets -- Herberger's.................. 885 Termination of Younkers benefit plan........................ 1,362 Conversion and consolidation of management information systems -- Younkers....................................... 4,549 ------- $15,929 =======
1995 ------- Merger transaction costs, principally investment banking, legal and other direct merger costs -- Younkers........... $ 8,778 Severance and related benefits -- Younkers.................. 3,235 Abandonment of duplicate administrative office space and property and duplicate data processing equipment and software (including leases) -- Younkers................... 7,422 Other costs -- Younkers..................................... 1,387 ------- $20,822 =======
A reconciliation of the above charges to the amounts remaining unpaid at February 1, 1997 was as follows:
1996 1995 ------- -------- Merger, restructuring and integration charges............... $15,929 $ 20,822 Amounts representing non-cash write-offs.................... (2,417) (4,086) Amounts paid in 1995........................................ (1,636) Amounts paid in 1996........................................ (7,308) (11,913) ------- -------- Amounts unpaid at February 1, 1997.......................... $ 6,204 $ 3,187 ======= ========
The significant amount of charges remaining unpaid from 1995 relate principally to the lease payments related to the abandoned Younkers administrative office space. NOTE 16 -- HOSTILE TAKEOVER DEFENSE In 1995, prior to the Proffitt's and Younkers merger, Younkers was subjected to a hostile takeover attempt by Carson Pirie Scott. In defending itself against this takeover attempt, Younkers incurred legal fees and investment banking advisory fees aggregating $3,182. F-21 118 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 17 -- QUARTERLY FINANCIAL INFORMATION In the following summary of quarterly financial information, all adjustments necessary for a fair presentation of each period were included.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (UNAUDITED) Fiscal year ended February 1, 1997 Net sales........................................... $365,179 $343,359 $453,256 $727,985 Gross margin........................................ 127,978 122,320 162,789 246,238 Net income.......................................... 6,308 3,533 12,141 15,417 Primary earnings per common share................... 0.25 0.01 0.47 0.54 Fully diluted earnings per common share............. 0.25 0.14 0.45 0.53 Primary -- pro forma(a)............................. 0.25 0.14 0.47 0.54 Fiscal year ended February 3, 1996 Net sales........................................... 353,809 351,419 412,148 543,680 Gross margin........................................ 123,080 124,837 146,098 179,422 Income (loss) before extraordinary item............. 3,125 2,866 10,130 (15,480) Net income (loss)................................... 3,125 2,866 10,130 (17,540) Primary earnings (loss) per common share: Before extraordinary item........................ 0.11 0.10 0.42 (0.69) Extraordinary item............................... (0.09) Earnings (loss) per common share................. 0.11 0.10 0.42 (0.78)
- --------------- (a) Pro forma amounts represent primary earnings per common share assuming the conversion of the preferred stock had occurred as of the beginning of the year. In addition to the extraordinary loss on the early extinguishment of debt, the impairment of long-lived assets and the merger, restructuring and integration charges recorded in the fourth quarters of 1996 and 1995, the Company also revised certain estimates and recorded other charges related to Herberger's and Younkers in the fourth quarters of 1996 and 1995, respectively. In 1995, those charges were comprised principally of a strengthened provision for bad debts of $2,000, litigation of $5,000, conversion of leased shoe operations of $2,400, vendor chargebacks of $800 and depreciation of $700. In 1996, those charges were comprised principally of $1,000 of store closing and conversion costs and $1,700 to strengthen various accruals. F-22 119 PROFFITT'S, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
MAY 3, FEBRUARY 1, MAY 4, 1997 1997 1996 ---------- ----------- -------- ASSETS Current assets Cash and cash equivalents............................. $ 15,011 $ 3,382 $ 4,907 Residual interest in trade accounts receivable........ 79,711 85,400 32,038 Merchandise inventories............................... 499,396 447,164 373,663 Deferred income taxes................................. 18,663 11,700 4,953 Other current assets.................................. 42,373 48,317 21,421 ---------- ---------- -------- Total current assets.......................... 655,154 595,963 436,982 Property and equipment, net............................. 505,413 510,502 408,238 Goodwill and tradenames, net............................ 275,658 277,472 52,450 Other assets............................................ 20,569 19,859 23,936 ---------- ---------- -------- $1,456,794 $1,403,796 $921,606 ========== ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable................................ $ 157,123 $ 116,434 $105,041 Accrued expenses and other current liabilities........ 110,813 122,604 74,806 Current portion of long-term debt..................... 11,870 12,515 30,774 ---------- ---------- -------- Total current liabilities..................... 279,806 251,553 210,621 Senior debt............................................. 279,268 276,810 146,969 Deferred income taxes................................... 66,501 62,000 54,878 Other long-term liabilities............................. 50,220 47,768 15,008 Subordinated debt....................................... 225,840 225,767 100,568 Redeemable common stock held in ESOP.................... 59,168 Shareholders' equity.................................... 555,159 539,898 334,394 ---------- ---------- -------- $1,456,794 $1,403,796 $921,606 ========== ========== ========
See notes to condensed consolidated financial statements. F-23 120 PROFFITT'S, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED ---------------------------- MAY 3, 1997 MAY 4, 1996 ----------- ----------- NET SALES................................................... $526,370 $365,179 COSTS AND EXPENSES Cost of sales............................................. 335,882 237,201 Selling, general and administrative expenses.............. 127,079 88,485 Other operating expenses.................................. 42,568 30,719 Store pre-opening costs................................ 824 279 Merger, restructuring and integration costs............ 1,468 2,763 Losses (gains) from long-lived assets.................. 27 (2,260) ESOP expenses.......................................... 726 188 -------- -------- OPERATING INCOME.................................. 17,796 7,804 OTHER INCOME (EXPENSE): Finance charge income..................................... 15,237 10,634 Finance charge income allowed to purchaser of accounts receivables............................................ (4,359) (3,474) Interest expense.......................................... (10,692) (4,706) Other income, net......................................... 136 498 -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES.......... 18,118 10,756 Provision for income taxes.................................. 7,574 4,448 -------- -------- NET INCOME........................................ 10,544 6,308 Preferred stock dividends................................... 488 -------- -------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS....... $ 10,544 $ 5,820 ======== ======== Earnings per share: Primary................................................... $ 0.37 $ 0.25 ======== ======== Fully diluted............................................. $ 0.37 $ 0.25 ======== ======== Weighted average common shares: Primary................................................... 28,451 23,466 ======== ======== Fully diluted............................................. 30,539 23,655 ======== ========
See notes to condensed consolidated financial statements. F-24 121 PROFFITT'S, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED ------------------- MAY 3, MAY 4, 1997 1996 -------- -------- OPERATING ACTIVITIES Net income................................................ $ 10,544 $ 6,308 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.......................... 10,898 10,174 Deferred income taxes.................................. (2,462) 1,715 Losses (gains) from long-lived assets.................. 27 (2,260) Amortization of deferred compensation.................. 316 287 Other non-cash charges................................. 491 -- Changes in operating assets and liabilities, net....... (8,390) (23,277) -------- -------- Net cash provided by (used in) operating activities....................................... 11,424 (7,053) INVESTING ACTIVITIES Purchases of property and equipment, net.................. (24,090) (9,944) Proceeds from sale of assets.............................. 21,347 5,000 Other, net................................................ (876) (42) -------- -------- Net cash used in investing activities............. (3,619) (4,986) FINANCING ACTIVITIES Proceeds from long-term borrowings........................ 8,663 11,025 Payments on long-term debt................................ (6,850) (22,337) Proceeds from issuance of stock........................... 3,135 1,202 Dividends paid to shareholders............................ (1,124) (2,122) -------- -------- Net cash provided by (used in) financing activities.... 3,824 (12,232) Increase (decrease) in cash and cash equivalents....... 11,629 (24,271) Cash and cash equivalents at beginning of period....... 3,382 29,178 -------- -------- Cash and cash equivalents at end of period............. $ 15,011 $ 4,907 ======== ========
Cash paid (refunded) during the three months ended May 3, 1997 for interest and income taxes totaled $7,241 and ($1,930), respectively. Cash paid during the three months ended May 4, 1996 for interest and income taxes totaled $6,168 and $2,662, respectively. See notes to condensed consolidated financial statements. F-25 122 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of the Regulation S-K. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended May 3, 1997 are not necessarily indicative of the results that may be expected for the year ending January 31, 1998. The financial statements include the accounts of Proffitt's, Inc. and its subsidiaries. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended February 1, 1997. The accompanying balance sheet at February 1, 1997 has been derived from the audited financial statements at that date. NOTE B -- BUSINESS COMBINATIONS On October 11, 1996, Proffitt's, Inc. ("Proffitt's" or the "Company") acquired Parisian, Inc. ("Parisian"), a specialty department store chain currently operating 40 stores in the southeast and midwest. The Parisian transaction was accounted for as a purchase, and accordingly, financial results of the operations of Parisian have been included in the Company's results of operations since the acquisition date. The following unaudited pro forma summary presents the consolidated results of operations as if the Parisian acquisition had occurred at the beginning of the period presented and does not purport to be indicative of what would have occurred had the acquisition been made as of this date or results which may occur in the future.
THREE MONTHS ENDED MAY 4, 1996 --------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Pro forma: Net sales................................................... $531,226 Net income.................................................. $ 8,977 Earnings per common share: Primary................................................... $ .32 Fully diluted............................................. $ .32
Effective February 1, 1997, immediately before the Company's fiscal year end, Proffitt's combined its business with G.R. Herberger's, Inc. ("Herberger's"), a retail department store chain currently operating 39 stores in the midwest. The merger has been accounted for as a pooling of interests, and accordingly, the consolidated financial statements have been restated for the prior year to include the results of operations and financial position of Herberger's. In the quarters ended May 3, 1997 and May 4, 1996, the Company incurred certain integration costs related to its business combinations with Younkers, Parisian, and Herberger's. These pre-tax charges totaled $1.5 million and $2.8 million, respectively, for the quarters ended May 3, 1997 and May 4, 1996, respectively. A reconciliation of the aforementioned charges to the amounts of merger, restructuring, and integration costs remaining unpaid at May 3, 1997 was as follows (in thousands): Amounts unpaid at February 1, 1997.......................... $ 9,391 Adjustments to amounts unpaid at February 1, 1997........... 0 Amounts related to continuing integration efforts during the quarter................................................... 1,468 Amounts paid during the quarter............................. (5,067) ------- Amounts unpaid at May 3, 1997............................... $ 5,792
F-26 123 PROFFITT'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) NOTE C -- INCOME TAXES The difference between the actual income tax expense and the amount expected by applying the statutory federal income tax rate is due to the inclusion of state income taxes and the amortization of goodwill and tradenames, which is not deductible for income tax purposes. The deferred income tax asset and liability amounts reflect the impact of temporary differences between values recorded for assets and liabilities for financial reporting purposes and values utilized for measurement in accordance with tax laws. The major components of these amounts result from the allocation of the purchase price to the assets and liabilities related to the McRae's acquisition in March 1994 and the Parisian acquisition in October 1996. NOTE D -- RECENT FINANCING On May 21, 1997, the Company completed the sale of $125 million of 6.125% Senior Notes, due 2004 (the "Senior Notes"). The Senior Notes were offered in a private placement to qualified institutional buyers. Proceeds from the Senior Notes were used to repay existing mortgage notes and other unsecured obligations and to reduce amounts outstanding under the Company's revolving credit facility. The Company also intends to increase its existing $275 million revolving credit facility and issue approximately $200 million of term asset-backed securities against the Company's proprietary credit card receivables, replacing existing commercial paper-based financing. In May and June 1997, the Company repurchased approximately $32 million of the existing 9 7/8% Parisian Senior Subordinated Notes which will result in an extraordinary loss from the early extinguishment of debt of approximately $.9 million after tax. In connection with the Company's Senior Notes offering and the anticipated issuance of the term asset-backed securities, the Company entered into forward interest rate lock agreements in an aggregate notional amount of $95 million as of May 3, 1997. The agreements are settled contemporaneously with the completion of the financing. The Company's policy is to use financial derivatives only to reduce risk in conjunction with specific financing arrangements. Gains and losses on these hedges are included in the respective debt and deferred financing cost amounts. Gains and losses related to the hedges of firm commitments or anticipated transactions are deferred and recognized in operating results over the lives of the related assets or liabilities. F-27 124 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Parisian, Inc. We have audited the accompanying consolidated balance sheets of Parisian, Inc. and subsidiaries as of January 28, 1995 and February 3, 1996, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years ended January 29, 1994, January 28, 1995, and February 3, 1996. These financial statement are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Parisian, Inc. and subsidiaries as of January 28, 1995 and February 3, 1996, and the consolidated results of their operations and their cash flows for the years ended January 29, 1994, January 28, 1995 and February 3, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Birmingham, Alabama March 22, 1996 F-28 125 PARISIAN INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 28, 1995 AND FEBRUARY 3, 1996
JANUARY 28, FEBRUARY 3, 1995 1996 ------------ ------------ ASSETS Cash and cash equivalents................................... $ 394,377 $ 1,858,541 Restricted cash and short-term investments.................. 2,190,000 2,020,000 Accounts receivable, net.................................... 34,953,764 39,205,613 Merchandise inventory....................................... 119,924,513 143,045,118 Prepaid expenses............................................ 4,103,356 5,375,343 Deferred income taxes....................................... 3,412,662 3,668,660 Federal and state income tax receivable..................... 3,876,996 ------------ ------------ Total current assets.............................. 168,855,668 195,173,275 ============ ============ Property and equipment, less accumulated depreciation and amortization.............................................. 74,479,814 71,469,103 Goodwill, net............................................... 62,137,207 60,268,477 Deferred financing costs, net............................... 4,239,446 3,686,542 Other....................................................... 13,409,614 13,608,883 ------------ ------------ Total assets...................................... $323,121,749 $344,206,280 ============ ============ LIABILITIES Short-term debt, including current portion of long-term debt...................................................... $ 8,549,410 $ 2,863,604 Accounts payable............................................ 40,949,864 42,305,004 Accrued store rent.......................................... 1,026,703 1,842,683 Federal and state income tax payable........................ 1,184,949 Sales tax payable........................................... 6,188,263 6,476,474 Other....................................................... 10,836,673 11,901,969 ------------ ------------ Total current liabilities......................... 67,550,913 66,574,683 Long-term debt, less current portion above.................. 158,792,902 159,869,298 Deferred income taxes....................................... 8,170,795 8,167,214 Store opening reimbursements................................ 14,011,239 26,026,488 Other....................................................... 3,443,067 3,637,760 ------------ ------------ Total liabilities................................. 251,968,916 264,275,443 ------------ ------------ SHAREHOLDERS' EQUITY Convertible preferred stock, par value $.01 per share, 12,000,000 shares, none issued............................ Common stock, par value $.01 per share, authorized 65,000,000 shares, issued and outstanding 7,355,846 shares at January 28, 1995 and February 3, 1996.................. 73,558 73,558 Paid-in capital............................................. 87,959,792 87,959,792 Accumulated deficit......................................... (16,880,517) (8,102,513) ------------ ------------ Total shareholders' equity........................ 71,152,833 79,930,837 ------------ ------------ Total liabilities and shareholders' equity........ $323,121,749 $344,206,280 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-29 126 PARISIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JANUARY 29, 1994, JANUARY 28, 1995, AND FEBRUARY 3, 1996
FOR THE YEAR ENDED ------------------------------------------ JANUARY 29, JANUARY 28, FEBRUARY 3, 1994 1995 1996 ------------ ------------ ------------ Net sales, including leased departments.............. $517,667,748 $606,716,896 $663,827,999 Costs and expenses: Cost of sales...................................... 328,505,911 393,948,510 419,055,866 Selling, general, and administrative expenses...... 137,110,373 159,987,520 165,236,749 Other operating expenses: Property and equipment rentals.................. 14,436,483 21,583,330 29,787,936 Depreciation and amortization................... 12,850,190 12,855,933 12,618,367 Taxes other than income taxes................... 10,497,041 12,699,576 13,542,117 Reengineering costs............................. 3,184,725 304,369 ------------ ------------ ------------ Operating income........................... 14,267,750 2,457,302 23,282,595 Other income (expense): Finance charge income.............................. 9,930,691 8,046,347 7,125,115 Interest expense................................... (21,617,385) (18,051,210) (17,651,879) Other, net......................................... 155,901 411,194 2,407,349 ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes and extraordinary item..................................... 2,736,957 (7,136,367) 15,163,180 Provision (benefit) for income taxes................. 1,704,530 (1,673,554) 6,385,176 ------------ ------------ ------------ Income (loss) before extraordinary item.... 1,032,427 (5,462,813) 8,778,004 Extraordinary loss from early retirement of debt (net of income tax benefit of $3,092,179)............... (5,402,819) ------------ ------------ ------------ Net income (loss).......................... $ (4,370,392) $ (5,462,813) $ 8,778,004 ============ ============ ============ Income (loss) per common and common equivalent share before extraordinary item.......................... $ .17 $ (.78) $ 1.19 Extraordinary loss per common and common equivalent share.............................................. (.87) ------------ ------------ ------------ Net income (loss) per common and common equivalent share.............................................. $ (.70) $ (.78) $ 1.19 ============ ============ ============ Weighted average common and common equivalent shares............................................. 6,208,180 6,986,952 7,355,846 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-30 127 PARISIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 29, 1994, JANUARY 28, 1995, AND FEBRUARY 3, 1996
TOTAL PREFERRED COMMON PAID-IN ACCUMULATED SHAREHOLDERS' STOCK STOCK CAPITAL DEFICIT EQUITY --------- ------- ----------- ------------ ------------- Balance, January 30, 1993............. $0 $62,082 $73,052,973 $ (7,047,312) $66,067,743 Net loss.............................. (4,370,392) (4,370,392) -- ------- ----------- ------------ ----------- Balance, January 29, 1994............. 0 62,082 73,052,973 (11,417,704) 61,697,351 Issuance of common stock, net of $81,705 in issuance costs, 1,147,666 shares.............................. 11,476 14,906,819 14,918,295 Net loss (5,462,813) (5,462,813) -- ------- ----------- ------------ ----------- Balance, January 28, 1995............. 0 73,558 87,959,792 (16,880,517) 71,152,833 Net Income............................ 8,778,004 8,778,004 -- ------- ----------- ------------ ----------- Balance, February 3, 1996............. $0 $73,558 $87,959,792 $ (8,102,513) $79,930,837 == ======= =========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-31 128 PARISIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 29, 1994, JANUARY 28, 1995, AND FEBRUARY 3, 1996
FOR THE YEAR ENDED ------------------------------------------- JANUARY 29, JANUARY 28, FEBRUARY 3, 1994 1995 1996 ------------- ------------ ------------ Cash flows from operating activities: Net income (loss)......................................... $ (4,370,392) $ (5,462,813) $ 8,778,004 ------------- ------------ ------------ Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 12,850,190 12,855,933 12,618,367 Amortization of deferred financing costs................ 1,022,338 1,099,532 1,191,496 Proceeds from the initial sale of accounts receivable... 90,500,000 Provision for losses on accounts receivable............. 2,869,546 2,827,348 3,986,023 Loss (gain) on disposal of property and equipment....... 370,174 443,649 (1,814,341) Deferred compensation................................... 231,544 114,887 198,091 Write-off of unamortized financing costs (net of tax)... 2,063,819 Loss from redemption of debt (net of tax)............... 3,339,000 Change in assets and liabilities: (Increase) decrease in: Accounts receivable................................ (6,301,365) (1,937,633) (8,237,872) Merchandise inventory.............................. (14,002,448) (18,061,935) (23,120,605) Prepaid expenses................................... 1,151,554 (247,182) (1,271,987) Other.............................................. (10,433,472) (7,316,879) (5,294,953) Increase (decrease) in: Accounts payable................................... (3,765,665) 5,037,697 1,551,362 Accrued store rent................................. (234,160) 59,726 815,980 Federal and state income taxes..................... (2,850,263) (1,442,785) 5,061,945 Sales tax payable.................................. 589,857 152,475 288,211 Deferred income taxes.............................. 439,040 (1,734,382) (259,579) Other liabilities.................................. 799,686 2,875,671 2,199,993 ------------- ------------ ------------ Total adjustments................................ 78,639,375 (5,273,878) (12,087,869) ------------- ------------ ------------ Net cash provided by (used in) operating activities..................................... 74,268,983 (10,736,691) (3,309,865) ------------- ------------ ------------ Cash flows from investing activities: (Increase) decrease in restricted cash and short-term investments............................................. 1,711,731 (270,000) 170,000 Proceeds from sale of property and equipment.............. 29,325 1,085 9,937,589 Increase in cash value of life insurance.................. (338,775) (364,613) (337,110) Capital expenditures...................................... (14,974,339) (5,729,644) (10,735,276) Store opening reimbursements.............................. 2,000,000 2,600,000 10,986,827 ------------- ------------ ------------ Net cash provided by (used in) investing activities....................................... (11,572,058) (3,763,172) 10,022,030 ------------- ------------ ------------ Cash flows from financing activities: Borrowings under revolving credit agreements.............. 28,200,000 38,500,000 36,905,343 Payments under revolving credit agreements................ (105,200,000) (36,500,000) (38,905,343) Principal payments of long-term debt...................... (2,242,248) (2,395,323) (6,549,410) Proceeds from the issuance of subordinated notes.......... 125,000,000 Redemption of subordinated debentures..................... (100,000,000) Payment of financing costs................................ (5,575,969) (204,361) (638,591) Premium paid on redemption of debentures (net of tax)..... (3,339,000) Proceeds from issuance of common stock.................... 14,918,295 Proceeds from bond refunding.............................. 3,940,000 ------------- ------------ ------------ Net cash provided by (used in) financing activities....................................... (63,157,217) 14,318,611 (5,248,001) ------------- ------------ ------------ Net increase (decrease) in cash and cash equivalents...................................... (460,292) (181,252) 1,464,164 Cash and cash equivalents, beginning of period.............. 1,035,921 575,629 394,377 ------------- ------------ ------------ Cash and cash equivalents, end of period.................... $ 575,629 $ 394,377 $ 1,858,541 ============= ============ ============ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest................................................ $ 23,065,471 $ 17,089,008 $ 17,001,105 ============= ============ ============ Income taxes............................................ $ 2,203,733 $ 2,003,555 $ 4,991,703 ============= ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-32 129 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Company. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Parisian Services, Inc. (Parisian Services), Parisian Management Company, Inc., Parisian of Tennessee, Inc., and Hess Specialty Department Store, L.L.C. Parisian Services was formed for the purpose of financing customer accounts receivable of the Company and financing future credit purchases by the Company's customers. All material intercompany accounts and transactions have been eliminated. The Company currently operates thirty-six specialty department stores located in Alabama, Florida, Georgia, Tennessee, South Carolina, Ohio, Indiana, and Michigan and one clearance center in Alabama. The Company sells moderate to better-priced fashion merchandise including apparel, cosmetics, shoes, accessories, and gifts for the family. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. The value of merchandise inventory is determined by the retail inventory method, using last-in, first-out (LIFO) cost, which is lower than market for approximately 18% and 17% of the inventory and the lower of average cost or market for the balance of the inventory for 1995 and 1996, respectively. If average cost had been used for all inventory, the January 28, 1995 and February 3, 1996 merchandise inventory would have been higher by approximately $2,439,000 and $2,709,000, respectively. Certain expenditures incurred prior to the opening of new stores are deferred and charged to income on the straight-line basis over a twelve-month period following the date the related store is opened. Property and equipment is recorded at cost and depreciation and amortization are computed using the straight-line method. All property and equipment, except improvements to leased premises and land, is depreciated over its estimated useful life. Improvements to leased premises are amortized over the noncancelable terms of the leases. Costs for repairs and maintenance are expensed as incurred. Expenditures for certain computer software and related customization are recorded at cost and amortized using the straight-line method over the expected life of the licensing agreement. Additionally, certain related leased computer hardware and supporting software are being amortized using the straight-line method from the beginning amortization dates of the licensing agreement to the end of the hardware lease term. Such expenditures, included in other assets, totaled $8,304,722 and $9,885,824 as of January 28, 1995 and February 3, 1996, respectively. As of January 28, 1995 and February 3, 1996, accumulated amortization of expenditures related to software systems implemented was $1,035,794 and $2,542,732, respectively. Store opening reimbursements represent amounts received from developers in reimbursement of certain expenses incurred during the opening of a new store. Store opening reimbursements are amortized over the noncancelable term of the lease. Goodwill, the excess of purchase price over the fair value of the net assets acquired arising from a 1988 leveraged buy-out transaction, is being amortized on a straight-line basis over 40 years. As of January 28, 1995 and February 3, 1996, the accumulated amortization of goodwill is $12,611,997 and $14,480,727, respectively. Deferred financing costs represent fees and costs directly related to the issuance of debt. These costs are amortized using the straight-line method over the terms of the specific borrowings or commitments to which they relate and are included in interest expense. The Company expenses advertising cost when the advertising takes place. Advertising expense was $10,570,390, $14,814,426, and $19,470,129 in 1994, 1995, and in 1996, respectively. For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. F-33 130 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Reengineering costs include implementation of cost containment measures primarily directed at payroll as well as customer surveys to refine the Company's market focus. Net income (loss) per common and common equivalent share is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding during the periods. The effect of common stock options on net income (loss) per common and common equivalent share for all years presented is insignificant or antidilutive. During the year ended February 3, 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption of this accounting standard had no impact on the Company's financial statements. SFAS No. 123, Accounting for Stock-Based Compensation was issued during 1995. The Company anticipates that the adoption of this accounting standard will not be material to its financial condition. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or stockholders' equity. 2. ACCOUNTS RECEIVABLE Accounts receivable is shown net of allowances for doubtful accounts and return sales of $2,805,934 and $3,058,088 for January 28, 1995 and February 3, 1996, respectively. The provision for losses from bad debts, less recoveries, is included in selling, general, and administrative expenses and amounted to $2,869,546, $2,827,348, and $3,986,023 for the years ended January 29, 1994, January 28, 1995, and February 3, 1996, respectively. On March 31, 1993, the Company entered into an agreement through its subsidiary, Parisian Services, with Sheffield Receivables Corporation (Sheffield), whereby Sheffield agreed to provide up to $160 million in capital against eligible accounts receivable generated by holders of the Company's proprietary credit card accounts (the Receivables) pursuant to a nonrecourse facility (the Receivables Facility), which expires in July 1998. As of such date, Parisian Services sold an undivided interest in the Receivables to Sheffield and utilized the proceeds from such sale to repay in full Parisian Services' then outstanding indebtedness under the receivables loan agreement, which was then terminated. At January 28, 1995 and February 3, 1996, $109.5 and $101.0 million, respectively, of the available receivables had been sold to Sheffield and accounted for as a reduction of accounts receivable. Parisian Services retains a residual undivided interest in the Receivables equal to the undivided interest not purchased by Sheffield. Sheffield undivided interest and, accordingly, Parisian Services' undivided interest fluctuate each business day based upon the amount of capital invested in relation to the pool of eligible Receivables. The Company services and collects the Receivables. A cash reserve equal to 2% of aggregate capital is required under the agreement and is included in the restricted cash and short-term investments balance. Sheffield finances the purchase of its undivided interest in the Receivables primarily through the issuance of commercial paper or alternatively, the obtaining of revolving loans from the Liquidity Facility (defined F-34 131 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) below). The discount and interest costs are funded from the Receivables. The Receivables Facility receives liquidity support from a consortium of five banks (the Liquidity Facility) which have agreed to provide standby funding under certain specified conditions. Repayment of the amounts due under the commercial paper or revolving loans is without recourse to Parisian Services and is made solely through collections of Sheffield's undivided interest in Receivables. 3. PROPERTY AND EQUIPMENT A summary of property and equipment is as follows:
JANUARY 28, FEBRUARY 3, 1995 1996 ----------- ----------- Land........................................................ $ 920,903 $ 893,474 Buildings................................................... 57,442,129 51,734,084 Furniture, fixtures, and equipment.......................... 52,297,250 53,018,433 Leasehold improvements...................................... 6,088,111 6,585,766 Transportation equipment.................................... 2,524,363 268,285 ----------- ----------- 119,272,756 112,500,042 Less accumulated depreciation and amortization.............. 44,792,942 41,030,939 ----------- ----------- $74,479,814 $71,469,103 =========== ===========
In November 1995, the Company sold its store location in Sarasota, Florida, resulting in a gain of $1,725,783. The Sarasota store remained open throughout most of January 1996 and closed prior to February 3, 1996. In connection with this sale, the Company acquired the right to assume the lease for a store location in Columbia, South Carolina and also received certain additional consideration. The Company airplane was sold in 1995 resulting in a gain of $1,180,090. In conjunction with the expansion and remodeling of one store, the Company disposed of furniture, fixtures, and equipment with a net book value of $893,269. F-35 132 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. SHORT-TERM AND LONG-TERM DEBT Short-term and long-term debt consist of the following:
JANUARY 28, 1995 FEBRUARY 31, 1996 ----------------------- ----------------------- YEAR-END YEAR-END AMOUNT RATE AMOUNT RATE ------------ -------- ------------ -------- Short-term debt: Bank revolving credit agreement..... $ 2,000,000 9.75% $ 0 Tax-exempt promissory note -- On April 1, 1995, the note became payable on demand and was paid in May 1995......................... 4,109,749 7.22% 0 Current portion of long-term debt... 2,439,661 Various 2,863,604 Various ------------ ------------ Total short-term debt....... $ 8,549,410 $ 2,863,604 ============ ============ Long-term debt: Senior subordinated notes........... $125,000,000 9.875% $125,000,000 9.875% Mortgage loans -- five separate loans, payments due monthly, based on an original 27-year amortization, principal payments totaling $18,791,733 due in 1998............................. 19,258,204 10.5% 19,037,150 10.5% Tax-exempt promissory note -- payable in annual installments ranging from $185,000 to $525,000 through April 1, 2007 plus interest at a variable rate as determined on a weekly basis..................... 3,755,000 5.25% Obligations under capitalized leases: Headquarters and distribution center -- payable in quarterly installments aggregating $3,615,288 in the year ended 1996, varying in each year to $3,548,327 in the year ended 2000, including interest at prime rate within the range of 4.75% to 15.25%.................. 14,487,900 8.5% 12,072,900 8.25% Other capitalized leases............ 46,798 Various 4,248 12.05% ------------ ------------ $158,792,902 $159,869,298 ============ ============
Under a bank credit agreement, the Company may borrow through August 31, 1997 up to an amount such that the sum of loans outstanding and certain letters of credit issued thereunder (Total Commitment Amount) may not exceed $50,000,000. At February 3, 1996, $36,778,879 was available under this agreement as the Company had $13,221,121 in standby letters of credit outstanding under this agreement. The agreement requires that there be no aggregate principal amount outstanding on the loans for a period of thirty consecutive days during each calendar year. The bank credit loans bear interest at the bank's base rate plus 1.25%, payable monthly, with the rate adjustable to as low as the base rate plus .75% if certain debt to equity ratios are met. Bank credit loans may alternatively bear interest, at the request of the Company, at LIBOR plus a margin of 2.5% per annum. Certain commitment fees are also payable based upon unused commitment amounts. The Company has pledged all of the capital stock of its subsidiaries and certain notes receivable of the Company from Parisian Services as collateral for the bank credit loans. F-36 133 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Under the bank credit agreement, the Company is subject to certain affirmative and negative covenants. Some of the restrictive covenants are as follows: Negative covenants in the bank credit agreement include agreements that the Company will not permit the current ratio at the end of any fiscal quarter to be less than a range of 1.75 to 2.25, dependent on the fiscal quarter, to 1.0; the ratio of long-term debt to equity at the end of any fiscal quarter to be greater than a range of 2.6-2.15, dependent on the fiscal quarter, to 1.0; earnings before interest, taxes, depreciation, and amortization (EBITDA) to total debt service ratio at the end of any fiscal quarter to be less than a range of 1.10 to 2.00, dependent on the fiscal quarter, to 1.0; net worth, as defined, at the end of any fiscal quarter to be less than the sum of (A) $55 million, (B) 80% of net income for each fiscal year closed subsequent to January 29, 1995 for which net income was positive, (C) certain capital contributions and (D) certain other adjustments. Additionally, the Company may not declare, pay, or make any dividend or distribution of any class of capital stock. Information concerning the bank revolving credit agreements is as follows:
1994 1995 1996 ---------- ----------- ---------- Bank credit agreement: Weighted average interest rate based on daily amounts outstanding.............. 8% 8.63% 10.25% Average daily borrowings outstanding...... $ 361,000 $ 4,292,000 $ 827,820 Maximum borrowings outstanding at any month end.............................. $7,500,000 $29,000,000 $9,500,000
On July 15, 1993, the Company issued $125.0 million of 9.875% Senior Subordinated Notes due 2003 (the Notes) and notified the holders of its Senior Subordinated Debentures in the aggregate principal amount of $100.00 million (the Debentures) of its intention to redeem, as of August 14, 1993, all of its outstanding Debentures at the stated redemption price of 105.25%. One July 15, 1993, in order to effect such redemption, the Company deposited $107.25 million representing the $100.0 million principal of Debentures to be redeemed at the stated redemption price of 105.25% plus accrued and unpaid interest thereon to August 14, 1993, with AmSouth Bank, as escrow agent. The Company utilized proceeds from the issuance of the Notes to effect such redemption. The Company recorded an extraordinary loss of $5.4 million after taxes for the early retirement of debt. The extraordinary loss consists of the redemption premium paid to holders of the Debentures and the write-off of the unamortized portion of deferred financing fees associated with the retired Debentures. On or after July 15, 1998, the Notes are redeemable at the option of the Company, in whole or in part, at the redemption prices below plus accrued interest at the redemption date.
IF REDEEMED DURING THE TWELVE-MONTH PERCENTAGE OF PERIOD BEGINNING JULY 15 PRINCIPAL ----------------------------------- ------------- 1998............................................ 104.938% 1999............................................ 102.469 2000 and thereafter............................. 100.00
The Notes are uncollateralized obligations and are subordinated in right of payment to all senior indebtedness, as defined. Senior indebtedness was approximately $45,390,540 at February 3, 1996. The Company is subject to certain covenants set forth in the indenture to the Notes including, among others, the following: limitations on certain restricted payments; limitations on certain indebtedness; limitations on liens; limitations on dividends and other payment restrictions affecting subsidiaries; limitations on transactions with affiliates; limitations on preferred stock of subsidiaries; and limitations on future senior subordinated indebtedness. F-37 134 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Indebtedness outstanding under the tax-exempt promissory note bears interest at a floating rate based on prime, but in no event is the rate to be less than 6% or greater than 10%. During the years ended January 29, 1994, January 28, 1995, and February 3, 1996 the interest rate ranged from 6% per annum to 74.6% of prime. The interest charged changes within limits to protect the lender's yield when there is a change in the maximum federal corporate income tax rate. In May 1995, the Company purchased the tax-exempt bond with funds available under the Receivables Facility. On October 19, 1995, the bond was refunded, with credit enhancement provided by a financial institution. The outstanding indebtedness bears interest at a floating rate. At February 3, 1996, property and equipment with a net book value of approximately $45,085,127 was pledged as collateral on the mortgage loans, obligations under capitalized leases, equipment loan and security agreement, and mortgage note. Substantially all of the Company's bank accounts are pledged as collateral on the bank revolving credit agreement, described above. The noncurrent portion of long-term debt at February 3, 1996 is payable as follows: Second succeeding year...................................... $ 445,416 Third succeeding year....................................... 19,016,734 Fourth succeeding year...................................... 245,000 Fifth succeeding year....................................... 270,000 Thereafter.................................................. 127,815,000 ------------ 147,792,150 Capitalized lease obligations: Payable in monthly, semi-annual and annual installments... 12,077,148 ------------ $159,869,298 ============
The future minimum lease payments required under capitalized lease obligations are disclosed in Note 6. Based on the borrowing rates currently available to the Company for long-term debt with similar terms and average maturities, the fair value of long-term debt is approximately $137,359,119 at February 3, 1996. 5. INCOME TAXES The components of the current deferred income tax asset are:
JANUARY 28, FEBRUARY 3, 1995 1996 ----------- ----------- Inventory capitalization.................................... $1,406,435 $1,829,259 Allowances for doubtful accounts and return sales........... 910,319 1,148,056 Compensation accruals....................................... 633,794 622,579 Other....................................................... 462,114 68,766 ---------- ---------- $3,412,662 $3,688,660 ========== ==========
F-38 135 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the noncurrent deferred income tax liability are:
JANUARY 28, FEBRUARY 3, 1995 1996 ----------- ----------- Property and equipment...................................... $ 7,094,128 $ 6,095,988 Computer software costs..................................... 2,318,070 2,567,467 Store pre-opening costs..................................... 734,011 477,852 Compensation accruals....................................... (632,739) (727,915) Alternative minimum tax credit.............................. (1,330,723) Other....................................................... (11,952) (246,178) ----------- ----------- $ 8,170,795 $ 8,167,214 =========== ===========
The provision (benefit) for income taxes is comprised of the following:
JANUARY 29, JANUARY 28, FEBRUARY 3, 1994 1995 1996 ----------- ----------- ----------- Federal: Current......................................... $ 727,846 $ (58,003) $5,646,129 Deferred........................................ 1,055,992 (1,929,800) (243,627) ---------- ----------- ---------- 1,783,838 (1,987,803) 5,402,502 ---------- ----------- ---------- State: Current......................................... 537,644 118,831 998,626 Deferred........................................ (616,952) 195,418 (15,952) ---------- ----------- ---------- (79,308) 314,249 982,674 ---------- ----------- ---------- Provision for income taxes........................ $1,704,530 $(1,673,554) $6,385,176 ========== =========== ==========
In addition, an income tax benefit of $3,092,179 was recognized during the year ended January 29, 1994 related to the extraordinary loss from early retirement of debt. The provision (benefit) for income taxes is different from the amount computed by applying the federal income tax statutory rate to income (loss) before provision (benefit) for income taxes. The reasons for this difference, as a percentage of pretax income (loss), as follows:
JANUARY 29, JANUARY 28, FEBRUARY 3, 1994 1995 1996 ----------- ----------- ----------- Federal income tax statutory rate..................... 34% (34)% 35% Amortization of goodwill.............................. 23 9 5 State income taxes.................................... (3) 3 3 Other................................................. 8 (1) (1) -- --- -- Effective income tax rate................... 62% (23)% 42% == === ==
F-39 136 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Details of the deferred tax provision (benefit) are as follows:
JANUARY 29, JANUARY 28, FEBRUARY 3, 1994 1995 1996 ----------- ----------- ----------- Inventory capitalization.......................... $ (41,639) $ (256,801) $ (422,824) Property and equipment............................ (722,505) (210,083) (998,140) Computer software costs........................... 583,534 249,397 Store pre-opening costs........................... 1,309,414 (154,624) (256,159) Compensation accruals............................. (291,515) (6,076) (83,961) Alternative minimum tax credit.................... (1,330,723) 1,330,723 Other, net........................................ 185,285 (359,609) (78,615) ---------- ----------- ---------- Deferred tax provision (benefit)........ $ 439,040 $(1,734,382) $ (259,579) ========== =========== ==========
6. LEASES The Company leases its headquarters and distribution center and another facility under capitalized leases which expire in 2001 and 1996, respectively. At expiration, the Company has the option to purchase the leased properties for nominal amounts. In addition, the Company leases computer equipment under capitalized leases expiring over the next three years. The following is a summary of the leased property under capitalized leases by major classes of property:
JANUARY 28, FEBRUARY 3, 1995 1996 ----------- ----------- Classes of Property Buildings.............................................. $17,218,881 $17,219,894 Transportation equipment............................... 145,028 Furniture, fixtures, and equipment..................... 10,772,832 10,593,735 ----------- ----------- 28,136,741 27,813,629 Less accumulated amortization.......................... 10,871,026 11,119,920 ----------- ----------- 17,265,715 16,693,709 Land................................................... 711,507 711,507 ----------- ----------- $17,977,222 $17,405,216 =========== ===========
Future minimum lease payments required under capitalized lease obligations together with the present value of the net minimum lease payments at February 3, 1996 are as follows: First succeeding year....................................... $ 3,619,446 Second succeeding year...................................... 3,616,481 Third succeeding year....................................... 3,658,634 Fourth succeeding year...................................... 3,707,527 Fifth succeeding year....................................... 3,503,255 Thereafter.................................................. ----------- 18,105,343 Less amount representing interest........................... 3,577,443 ----------- Present value of net minimum lease payments................. $14,527,900 =========== Current portion of above.................................... $ 2,455,000 =========== Noncurrent portion of above................................. $12,072,900 ===========
F-40 137 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition, the Company conducts a substantial portion of its operations from thirty-one leased stores. The leases are operating leases and expire at various times during the next 20 years. The Company can, at its option, renew most of these leases at predetermined fair rental values for periods of five to fifteen years. The rental payments under the store leases are based on a minimum rental plus a percentage of the stores' sales in excess of stipulated amounts. The Company also leases certain computer equipment, vehicles, and loss prevention equipment under operating leases. The future minimum rental payments under operating leases having initial or remaining noncancelable lease terms in excess of one year as of February 3, 1996 are as follows: First succeeding year....................................... $ 26,705,012 Second succeeding year...................................... 26,335,196 Third succeeding year....................................... 24,720,623 Fourth succeeding year...................................... 23,539,730 Fifth succeeding year....................................... 22,210,711 Thereafter.................................................. 251, 487,144 ------------ Total minimum payments required................... $374,998,416 ============
The following schedule shows total rental expense for all operating leases:
JANUARY 29, JANUARY 28, FEBRUARY 3, 1994 1995 1996 ----------- ----------- ----------- Minimum rentals................................. $12,548,820 $20,319,741 $27,553,590 Contingent rentals.............................. 1,785,982 1,270,191 2,231,259 ----------- ----------- ----------- $14,334,802 $21,589,932 $29,784,849 =========== =========== ===========
The Company leases one of its stores from a limited partnership which includes certain officers of the Company. Rental expense related to the lease amounted to $568,213 for the year ended January 29, 1994, $565,574 for the year ended January 28, 1995 and $556,453 for the year ended February 3, 1996. The future minimum lease payments required under the lease as of February 3, 1996 are $8,917,082. In addition, the Company has entered into a lease for a future store opening. The future minimum rental payments under this operating lease having an initial noncancelable lease term in excess of one year as of February 3, 1996 is as follows: First succeeding year....................................... $ 0 Second succeeding year.................................... 875,160 Third succeeding year....................................... 875,160 Fourth succeeding year...................................... 875,160 Fifth succeeding year....................................... 875,160 Thereafter.................................................. 15,590,700 ----------- Total minimum payments required................... $19,091,340 ===========
7. EMPLOYEE BENEFIT PLANS The Company has a combined profit-sharing and Section 401(k) plan which provides death, disability, termination, and retirement benefits to its eligible employees who are at least 21 years of age and have completed one year and 1,00 hours of service with the Company. The profit-sharing portion and the Section 401(k) portion of the plan provides for discretionary contributions by the Company as determined by resolutions of the Board of Directors. F-41 138 PARISIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Beginning in 1993, the Company's contribution to the profit-sharing portion of the plan was terminated. With the Company's growth, the number of participants in the plan had grown and the amount allocated to each participant became diluted. Existing accounts will remain and continue to be invested. The Company contribution to the Section 401(k) plan totaled $700,00 for the year ended January 29, 1994. No company contribution was made to the plan for the year ended January 28, 1995. The Company contribution to the Section 401(k) plan totaled $600,000 for the year ended February 3, 1996. 8. STOCK OPTION PLANS The Company's stock option plan for officers, as amended, allows for the grant of options to purchase 405,882 shares of common stock to certain officers. During April 1988 and March 1992, 345,000 and 20,000 options to purchase common shares were granted, respectively. An additional 17,037 options to purchase common shares were granted during September 1995. The exercise price for all such options is $20.40 per share. These options were granted at an exercise price that was equal to or above fair value as determined by a committee consisting of the Participant Representatives under the plan. As of February 3, 1996, 324,667 of these options were outstanding; 57,370 options have been forfeited in accordance with the provisions of the Plan. The options generally began to vest at the rate of 20% per year from February 3, 1990. Participants may exercise their vested options following the date such options become fully vested. At February 3, 1996, 314,445 options are vested and became exercisable during the month of May 1994. In the case of certain specified events, the options would become immediately fully vested and exercisable subject to certain regulatory requirements. The Company's Management Incentive Plan allows for the grant of options to purchase 101,471 shares of common stock to certain managers of the Company. During July 1990 and March 1992, 60,250 and 5,750 options to purchase common shares were granted, respectively, at an exercise price of $20.40 per share. These options were granted at an exercise price that was equal to or above fair value as determined by a committee consisting of the Participant Representatives under the plan. The options generally began to vest at the rate of 20% per year from February 2, 1991. Participants may exercise their vested options following the date such options become fully vested. At February 3, 1996, 56,850 options are vested and became exercisable during the month of May 1994. In the case of certain specified events, the options would become immediately fully vested and exercisable subject to certain regulatory requirements. Since the year ended February 2, 1991 grant, 9,150 nonvested options have been forfeited in accordance with the provisions of the Plan; consequently, as of January 28, 1995 and February 3, 1996, 57,050 and 56,850, respectively, of these options were outstanding. F-42 139 ====================================================== NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE ---- Explanatory Note...................... 2 Available Information................. 3 Cautionary Notice Regarding Forward-Looking Statements.......... 3 Prospectus Summary.................... 4 Risk Factors.......................... 13 The Exchange Offer.................... 15 Plan of Distribution.................. 26 Use of Proceeds....................... 27 Capitalization........................ 27 Selected Financial Data............... 28 Pro Forma Combined Statement of Income (unaudited)......................... 30 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 32 Business.............................. 41 Management............................ 50 Executive Compensation................ 53 Certain Transactions.................. 56 Principal Shareholders................ 58 Description of Other Indebtedness..... 60 Receivables Securitization Facilities.......................... 63 Description of The Notes.............. 64 Certain Federal Income Tax Considerations...................... 91 Legal Matters......................... 94 Experts............................... 94 Index to Financial Statements......... F-1
====================================================== ====================================================== [LOGO] PROFFITT'S INC. OFFER TO EXCHANGE $125,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF 8 1/8% SENIOR NOTES DUE 2004, SERIES B FOR ALL $125,000,000 IN AGGREGATE OUTSTANDING PRINCIPAL AMOUNT OF 8 1/8% SENIOR NOTES DUE 2004, SERIES A ------------------------- PROSPECTUS ------------------------- JUNE , 1997 ====================================================== 140 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. All amounts are estimates except the SEC registration fee.* SEC Registration Fee........................................ $ 37,878.79 Accounting fees and expenses................................ 60,000 Legal fees and expenses..................................... 100,000 Printing and engraving expenses............................. 35,000 Blue Sky fees and expenses.................................. 1,000 Trustee, Exchange Agent, Transfer Agent and Registrar fees and expenses.............................................. 5,000 Miscellaneous............................................... 7,500 ----------- Total............................................. $246,378.79 ===========
- --------------- * Includes amounts incurred in connection with the original issuance of the Notes. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The By-Laws of the Company provide that the Company shall indemnify to the full extent authorized or permitted by the Tennessee Business Corporation Act any person made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person, or such person's testate or intestate, is or was an officer or director of the Company or serves or served as an officer or director of any other enterprise at the request of the Company. Section 48-18-503 of the Tennessee Business Corporation Act provides for "mandatory indemnification," unless limited by the charter, by a corporation against reasonable expenses incurred by a director who is wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director was a party by reason of the director being or having been a director of the corporation. Section 48-18-504 of the Tennessee Business Corporation Act states that a corporation may, in advance of the final disposition of a proceeding, reimburse reasonable expenses incurred by a director who is a party to a proceeding if the director furnishes the corporation with a written affirmation of the director's good faith belief that the director has met the standard of conduct required by Section 48-18-502 of the Tennessee Business Corporation Act, that the director will repay the advance if it is ultimately determined that such director did not meet the standard of conduct required by Section 48-18-502 of the Tennessee Business Corporation Act, and that those making the decision to reimburse the director determine that the facts then known would not preclude indemnification under the Tennessee Business Corporation Act. Section 48-18-507 of the Tennessee Business Corporation Act provides for mandatory indemnification, unless limited by the charter, of officers pursuant to the provisions of Section 48-18-503 of the Tennessee Business Corporation Act applicable to mandatory indemnification of directors. The Company's By-Laws further provide that the Company may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person or on such person's behalf in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify such person against such liability under the By-Laws, provided that such insurance is available on acceptable terms as determined by a majority of the Company's Board of Directors. II-1 141 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. [Complete] ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a)The following exhibits are filed as a part of this Registration Statement:
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1* Agreement and Plan of Merger, dated October 22, 1995, among Proffitt's, Inc., Baltic Merger Corporation and Younkers, Inc.(13) 2.2* Agreement and Plan of Merger, dated as of July 8, 1996, among Proffitt's, Inc., Casablanca Merger Corp., and Parisian, Inc.(23) 2.3* Agreement and Plan of Merger, dated November 8, 1996, among Proffitt's, Inc., Prairie Merger Corporation and G.R. Herberger's, Inc.(24) 2.4 Purchase Agreement, dated May 21, 1997, by and among Proffitt's, Inc., the Subsidiary Guarantors listed therein, and Merrill Lunch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., and Smith Barney Inc. 3.1* Charter of the Company, as amended(1), (6), (9), (12), (21) 3.2* Amended and Restated Bylaws of the Company(12) 4.1* Form of 7.5% Junior Subordinated Debentures due 2004(6) 4.2* Form of 4.75% Convertible Subordinated Debentures due 2003(4) 4.3* Form of Supplemental Indenture to the Indenture dated July 15, 1993 between Parisian, Inc. and AmSouth Bank of Alabama, as Trustee(27) 4.4 Indenture, dated as of May 21, 1997, between Proffitt's Inc., the Subsidiary Guarantors named therein, and The First National Bank of Chicago. 4.5 Registration Rights Agreement, dated as of May 21, 1997, by and among Proffitt's, Inc., the Subsidiary Guarantors named therein, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., and Smith Barney Inc. 5.1 Opinion and Consent of Alston & Bird LLP. 5.2 Opinion and Consent of Sommer & Barnard. 10.1* Registration Rights Agreement by and between Proffitt's, Inc. and Richard D. McRae dated March 31, 1994(6) 10.2* Registration Rights Agreement between Proffitt's, Inc. and Parisian, Inc. dated July 8, 1996(26) 10.3* Registration Rights Agreement by and among Proffitt's, Inc. and Apollo Specialty Retail Partners, Inc. dated March 3, 1994(6) 10.4* Securities Purchase Agreement between Proffitt's, Inc. and Apollo Specialty Retail Partners, L.P. dated March 3, 1994(6) 10.5* Non-competition Agreement by and between Proffitt's, Inc. and Richard D. McRae dated March 31, 1994(6) 10.6* Credit Facilities and Reimbursement Agreement by and among Proffitt's, Inc., certain lenders, and NationsBank of Texas, N.A., as agent, dated October 11, 1996(25) 10.7* Amendment No. 1 and waiver to Credit Facilities and Reimbursement Agreement between Proffitt's, Inc. and NationsBank of Texas, National Association, as agent, dated January 14, 1997(29) 10.8* Transfer and Administration Agreement dated by and between Enterprise Funding Corporation and Proffitt's Credit Corporation dated January 15, 1997(29)
II-2 142
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.9* Amendment to Transfer and Administration Agreement by and between Enterprise Funding Corporation and Proffitt's Credit Corporation dated January 30, 1997(29) 10.10* Receivables Purchase Agreement between Proffitt's, Inc. and Proffitt's Credit Corporation dated January 15, 1997(29) 10.11* Receivables Purchase Agreement between McRae's, Inc. and Proffitt's Credit Corporation dated January 15, 1997(29) 10.12* Receivables Purchase Agreement between Parisian Services, Inc. and Parisian, Inc. and Proffitt's Credit Corporation dated January 15, 1997(29) 10.13* Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Park Real Estate Company dated April 1, 1994(6) 10.14* Secured Promissory Note for the principal amount of $3,906,558 by McRae's, Inc. payable to Park Real Estate Company dated April 1, 1994(6) 10.15* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and Deposit Guaranty National Bank dated April 1, 1994(6) 10.16* Amended and Restated Promissory Note for the principal amount of $2,075,000 by McRae's, Inc. payable to First Tennessee Bank National Association (Gautier) dated April 1, 1994(6) 10.17* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and First Tennessee Bank National Association dated April 1, 1994(6) 10.18* Secured Promissory Note for the principal amount of $556,851 by McRae's, Inc. payable to Arvey Real Estate Company dated April 1, 1994 (Gautier)(6) 10.19* Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Arvey Real Estate Company dated April 1, 1994(6) 10.20* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and First Tennessee Bank National Association dated April 1, 1994 (Gautier)(6) 10.21* Secured Promissory Note for the principal amount of $1,487,919 by McRae's, Inc. payable to Green's Crossing Real Estate Company dated April 1, 1994(6) 10.22* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and Deposit Guaranty National Bank dated April 1, 1994(6) 10.23* Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Green's Crossing Real Estate Company dated April 1, 1994(6) 10.24* Secured Promissory Note for the principal amount of $1,779,223 by McRae's, Inc. payable to Arvey Real Estate Company dated April 1, 1994 (Laurel)(6) 10.25* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and AmSouth Bank National Association dated April 1, 1994(6) 10.26* Leasehold Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Arvey Real Estate Company dated April 1, 1994 (Laurel)(6) 10.27* Indemnification and Confirmation of Lease Agreement entered into among McRae's, Inc., Richard D. McRae, Jr., Susan McRae Shanor, and Vaughan McRae dated March 31, 1994 (Heritage Building)(6) 10.28* Guaranty Agreement of McRae's, Inc. to guarantee Richard D. McRae, Jr., Carolyn McRae, Susan McRae Shanor, and Vaughan W. McRae giving or extending credit to Proffitt's, Inc., dated March 31, 1994(6) 10.29* Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, Green's Grossing Real Estate Company dated April 1, 1994(6)
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EXHIBIT NO. DESCRIPTION - ------- ----------- 10.30* Guaranty Agreement by Proffitt's, Inc. to AmSouth Bank guaranteeing credit extended to McRae's, Inc.(6) 10.31* Promissory Note by McRae's, Inc. payable to Selby W. McRae in the principal sum of $1,346,442 dated January 25, 1938(5) 10.32* Form of Rights Certificate and Rights Agreement between Proffitt's, Inc. and Union Planters National Bank, as rights agent, dated March 28, 1995(9) 10.33* Pooling and Servicing Agreement among Younkers Credit Corporation, Younkers, Inc., and Union Planters National Bank, as rights agent, dated March 28, 1995(20) 10.34* Series 1995-1 Supplement to Pooling and Servicing Agreement among Younkers Credit Corporation, Younkers, Inc., and Chemical Bank, as Trustee, dated June 13, 1995(20) 10.35* Amendment No. 2 to Pooling and Servicing Agreement among Younkers Credit Corporation, Proffitt's, Inc. (successor-by-merger to Younkers, Inc.), and The Chase Manhattan Bank (formerly known as Chase Bank), as Trustee, dated February 1, 1997(29) 10.36* Receivables Purchase Agreement between Younkers Credit Corporation and Younkers, Inc. dated June 13, 1995(20) 10.37* Series 1995-2 Supplement to Pooling and Servicing Agreement dated as of June 13, 1995 among Younkers Credit Corporation, Younkers, Inc., and Chemical Bank, as Trustee, dated July 18, 1995(20) 10.38* ISDA Master Agreement and Schedule thereto, each dated as of July 19, 1995, between Younkers, Inc. and NationsBank of Texas, N.A., with Confirmation of Interest Rate Cap Transaction dated July 19, 1995, and Assignment Agreement dated as of July 19, 1995 between Younkers Credit Corporation, Younkers, Inc. and Chemical Bank, as Trustee(20) 10.39* Proffitt's, Inc. 1987 Stock Option Plan, as amended(3) 10.40* Proffitt's, Inc. Employee Stock Purchase Plan(8) 10.41* Proffitt's, Inc. 1994 Long-Term Incentive Plan(7) 10.42* Proffitt's, Inc. 401(k) Retirement Plan(28) 10.43* G.R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan(29) 10.44* Third Amendment and Restatement of The Parisian, Inc. Stock Option Plan for Officers(29) 10.45* First Amendment and Restatement of The Parisian, Inc. Management Incentive Plan(29) 10.46* Younkers, Inc. Stock and Incentive Plan(14) 10.47* Younkers, Inc. Management Stock Option Plan(14) 10.48* Younkers, Inc. 1993 Long-Term Incentive Plan(16) 10.49* Form of Younkers, Inc. Deferred Compensation Plan(17) 10.50* Form of Severance Agreement between Younkers, Inc. and its executive officers(19) 10.51* $500,000 Loan Agreement between Proffitt's, Inc. and R. Brad Martin dated February 1, 1989(2) 10.52* Deferred Compensation Agreement between Younkers, Inc. and W. Thomas Gould, as amended (14) 10.53* Amendment to Deferred Compensation Agreement between Younkers, Inc. and W. Thomas Gould, dated February 13, 1997(29) 10.54* Form of Deferred Compensation Agreement between Younkers, Inc. and Robert M. Mosco, as amended(14) 10.55* Form of Employment Agreement by and between Proffitt's, Inc. and Gary L. Howard dated March 28, 1995(10)
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EXHIBIT NO. DESCRIPTION - ------- ----------- 10.56* Form of Employment Agreement by and between Proffitt's, Inc. and John White dated February 2, 1996(21) 10.57* Form of Employment Agreement by and between Proffitt's, Inc. and W. Thomas Gould dated October 22, 1995(21) 10.58* Form of Amendment to Employment Agreement by and between Proffitt's, Inc. and W. Thomas Gould dated February 13, 1997(29) 10.59* Form of Employment Agreement by and between Proffitt's, Inc. and Robert M. Mosco dated October 28, 1996(22) 10.60* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Robert M. Mosco dated October 28, 1996(22) 10.61* Form of Employment Agreement by and between Proffitt's, Inc. and John B. Brownson dated November 8, 1996(22) 10.62* Form of Employment Agreement by and between Proffitt's, Inc. and Douglas E. Coltharp dated November 25, 1996(22) 10.63* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Douglas E. Coltharp dated November 25, 1996(22) 10.64* Form of Employment Agreement by and between Proffitt's, Inc. and Donald E. Hess dated July 8, 1996(22) 10.65* Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and Brian J. Martin dated October 11, 1996(22) 10.66* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Brian J. Martin dated October 11, 1996(22) 10.67* Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and James A. Coggin dated October 11, 1996(22) 10.68* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to James A. Coggin dated October 11, 1996(22) 10.69* Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and R. Brad Martin dated October 11, 1996(22) 10.70* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to R. Brad Martin dated October 11, 1996(22) 10.71* Form of Employment Agreement by and between Proffitt's, Inc. and Frank E. Kulp dated March 24, 1997(29) 10.72* Form of Employment Agreement by and between Proffitt's, Inc. and Donald E. Wright dated April 1, 1997(29) 10.73* Form of Employment Agreement by and between Proffitt's, Inc. and William D. Cappiello dated April 3, 1997(29) 10.74* Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and David Baker dated April 1, 1997(30) 10.75* Form of Employment Agreement by and between Proffitt's, Inc. and R. Thomas Coan dated April 28, 1997(30) 10.76* Form of Employment Agreement by and between Proffitt's, Inc. and John Parros dated April 28, 1997(30) 10.77* Form of Third Amended and Restated Employment Agreement by and between Proffitt's, Inc. and R. Brad Martin dated May 9, 1997(30)
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EXHIBIT NO. DESCRIPTION - ------- ----------- 10.78* Form of Employment Agreement by and between Proffitt's, Inc. and Dawn H. Robertson dated May 19, 1997(30) 10.79* Form of Employment Agreement by and between Proffitt's, Inc. and Mark Shulman dated June 16, 1997(30) 10.80* Form of Employment Agreement by and between Proffitt's, Inc. and Toni E. Browning dated June 16, 1997(30) 10.81* Form of Employment Agreement by and between Proffitt's, Inc. and Mark Goldstein dated June 16, 1997(30) 11.1 Statement Regarding Computation of Historical Earnings Per Common Share 12.1* Calculation of Earnings to Fixes Charges 21.1* Subsidiaries of the Company(29) 23.1 Consent of Alston & Bird LLP (included in Exhibit 5.1) 23.2 Consent of Sommer & Barnard (included in Exhibit 5.2) 23.3 Consent of Coopers & Lybrand 23.4 Consent of Coopers & Lybrand 23.5 Consent of Deloitte & Touche 24.1 Powers of Attorney (contained on pages II-9 to II-15) 25.1 Forms T-1 -- Statements of Eligibility of Trustee 27.1 Financial Data Schedule (for SEC use only) 99.1 Form of Letter of Transmittal
- --------------- * Previously filed and incorporated as follows: (1) Incorporated by reference from the Exhibits to the Form S-1 Registration Statement No. 33-13548 of Proffitt's, Inc. dated June 3, 1987. (2) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 28, 1989. (3) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-46306 of Proffitt's, Inc. dated March 10, 1992. (4) Incorporated by reference from the Exhibits to the Form S-3 Registration Statement No. 33-70000 of Proffitt's, Inc. dated October 19, 1993. (5) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 29, 1994. (6) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated April 14, 1994. (7) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-80602 of Proffitt's, Inc. dated June 23, 1994. (8) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-88390 of Proffitt's, Inc. dated January 11, 1995. (9) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated April 3, 1995. (10) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 28, 1995. (11) Not applicable. (12) Incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended July 29, 1995. (13) Incorporated by reference from the Exhibits to the Form S-4 Registration Statement No. 333-00029 of Proffitt's, Inc. dated January 3, 1996. (14) Incorporated by reference from the Exhibits to the Form S-1 Registration Statement No. 33-45771 of Younkers, Inc. II-6 146 (15) Not applicable. (16) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-59224 of Younkers, Inc. (17) Incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended May 1, 1993. (18) Incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 31, 1993. (19) Incorporated by reference from Exhibit 4 of Younkers, Inc. Solicitation/Recommendation Statement of Schedule 14D-9 dated January 9, 1995. (20) Incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 29, 1995. (21) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended February 3, 1996. (22) Incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended November 2, 1997. (23) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated July 18, 1996. (24) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated November 22, 1996. (25) Incorporated by reference from the Exhibits to Amendment No. 1 to Form 8-K/A of Proffitt's, Inc. dated December 16, 1996. (26) Incorporated by reference from the Exhibits to the Form S-4 Registration Statement No. 333-09043 of Proffitt's, Inc. dated August 16, 1996. (27) Incorporated by reference from the Exhibits to the Form S-3 Registration Statement No. 333-09941 of Proffitt's, Inc. dated August 9, 1996. (28) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 333-25213 of Proffitt's, Inc. dated April 15, 1997. (29) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. dated April 29, 1997. (30) Incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended May 3, 1997. ITEM 17. UNDERTAKINGS. Each of the undersigned registrants hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the II-7 147 Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. 2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 4. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person of the registrant in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-8 148 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jackson, State of Mississippi, on June 4, 1997. PROFFITT'S, INC. By: /s/ R. BRAD MARTIN ----------------------------------- R. Brad Martin Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian J. Martin and Douglas E. Coltharp, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, including any Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ R. BRAD MARTIN Chairman of the Board and Chief June 12, 1997 - ----------------------------------------------------- Executive Officer R. Brad Martin /s/ RONALD DE WAAL Vice Chairman of the Board June 12, 1997 - ----------------------------------------------------- Ronald de Waal /s/ DOUGLAS E. COLTHARP Executive Vice President and June 12, 1997 - ----------------------------------------------------- Chief Financial Officer Douglas E. Coltharp (Principal Financial Officer) /s/ DONALD E. WRIGHT Senior Vice President of Finance June 12, 1997 - ----------------------------------------------------- and Accounting (Principal Donald E. Wright Accounting Officer) /s/ BERNARD E. BERNSTEIN Director June 12, 1997 - ----------------------------------------------------- Bernard E. Bernstein Director June , 1997 - ----------------------------------------------------- Edmond D. Cicala
II-9 149
NAME TITLE DATE ---- ----- ---- /s/ GERARD K. DONNELLY Director June 12, 1997 - ----------------------------------------------------- Gerard K. Donnelly /s/ DONALD F. DUNN Director June 12, 1997 - ----------------------------------------------------- Donald F. Dunn /s/ THOMAS GOULD Director June 12, 1997 - ----------------------------------------------------- Thomas Gould /s/ MICHAEL S. GROSS Director June 12, 1997 - ----------------------------------------------------- Michael S. Gross /s/ DONALD E. HESS Director June 12, 1997 - ----------------------------------------------------- Donald E. Hess /s/ G. DAVID HURD Director June 12, 1997 - ----------------------------------------------------- G. David Hurd /s/ RICHARD D. MCRAE Director June 12, 1997 - ----------------------------------------------------- Richard D. McRae /s/ C. WARREN NEEL Director June 12, 1997 - ----------------------------------------------------- C. Warren Neel /s/ HARWELL W. PROFFITT Director June 12, 1997 - ----------------------------------------------------- Harwell W. Proffitt /s/ MARGUERITE W. SALLEE Director June 12, 1997 - ----------------------------------------------------- Marguerite W. Sallee /s/ GERALD TSAI, JR. Director June 12, 1997 - ----------------------------------------------------- Gerald Tsai, Jr.
II-10 150 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Cloud, State of Minnesota, on June 12, 1997. G.R. HERBERGER'S, INC. By: /s/ FRANK KULP ------------------------------------ Frank Kulp President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian J. Martin and Douglas E. Coltharp, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, including any Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement to be signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ FRANK KULP President June 12, 1997 - ----------------------------------------------------- (Principal Executive Officer) Frank Kulp /s/ DOUGLAS E. COLTHARP Executive Vice President and June 12, 1997 - ----------------------------------------------------- Chief Financial Officer Douglas E. Coltharp (Principal Financial Officer) /s/ DONALD E. WRIGHT Senior Vice President (Principal June 12, 1997 - ----------------------------------------------------- Accounting Officer) Donald E. Wright /s/ BRIAN J. MARTIN Director June 12, 1997 - ----------------------------------------------------- Brian J. Martin /s/ R. BRAD MARTIN Director June 12, 1997 - ----------------------------------------------------- R. Brad Martin /s/ JAMES A. COGGIN Director June 12, 1997 - ----------------------------------------------------- James A. Coggin
II-11 151 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jackson, State of Mississippi, on June 12, 1997. MCRAE'S, INC. By: /s/ DAWN ROBERTSON ----------------------------------- Dawn Robertson President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian J. Martin and Douglas E. Coltharp, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, including any Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement to be signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAWN ROBINSON President (Principal Executive June 12, 1997 - ----------------------------------------------------- Officer) Dawn Robinson /s/ DOUGLAS E. COLTHARP Executive Vice President and June 12, 1997 - ----------------------------------------------------- Chief Financial Officer Douglas E. Coltharp (Principal Financial Officer) /s/ DONALD E. WRIGHT Senior Vice President (Principal June 12, 1997 - ----------------------------------------------------- Accounting Officer) Donald E. Wright /s/ BRIAN J. MARTIN Director June 12, 1997 - ----------------------------------------------------- Brian J. Martin /s/ R. BRAD MARTIN Director June 12, 1997 - ----------------------------------------------------- R. Brad Martin /s/ JAMES A. COGGIN Director June 12, 1997 - ----------------------------------------------------- James A. Coggin
II-12 152 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jackson, State of Mississippi, on June 12, 1997. MCRAE'S, INC., as Managing General Partner of MCRAE's STORES PARTNERSHIP By: /s/ DOUGLAS E. COLTHARP ----------------------------------- Douglas E. Coltharp Executive Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the entity for which a signature appears below constitutes and appoints Brian J. Martin and Douglas E. Coltharp, and each of them, its true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for it and in its name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, including any Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as it might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or its substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement to be signed by the following persons in the capacities and on the dates indicated.
NAME DATE ---- ---- MCRAE'S, INC., as Managing General Partner June 12, 1997 By: /s/ DOUGLAS E. COLTHARP ------------------------------------------------- Name: Douglas E. Coltharp Title: Executive Vice President
II-13 153 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jackson, State of Mississippi, on June 12, 1997. MCRAE'S OF ALABAMA, INC. By: /s/ JAMES A. COGGIN ----------------------------------- James A. Coggin President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian J. Martin and Douglas E. Coltharp, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, including any Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement to be signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ JAMES A. COGGIN President and Director (Principal June 12, 1997 - ----------------------------------------------------- Executive Officer) James A. Coggin /s/ DOUGLAS E. COLTHARP Executive Vice President and June 12, 1997 - ----------------------------------------------------- Chief Financial Officer Douglas E. Coltharp (Principal Financial Officer) /s/ DONALD E. WRIGHT Senior Vice President (Principal June 12, 1997 - ----------------------------------------------------- Accounting Officer) Donald E. Wright /s/ BRIAN J. MARTIN Director June 12, 1997 - ----------------------------------------------------- Brian J. Martin /s/ R. BRAD MARTIN Director June 12, 1997 - ----------------------------------------------------- R. Brad Martin
II-14 154 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Birmingham, State of Georgia, on June 12, 1997. PARISIAN, INC. By: /s/ WILLIAM CAPPIELLO ------------------------------------ William Cappiello President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian J. Martin and Douglas E. Coltharp, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, including any Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement to be signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ WILLIAM CAPPIELLO President (Principal Executive June 12, 1997 - ----------------------------------------------------- Officer) William Cappiello /s/ DOUGLAS E. COLTHARP Executive Vice President and June 12, 1997 - ----------------------------------------------------- Chief Financial Officer Douglas E. Coltharp (Principal Financial Officer) /s/ DONALD E. WRIGHT Senior Vice President (Principal June 12, 1997 - ----------------------------------------------------- Accounting Officer) Donald E. Wright /s/ R. BRAD MARTIN Director June 12, 1997 - ----------------------------------------------------- R. Brad Martin /s/ JAMES A. COGGIN Director June 12, 1997 - ----------------------------------------------------- James A. Coggin /s/ DONALD HESS Director June 12, 1997 - ----------------------------------------------------- Donald Hess
II-15 155 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1* Agreement and Plan of Merger, dated October 22, 1995, among Proffitt's, Inc., Baltic Merger Corporation and Younkers, Inc.(13) 2.2* Agreement and Plan of Merger, dated as of July 8, 1996, among Proffitt's, Inc., Casablanca Merger Corp., and Parisian, Inc.(23) 2.3* Agreement and Plan of Merger, dated November 8, 1996, among Proffitt's, Inc., Prairie Merger Corporation and G.R. Herberger's, Inc.(24) 2.4 Purchase Agreement, dated May 21, 1997, by and among Proffitt's, Inc., the Subsidiary Guarantors listed therein, and Merrill Lunch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., and Smith Barney Inc. 3.1* Charter of the Company, as amended(1), (6), (9), (12), (21) 3.2* Amended and Restated Bylaws of the Company(12) 4.1* Form of 7.5% Junior Subordinated Debentures due 2004(6) 4.2* Form of 4.75% Convertible Subordinated Debentures due 2003(4) 4.3* Form of Supplemental Indenture to the Indenture dated July 15, 1993 between Parisian, Inc. and AmSouth Bank of Alabama, as Trustee(27) 4.4 Indenture, dated as of May 21, 1997, between Proffitt's Inc., the Subsidiary Guarantors named therein, and The First National Bank of Chicago 4.5 Registration Rights Agreement, dated as of May 21, 1997, by and among Proffitt's, Inc., the Subsidiary Guarantors named therein, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., and Smith Barney Inc. 5.1 Opinion and Consent of Alston & Bird LLP 5.2 Opinion and Consent of Sommer & Barnard 10.1* Registration Rights Agreement by and between Proffitt's, Inc. and Richard D. McRae dated March 31, 1994(6) 10.2* Registration Rights Agreement between Proffitt's, Inc. and Parisian, Inc. dated July 8, 1996(26) 10.3* Registration Rights Agreement by and among Proffitt's, Inc. and Apollo Specialty Retail Partners, Inc. dated March 3, 1994(6) 10.4* Securities Purchase Agreement between Proffitt's, Inc. and Apollo Specialty Retail Partners, L.P. dated March 3, 1994(6) 10.5* Non-competition Agreement by and between Proffitt's, Inc. and Richard D. McRae dated March 31, 1994(6) 10.6* Credit Facilities and Reimbursement Agreement by and among Proffitt's, Inc., certain lenders, and NationsBank of Texas, N.A., as agent, dated October 11, 1996(25) 10.7* Amendment No. 1 and waiver to Credit Facilities and Reimbursement Agreement between Proffitt's, Inc. and NationsBank of Texas, National Association, as agent, dated January 14, 1997(29) 10.8* Transfer and Administration Agreement dated by and between Enterprise Funding Corporation and Proffitt's Credit Corporation dated January 15, 1997(29) 10.9* Amendment to Transfer and Administration Agreement by and between Enterprise Funding Corporation and Proffitt's Credit Corporation dated January 30, 1997(29) 10.10* Receivables Purchase Agreement between Proffitt's, Inc. and Proffitt's Credit Corporation dated January 15, 1997(29)
156
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.11* Receivables Purchase Agreement between McRae's, Inc. and Proffitt's Credit Corporation dated January 15, 1997(29) 10.12* Receivables Purchase Agreement between Parisian Services, Inc. and Parisian, Inc. and Proffitt's Credit Corporation dated January 15, 1997(29) 10.13* Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Park Real Estate Company dated April 1, 1994(6) 10.14* Secured Promissory Note for the principal amount of $3,906,558 by McRae's, Inc. payable to Park Real Estate Company dated April 1, 1994(6) 10.15* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and Deposit Guaranty National Bank dated April 1, 1994(6) 10.16* Amended and Restated Promissory Note for the principal amount of $2,075,000 by McRae's, Inc. payable to First Tennessee Bank National Association (Gautier) dated April 1, 1994(6) 10.17* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and First Tennessee Bank National Association dated April 1, 1994(6) 10.18* Secured Promissory Note for the principal amount of $556,851 by McRae's, Inc. payable to Arvey Real Estate Company dated April 1, 1994 (Gautier)(6) 10.19* Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Arvey Real Estate Company dated April 1, 1994(6) 10.20* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and First Tennessee Bank National Association dated April 1, 1994 (Gautier)(6) 10.21* Secured Promissory Note for the principal amount of $1,487,919 by McRae's, Inc. payable to Green's Crossing Real Estate Company dated April 1, 1994(6) 10.22* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and Deposit Guaranty National Bank dated April 1, 1994(6) 10.23* Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Green's Crossing Real Estate Company dated April 1, 1994(6) 10.24* Secured Promissory Note for the principal amount of $1,779,223 by McRae's, Inc. payable to Arvey Real Estate Company dated April 1, 1994 (Laurel)(6) 10.25* Assumption, Consent, and Release Agreement, entered into between McRae's, Inc. and AmSouth Bank National Association dated April 1, 1994(6) 10.26* Leasehold Deed of Trust by and among McRae's, Inc., Don B. Cannada, and Arvey Real Estate Company dated April 1, 1994 (Laurel)(6) 10.27* Indemnification and Confirmation of Lease Agreement entered into among McRae's, Inc., Richard D. McRae, Jr., Susan McRae Shanor, and Vaughan McRae dated March 31, 1994 (Heritage Building)(6) 10.28* Guaranty Agreement of McRae's, Inc. to guarantee Richard D. McRae, Jr., Carolyn McRae, Susan McRae Shanor, and Vaughan W. McRae giving or extending credit to Proffitt's, Inc., dated March 31, 1994(6) 10.29* Land Deed of Trust by and among McRae's, Inc., Don B. Cannada, Green's Grossing Real Estate Company dated April 1, 1994(6) 10.30* Guaranty Agreement by Proffitt's, Inc. to AmSouth Bank guaranteeing credit extended to McRae's, Inc.(6) 10.31* Promissory Note by McRae's, Inc. payable to Selby W. McRae in the principal sum of $1,346,442 dated January 25, 1938(5)
157
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.32* Form of Rights Certificate and Rights Agreement between Proffitt's, Inc. and Union Planters National Bank, as rights agent, dated March 28, 1995(9) 10.33* Pooling and Servicing Agreement among Younkers Credit Corporation, Younkers, Inc., and Union Planters National Bank, as rights agent, dated March 28, 1995(20) 10.34* Series 1995-1 Supplement to Pooling and Servicing Agreement among Younkers Credit Corporation, Younkers, Inc., and Chemical Bank, as Trustee, dated June 13, 1995(20) 10.35* Amendment No. 2 to Pooling and Servicing Agreement among Younkers Credit Corporation, Proffitt's, Inc. (successor-by-merger to Younkers, Inc.), and The Chase Manhattan Bank (formerly known as Chase Bank), as Trustee, dated February 1, 1997(29) 10.36* Receivables Purchase Agreement between Younkers Credit Corporation and Younkers, Inc. dated June 13, 1995(20) 10.37* Series 1995-2 Supplement to Pooling and Servicing Agreement dated as of June 13, 1995 among Younkers Credit Corporation, Younkers, Inc., and Chemical Bank, as Trustee, dated July 18, 1995(20) 10.38* ISDA Master Agreement and Schedule thereto, each dated as of July 19, 1995, between Younkers, Inc. and NationsBank of Texas, N.A., with Confirmation of Interest Rate Cap Transaction dated July 19, 1995, and Assignment Agreement dated as of July 19, 1995 between Younkers Credit Corporation, Younkers, Inc. and Chemical Bank, as Trustee(20) 10.39* Proffitt's, Inc. 1987 Stock Option Plan, as amended(3) 10.40* Proffitt's, Inc. Employee Stock Purchase Plan(8) 10.41* Proffitt's, Inc. 1994 Long-Term Incentive Plan(7) 10.42* Proffitt's, Inc. 401(k) Retirement Plan(28) 10.43* G.R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan(29) 10.44* Third Amendment and Restatement of The Parisian, Inc. Stock Option Plan for Officers(29) 10.45* First Amendment and Restatement of The Parisian, Inc. Management Incentive Plan(29) 10.46* Younkers, Inc. Stock and Incentive Plan(14) 10.47* Younkers, Inc. Management Stock Option Plan(14) 10.48* Younkers, Inc. 1993 Long-Term Incentive Plan(16) 10.49* Form of Younkers, Inc. Deferred Compensation Plan(17) 10.50* Form of Severance Agreement between Younkers, Inc. and its executive officers(19) 10.51* $500,000 Loan Agreement between Proffitt's, Inc. and R. Brad Martin dated February 1, 1989(2) 10.52* Deferred Compensation Agreement between Younkers, Inc. and W. Thomas Gould, as amended (14) 10.53* Amendment to Deferred Compensation Agreement between Younkers, Inc. and W. Thomas Gould, dated February 13, 1997(29) 10.54* Form of Deferred Compensation Agreement between Younkers, Inc. and Robert M. Mosco, as amended(14) 10.55* Form of Employment Agreement by and between Proffitt's, Inc. and Gary L. Howard dated March 28, 1995(10) 10.56* Form of Employment Agreement by and between Proffitt's, Inc. and John White dated February 2, 1996(21) 10.57* Form of Employment Agreement by and between Proffitt's, Inc. and W. Thomas Gould dated October 22, 1995(21)
158
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.58* Form of Amendment to Employment Agreement by and between Proffitt's, Inc. and W. Thomas Gould dated February 13, 1997(29) 10.59* Form of Employment Agreement by and between Proffitt's, Inc. and Robert M. Mosco dated October 28, 1996(22) 10.60* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Robert M. Mosco dated October 28, 1996(22) 10.61* Form of Employment Agreement by and between Proffitt's, Inc. and John B. Brownson dated November 8, 1996(22) 10.62* Form of Employment Agreement by and between Proffitt's, Inc. and Douglas E. Coltharp dated November 25, 1996(22) 10.63* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Douglas E. Coltharp dated November 25, 1996(22) 10.64* Form of Employment Agreement by and between Proffitt's, Inc. and Donald E. Hess dated July 8, 1996(22) 10.65* Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and Brian J. Martin dated October 11, 1996(22) 10.66* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Brian J. Martin dated October 11, 1996(22) 10.67* Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and James A. Coggin dated October 11, 1996(22) 10.68* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to James A. Coggin dated October 11, 1996(22) 10.69* Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and R. Brad Martin dated October 11, 1996(22) 10.70* Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to R. Brad Martin dated October 11, 1996(22) 10.71* Form of Employment Agreement by and between Proffitt's, Inc. and Frank E. Kulp dated March 24, 1997(29) 10.72* Form of Employment Agreement by and between Proffitt's, Inc. and Donald E. Wright dated April 1, 1997(29) 10.73* Form of Employment Agreement by and between Proffitt's, Inc. and William D. Cappiello dated April 3, 1997(29) 10.74* Form of Second Amended and Restated Employment Agreement by and between Proffitt's, Inc. and David Baker dated April 1, 1997(30) 10.75* Form of Employment Agreement by and between Proffitt's Inc. and R. Thomas Coan dated April 28, 1997(30) 10.76* Form of Employment Agreement by and between Proffitt's, Inc. and John Parros dated April 28, 1997(30) 10.77* Form of Third Amended and Restated Employment Agreement by and between Proffitt's, Inc. and R. Brad Martin dated May 9, 1997(30) 10.78* Form of Employment Agreement by and between Proffitt's, Inc. and Dawn H. Robertson dated May 19, 1997(30) 10.79* Form of Employment Agreement by and between Proffitt's, Inc. and Mark Shulman dated June 16, 1997(30)
159
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.80* Form of Employment Agreement by and between Proffitt's, Inc. and Toni E. Browning dated June 16, 1997(30) 10.81* Form of Employment Agreement by and between Proffitt's, Inc. and Mark Goldstein dated June 16, 1997(30) 11.1 Statement Regarding Computation of Historical Earnings Per Common Share 12.1* Calculation of Earnings to Fixes Charges 21.1* Subsidiaries of the Company(29) 23.1 Consent of Alston & Bird LLP (included in Exhibit 5.1) 23.2 Consent of Sommer & Barnard (included in Exhibit 5.2) 23.3 Consent of Coopers & Lybrand 23.4 Consent of Coopers & Lybrand 23.5 Consent of Deloitte & Touche 24.1 Powers of Attorney (contained on pages II-9 to II-15) 25.1 Forms T-1 -- Statements of Eligibility of Trustee 27.1 Financial Data Schedule (for SEC use only) 99.1 Form of Letter of Transmittal
- --------------- * Previously filed and incorporated as follows: (1) Incorporated by reference from the Exhibits to the Form S-1 Registration Statement No. 33-13548 of Proffitt's, Inc. dated June 3, 1987. (2) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 28, 1989. (3) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-46306 of Proffitt's, Inc. dated March 10, 1992. (4) Incorporated by reference from the Exhibits to the Form S-3 Registration Statement No. 33-70000 of Proffitt's, Inc. dated October 19, 1993. (5) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 29, 1994. (6) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated April 14, 1994. (7) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-80602 of Proffitt's, Inc. dated June 23, 1994. (8) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-88390 of Proffitt's, Inc. dated January 11, 1995. (9) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated April 3, 1995. (10) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 28, 1995. (11) Not applicable. (12) Incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended July 29, 1995. (13) Incorporated by reference from the Exhibits to the Form S-4 Registration Statement No. 333-00029 of Proffitt's, Inc. dated January 3, 1996. (14) Incorporated by reference from the Exhibits to the Form S-1 Registration Statement No. 33-45771 of Younkers, Inc. (15) Not applicable. (16) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-59224 of Younkers, Inc. (17) Incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended May 1, 1993. (18) Incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 31, 1993. 160 (19) Incorporated by reference from Exhibit 4 of Younkers, Inc. Solicitation/Recommendation Statement of Schedule 14D-9 dated January 9, 1995. (20) Incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 29, 1995. (21) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended February 3, 1996. (22) Incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended November 2, 1997. (23) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated July 18, 1996. (24) Incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated November 22, 1996. (25) Incorporated by reference from the Exhibits to Amendment No. 1 to Form 8-K/A of Proffitt's, Inc. dated December 16, 1996. (26) Incorporated by reference from the Exhibits to the Form S-4 Registration Statement No. 333-09043 of Proffitt's, Inc. dated August 16, 1996. (27) Incorporated by reference from the Exhibits to the Form S-3 Registration Statement No. 333-09941 of Proffitt's, Inc. dated August 9, 1996. (28) Incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 333-25213 of Proffitt's, Inc. dated April 15, 1997. (29) Incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. dated April 29, 1997. (30) Incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended May 3, 1997. EX-2.4 2 PURCHASE AGREEMENT 1 EXHIBIT 2.4 PROFFITT'S, INC. $125,000,000 8 1/8% Senior Notes due 2004 PURCHASE AGREEMENT Dated as of May 15, 1997 2 $125,000,000 PROFFITT'S, INC. (a Tennessee corporation) 8 1/8% Senior Notes due 2004 PURCHASE AGREEMENT May 15, 1997 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated GOLDMAN, SACHS & CO. SMITH BARNEY INC. c/o Merrill Lynch & Co. North Tower World Financial Center New York, New York 10281-1305 Ladies and Gentlemen: Proffitt's, Inc., a Tennessee corporation (the "Company") confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Goldman, Sachs & Co. ("Goldman") and Smith Barney Inc. ("Smith Barney" and collectively with Merrill Lynch and Goldman, the "Initial Purchasers", which term shall also include any initial purchaser substituted as hereinafter provided in Section 12 hereof for whom Merrill Lynch is acting as representative (in such capacity, the "Representative")) with respect to the issue and sale by the Company (the "Offering") and the purchase by the Initial Purchasers, acting severally and not jointly, of the respective principal amounts set forth in Schedule A of $125,000,000 aggregate principal amount of the Company's 8 1/8% Senior Notes due 2004 (the "Notes"). The Notes will be guaranteed (the "Guarantees" and, collectively with the Notes, the "Securities"), on a senior basis by each of the Company's subsidiaries set forth on Schedule B (the "Guarantors"). The Securities will be issued pursuant to an indenture to be dated as of May 21, 1997 (the "Indenture") among the Company, as issuer of the Notes, the Guarantors and The First National Bank of Chicago, as trustee (the "Trustee"). The Company and the Guarantors are hereinafter referred to collectively as the "Issuers" and this agreement (this "Agreement" or the "Purchase Agreement"), the Indenture, the Securities, the Exchange Securities (as defined below), the Private Exchange Securities (as defined in the Registration Rights Agreement) and the Registration Rights Agreement (as defined below) are referred to collectively as the "Operative Documents." 3 Capitalized terms used herein without definition have the respective meanings specified in the Offering Memorandum referred to below. The Securities will be offered and sold to the Initial Purchasers without registration under the Securities Act of 1933, as amended (the "Act"), in reliance upon an exemption from the registration requirements of the Act. The Company has prepared and delivered to each Initial Purchaser copies of a preliminary offering memorandum dated May 2, 1997 (the "Preliminary Offering Memorandum") and has prepared and will deliver to each Initial Purchaser, on the date hereof or the first day thereafter, copies of a final offering memorandum dated May 15, 1997 (the "Final Offering Memorandum"), each to be used by such Initial Purchaser in connection with its solicitation of purchases of, or offering of, the Securities. "Offering Memorandum" means, with respect to any date or time referred to in this Agreement, the most recent offering memorandum (whether the Preliminary Offering Memorandum or the Final Offering Memorandum, together with any amendment or supplement to either such document), including exhibits thereto which have been prepared and delivered by the Company to the Initial Purchasers in connection with their solicitation of purchases of, or offering of, the Securities. The Company hereby confirms that it has authorized the use of the Preliminary Offering Memorandum and the Offering Memorandum in connection with the offer and resale of the Securities by the Initial Purchasers as set forth in the Offering Memorandum and Section 4 hereof. The Company understands that the Initial Purchasers propose to make an offering of the Securities to purchasers ("Subsequent Purchasers") only on the terms and in the manner set forth in the Offering Memorandum and Section 4 hereof, as soon as the Initial Purchasers deem advisable after this Agreement has been executed and delivered, (i) to persons in the United States whom the Initial Purchasers reasonably believe to be qualified institutional buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the Act, as amended ("Rule 144A"), in transactions under Rule 144A, (ii) to a limited number of other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Act) that the Initial Purchasers reasonably believe to be accredited investors ("Accredited Investors") in private sales exempt from registration under the Act or (iii) pursuant to offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S under the Act ("Regulation S"), to whom the Initial Purchasers reasonably believe offers and sales may be made pursuant to Rule 904 of Regulation S. The holders of Securities (including the Initial Purchasers and subsequent transferees) will be entitled to the benefits of a registration rights agreement, to be dated as of May 21, 1997 (the "Registration Rights Agreement"), between the Issuers and the Initial Purchasers. Pursuant to the Registration Rights Agreement, the Issuers will agree to file with the Securities and Exchange Commission (the "Commission") under the circumstances set forth therein either (i) a registration statement under the Act registering the Exchange Securities (as defined in the Registration Rights Agreement) to be offered in exchange for the Securities and to use their best efforts to cause such registration statement to be declared effective and (ii) under certain circumstances set forth therein, to file with the Commission a shelf registration statement pursuant to Rule 415 under the Act relating to the resale of the Securities by holders thereof or, if applicable, relating to the resale of Private Exchange (as defined in the Registration Rights Agreement) by the Initial Purchasers pursuant to an exchange of the Securities for Private -2- 4 Exchange Securities, and to use their best efforts to cause such shelf registration statement to be declared effective. SECTION 1. Representations and Warranties. (A) The Issuers, jointly and severally, represent and warrant to each of the Initial Purchasers as of the date hereof and as of the Closing Time (as defined in Section 3 hereof) that: (i) As of their respective dates, neither the Preliminary Offering Memorandum nor the Final Offering Memorandum, as amended or supplemented, contained or will contain, as the case may be, an untrue statement of a material fact or omitted or will omit, as the case may be, to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that this representation and warranty does not apply to statements or omissions made in reliance upon and in conformity with information described in Section 14 hereof furnished in writing by the Initial Purchasers through the Representatives to the Company expressly for use in the Offering Memorandum or any amendment or supplement thereto. (ii) When the Securities are issued and delivered pursuant to this Agreement, such securities will not be of the same class (within the meaning of Rule 144A) as securities of any of the Issuers which are listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or quoted in a U.S. automated inter-dealer quotation system. The Company has been advised that the Securities have been designated PORTAL eligible securities in accordance with the rules and regulations of the National Association of Securities Dealers, Inc. (the "NASD"). (iii) None of the Issuers, nor any of their affiliates (as defined in Rule 501(b) under the Act) has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration of the Securities under the Act. (iv) None of the Issuers or any of their respective affiliates (as such term is defined in Rule 501(b) under the Act) or any person (other than the Initial Purchasers, as to which the Issuers make no representation) acting at the request of the Issuers has engaged, in connection with the offering of the Securities, (A) in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Act, (B) in any directed selling efforts within the meaning of Rule 902 under the Act in the United States in connection with the Securities being offered and sold pursuant to Regulation S under the Act, (C) in any manner involving a public offering within the meaning of Section 4(2) of the Act or (D) in any action which would require the registration under the Act of the offering and sale of the Securities pursuant to this Agreement or which would violate applicable state securities or "blue sky" laws. (v) Assuming that the representations and warranties of the Initial Purchasers contained in Section 4 are true, correct and complete, and assuming compliance by the -3- 5 Initial Purchasers with their covenants in Section 4, and assuming that the representations and warranties contained in each Transferee Letter of Representations (each, a "Transferee Letter") (substantially in the form of Appendix A to the Offering Memorandum) have been completed by Accredited Investors purchasing Securities, are true and correct as of the date hereof and the Closing Time, and assuming compliance by such Accredited Investors, as the case may be, with the agreements in the Transferee Letters, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by, or in connection with the initial resale of such Securities by the Initial Purchasers in accordance with, this Agreement to register the Securities under the Act or to qualify the Indenture in respect of the Securities under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (vi) The only subsidiaries of the Company as of the date hereof are those listed on Schedule C hereto (also referred to herein as the "Subsidiaries"). Each of the Company and the Subsidiaries has been duly organized or incorporated, as the case may be, and is validly existing in good standing under the laws of its jurisdiction of incorporation or organization, with all requisite power and authority (corporate, partnership or otherwise) under such laws, and all necessary authorizations, approvals, orders, licenses, certificates and permits of and from regulatory or governmental officials, bodies and tribunals, (a) to own, lease and operate their respective properties and to conduct their respective businesses as now conducted and as described in the Offering Memorandum and (b) to enter into, deliver, incur and perform their respective obligations under the Operative Documents, except, in the case of the foregoing subclause (a) for authorizations, approvals, orders, leases, certificates and permits, the failure of which to possess could not reasonably be expected to have a Material Adverse Effect (as defined below); and are all duly qualified to do business as foreign corporations in good standing in all other jurisdictions where the ownership or leasing of their respective properties or the conduct of their respective businesses requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect (as defined below). As used herein, "Material Adverse Effect" shall mean a material adverse effect on the business, condition (financial or otherwise), results of operations, business affairs or business prospects of the Company and the Subsidiaries taken as a whole. (vii) The Notes, the Exchange Securities and the Private Exchange Securities have been duly authorized by the Company and the Company has all requisite corporate power and authority to execute, issue and deliver the Notes, the Exchange Securities and the Private Exchange Securities and to incur and perform its respective obligations provided for therein; the Guarantees have been duly authorized by each of the Guarantors and each of the Guarantors has all requisite corporate power and authority to execute, issue and deliver the Guarantees and to incur and perform their respective obligations provided for therein. (viii) The Notes, when executed, authenticated and issued in accordance with the terms of the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee) and when delivered against payment of the purchase price therefor as provided in this Agreement, will constitute valid and binding obligations of the -4- 6 Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with the terms thereof; and the Guarantees, upon endorsement on the Notes by the Guarantors and upon execution of the Notes by the Company and authentication thereof by the Trustee (assuming the due authorization, execution and delivery of the Indenture by the Trustee), issued thereof in accordance with the Indenture and payment therefor in accordance with the terms of this Agreement, will constitute valid and binding obligations of each of the Guarantors, enforceable against the Guarantors in accordance with the terms thereof; and the Exchange Securities and the Private Exchange Securities, if any, when executed, authenticated, issued and delivered by the Issuers in exchange for the Securities in accordance with the terms of the Registration Rights Agreement, will constitute valid and binding obligations of each of the Issuers, entitled to the benefits of the Indenture and enforceable against each of the Issuers in accordance with the terms thereof to the extent each is a party; subject, in the case of each of the foregoing, to (a) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, (b) general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and (c) the discretion of the court before which any proceeding therefor may be brought (clauses (a), (b) and (c) being referred to herein as the "Enforceability Limitations"). (ix) This Agreement has been duly authorized, executed and delivered by each of the Issuers. (x) The Registration Rights Agreement has been duly authorized by the Issuers and, when duly executed and delivered by the Issuers (assuming the due execution and delivery thereof by the Initial Purchasers), will constitute a valid and binding obligation of each of the Issuers, enforceable against each of the Issuers in accordance with the terms thereof, except as such enforceability may be limited by (a) the Enforceability Limitations and (b) as to rights of indemnification and contribution, by principles of public policy or federal or state securities laws relating thereto. (xi) The Indenture has been duly authorized by the Issuers and, when duly executed and delivered by the Issuers (assuming the due execution and delivery thereof by the Trustee), will constitute a valid and binding obligation of each of the Issuers, enforceable against each of the Issuers in accordance with the terms thereof, except as such enforceability may be limited by the Enforceability Limitations. (xii) No consent, waiver, authorization, approval, license, qualification or order of, or filing or registration with, any court or governmental or regulatory agency or body, domestic or foreign, is required for the issuance and sale of the Securities, the Exchange Securities, if any, or the issuance of the Guarantees by the Guarantors, the performance by the Issuers of their obligations under the Operative Documents, or for the consummation of any of the transactions contemplated hereby or thereby, including, without limitation, the issuance and sale of the Securities hereunder, except, such as may be required (A) in connection with the registration under the Act of the Exchange Securities or the Private Exchange Securities, if any, pursuant to the Registration Rights Agreement (including any filings, if any, with the NASD), (B) in connection with the registration under the Act of -5- 7 the Exchange Securities or the Private Exchange Securities pursuant to the Registration Rights Agreement, the qualification of the Indenture under the Trust Indenture Act or (C) by state securities or "blue sky" laws in connection with the offer and sale of the Securities or the registration thereof or of the Private Exchange Securities or the Exchange Securities pursuant to the Registration Rights Agreement. (xiii) The issuance, sale and delivery of the Securities, the Exchange Securities and the Private Exchange Securities, if any, by the Issuers, and the execution, delivery and performance by the Issuers of this Agreement, the Registration Rights Agreement and the Indenture, the consummation by the Issuers of the transactions contemplated hereby, and in the Offering Memorandum and the compliance by the Issuers with the terms of the foregoing agreements and instruments do not, and, at the Closing Time will not, conflict with or constitute or result in a breach or violation by the Company or any of the Subsidiaries of (A) any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) by any of the Company or the Subsidiaries or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or the Subsidiaries under any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, authorization, permit, certificate or other agreement or document to which any of the Issuers or the Subsidiaries is a party or by which any of them may be bound, or to which any of them or any of their respective assets or businesses is subject which is material to the Company and its Subsidiaries, taken as a whole (collectively, "Contracts"), (B) the articles or by-laws (or other similar organizational document, as the case may be (each, an "Organizational Document"), of each of the Company and the Subsidiaries or (C) any law, statute, rule or regulation, or any judgment, decree or order, in any such case, of any domestic or foreign court or governmental or regulatory agency or other body having jurisdiction over the Company or any of the Subsidiaries or any of their respective properties or assets. (xiv) The Securities, the Exchange Securities, the Registration Rights Agreement and the Indenture will each conform in all material respects to the descriptions thereof in the Offering Memorandum. (xv) The audited consolidated financial statements included in the Offering Memorandum, including the notes thereto, present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statements of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries for the periods have been prepared in conformity with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The selected financial data and the summary financial information included in the Offering Memorandum present fairly, in all material respects, the information shown therein and have been prepared on a basis consistent with that of the financial statements included in the Offering Memorandum. Coopers & Lybrand, L.L.P. and Deloitte & Touche LLP, which have audited certain of such financial statements as set forth in their reports included in the Offering Memorandum, are -6- 8 independent public accounting firms with respect to the Company and its Subsidiaries within the meaning of Regulation S-X under the Act. The pro forma financial information relating to the Company and its subsidiaries and the related notes thereto included in the Offering Memorandum present fairly in all material respects the information shown therein, have been prepared in all material respects in accordance with the Commission's rules and guidelines with respect to pro forma financial adjustments (except with respect to "Other Financial Data" included in the Offering Memorandum Summary) and have been properly computed on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. (xvi) Since the respective dates as of which information is given in the Offering Memorandum, except as otherwise specifically stated therein, there has been no (A) material adverse change in the business, condition (financial or otherwise), results of operations, business affairs or business prospects of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business (a "Material Adverse Change"), (B) transaction entered into by the Company or any of the Subsidiaries, other than in the ordinary course of business, that is material to the Company and the Subsidiaries, taken as a whole or (C) dividend or distribution of any kind declared, paid or made by the Company on its capital stock. (xvii) As of February 1, 1997, the Company had the authorized, issued and outstanding capitalization set forth in the Offering Memorandum under the subheading "Actual" under the caption "Capitalization"; all of the outstanding capital stock of the Company has been duly authorized and validly issued, is fully paid and nonassessable and was not issued in violation of any preemptive or similar rights (whether provided contractually or pursuant to any Organizational Document). None of the Issuers owns, directly or indirectly, any material amount of shares, or any other material amount of equity or long-term debt securities or have any material equity interest in any firm, partnership, joint venture or other entity other than the Subsidiaries. No holder of any securities of the Company is entitled to have such securities (other than the Securities, the Exchange Securities and the Private Exchange Securities, if any) registered under any registration statement contemplated by the Registration Rights Agreement. All of the outstanding capital stock of each of the Subsidiaries has been duly authorized and, to the knowledge of the Issuers, validly issued, is fully paid and nonassessable and was not issued in violation of any preemptive or similar rights (whether provided contractually or pursuant to any Organizational Document). (xviii) Neither of the Company nor any of the Subsidiaries is (A) in violation of its respective Organizational Documents, (B) in default (or, with notice or lapse of time or both, would be in default) in the performance or observance of any obligation, agreement, covenant or condition contained in any Contract, or (C) in violation of any law, statute, judgment, decree, order, rule or regulation of any domestic or foreign court with jurisdiction over the Company or the Subsidiaries or any of their respective assets or properties, or other governmental or regulatory authority, agency or other body, other than, in the case of clause (B) or (C), such defaults or violations which, individually or in -7- 9 the aggregate, could not reasonably be expected to have or result in a Material Adverse Effect; and any real property and buildings held under lease by the Company or the Subsidiaries which are material (individually or in the aggregate) to the Company and the Subsidiaries, on a consolidated basis, are held by the Company or such Subsidiary, as the case may be, under valid, subsisting and enforceable leases, except where the invalidity or unenforceability of any such lease would not, individually or in the aggregate, be reasonably expected to have or result in a Material Adverse Effect. (xix) Each of the Company and the Subsidiaries own or possess, or can acquire on reasonable terms, adequate licenses, trademarks, service marks, trade names, copyrights and know-how (including trade secrets and other proprietary or confidential information, systems or procedures) (collectively, "intellectual property") necessary to conduct the business now or proposed to be operated by each of them as described in the Offering Memorandum, except where the failure to own, possess or have the ability to acquire any such intellectual property could not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect; and none of the Issuers has received any notice of infringement of or conflict with (and none of them knows of any such infringement of or conflict with) asserted rights of others with respect to any of such intellectual property. (xx) Each of the Company and the Subsidiaries have obtained all material consents, approvals, orders, certificates, licenses, permits, franchises and other authorizations of and from, and has made all material declarations and filings with, all governmental and regulatory authorities, all self-regulatory organizations and all courts and other tribunals necessary to own, lease, license and use their respective properties and assets and to conduct their respective businesses in the manner described in the Offering Memorandum, except where the failure to so obtain or so declare or file would not be reasonably likely to have or result in a Material Adverse Effect. (xxi) There is no legal action, suit, proceeding inquiry or investigation before or by any court or governmental body or agency, domestic or foreign, now pending or, to the best knowledge of the Issuers, threatened against the Company or any of the Subsidiaries or affecting the Company or the Subsidiaries or any of their respective properties which would be required to be disclosed in a registration statement filed under the Act which would, individually or in the aggregate, have a Material Adverse Effect. Except as set forth in the Offering Memorandum, none of the Company or any of the Subsidiaries has received any notice or claim of any default (or event, condition or omission which with notice or lapse of time or both would result in a default) under any of its respective Contracts or has knowledge of any breach of any of such Contracts by the other party or parties thereto in each case which would, individually or in the aggregate, have a Material Adverse Effect. (xxii) Each of the Company and the Subsidiaries has filed all necessary federal, state and foreign income and franchise tax returns, and has paid all taxes shown as due thereon; and there is no tax deficiency that has been asserted against any of the Issuers or -8- 10 the Subsidiaries, in each case other than as would not individually or in the aggregate have a Material Adverse Effect. (xxiii) Each of the Company and the Subsidiaries has (i) good and marketable title to all real property described in the Offering Memorandum as being owned by it, (ii) good title to all personal property described in the Offering Memorandum as being owned by it and (iii) good title to the leasehold estate in the real and personal property described in the Offering Memorandum as being leased by it, in each case, free and clear of all liens, charges, encumbrances or restrictions, except as provided in the related lease and to the extent the failure to have such title or the existence of such liens, charges, encumbrances or restrictions would not be reasonably expected to result in a Material Adverse Effect. (xxiv) Neither the Company nor any of the Subsidiaries is an "investment company" or a company "controlled by" an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. (xxv) Neither the Company nor any of the Subsidiaries nor any of their respective directors, officers or controlling persons has taken, directly or indirectly, any action designed, or which might reasonably be expected to cause or result, under the Exchange Act, in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities, the Exchange Securities or the Private Exchange Securities. (xxvi) No strike, labor problem, dispute, slowdown, work stoppage or disturbance with the employees of the Company or any of the Subsidiaries exists or, to the knowledge of the Issuers, is threatened which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. (xxvii) The Company has insurance in such amounts and covering such risks and liabilities as are in accordance, in all material respects, with normal industry practice. (xxviii) Other than as disclosed in the Offering Memorandum, none of the Company nor any Subsidiary has any profit sharing, deferred compensation, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities or to share in the profits of the Company or any Subsidiary which is material to the Company and its Subsidiaries, taken as a whole. (xxix) The statistical and market-related data included in the Offering Memorandum are based on or derived from sources which the Company believes to be reliable and accurate in all material respects or represent the Company's good faith estimates that are made on the basis of data derived from such sources. (xxx) The Issuers are, and immediately after the Closing Time will be, Solvent. As used herein, the term "Solvent" means, with respect to the Issuers on a particular date, that (after giving effect, in the case of each of the Guarantors, to the limitations contained -9- 11 in such Guarantor's Guarantee) on such date (A) the fair market value of the assets of each of the Issuers exceeds its respective liabilities (including, without limitation, stated liabilities and identified contingent liabilities), (B) the present fair salable value of the assets of each of the Issuers will exceed its respective probable liabilities on its debts (including, without limitation, stated liabilities and identified contingent liabilities), (C) the fair market value of each of the Issuers' total assets exceeds its total liabilities, including identified contingent liabilities, by an amount at least equal to the total par value of its common stock, both immediately prior to and after the Offering, (D) each of the Issuers is and will be able to pay its debts (including, without limitation, stated liabilities and identified contingent liabilities) as such debts mature and (E) each of the Issuers will not have unreasonably small capital with which to conduct its present and anticipated business. (xxxi) Except as described in the Offering Memorandum or as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (A) each of the Company and the Subsidiaries is in compliance with and not subject to any known liability under applicable Environmental Laws (as defined below), (B) each of the Company and the Subsidiaries has made all filings and provided all notices required under any applicable Environmental Law, and has, and is in compliance with, all permits required under any applicable Environmental Laws and each of them is in full force and effect, (C) (x) there is no pending civil, criminal or administrative action, or pending hearing or suit, (y) neither the Company nor any other Issuer has received any demand, claim, or notice of violation and (z) to the knowledge of the Issuers, there is no investigation, proceeding, notice or demand letter or request for information threatened against the Company or any of the Subsidiaries in the case of (x), (y) and (z), under any Environmental Law, (D) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or controlled by the Company or any Subsidiary, (E) neither the Company nor any Subsidiary has received notice that it has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or any comparable state law, (F) no property or facility of the Company or any Subsidiary is (i) listed or, to the knowledge of the Issuers proposed for listing on the National Priorities List under CERCLA or is (ii) listed in the Comprehensive Environmental Response, Compensation, Liability Information System List promulgated pursuant to CERCLA, or on any comparable list maintained by any state or local governmental authority. For purposes of this Agreement, "Environmental Laws" means all applicable federal, provincial, state and local laws or regulations, codes, orders, decrees, judgments or injunctions issued, promulgated, approved or entered thereunder, relating to pollution or protection of public or employee health and safety or the environment, including, without limitation, laws relating to (i) emissions, discharges, releases or threatened releases of Hazardous Materials (as defined below) into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), (ii) the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport or handling of Hazardous Materials, and (iii) underground and above ground storage tanks and related piping, and emissions, discharges, releases or threatened -10- 12 releases therefrom. The term "Hazardous Material" means (a) any "hazardous substance" as defined in the Comprehensive Environmental Response, the Resource Conservation and Recovery Act, as amended, (b) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (c) any petroleum or petroleum product, (d) any polychlorinated biphenyl and (e) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance. (xxxii) Except as described in the Offering Memorandum, neither the Company nor any of the Subsidiaries has incurred any liability for any prohibited transaction or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company or the Subsidiaries makes or ever has made a contribution and in which any employee of the Company or any such Subsidiary is or has ever been a participant, which in the aggregate would reasonably be expected to have a Material Adverse Effect. With respect to such plans, each of the Company and the Subsidiaries is in compliance in all respects with all applicable provisions of ERISA, except where the failure to so comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (b) Any certificate signed by any officer of any of the Issuers and delivered to the Initial Purchasers or to counsel for the Initial Purchasers pursuant to the terms of this Agreement shall be deemed a representation and warranty by the Issuers to the Initial Purchasers as to the matters covered thereby. SECTION 2. Purchase and Sale of the Securities. The Company agrees to sell to the Initial Purchasers and, subject to the terms and conditions and in reliance upon the representations and warranties of the Issuers herein set forth, each of the Initial Purchasers agrees, severally, to purchase from the Company, at a purchase price of 97.427% of the principal amount thereof, the respective principal amount of Securities set forth in Schedule A attached hereto opposite the name of such Initial Purchaser. SECTION 3. Delivery and Payment. Delivery of and payment for the Securities shall be made at 9:00 A.M., New York City time, on May 21, 1997, or such later date and time not more than ten (10) business days thereafter as the Representative and the Company shall agree (such date and time of delivery and payment for the Securities being herein called the "Closing Time"). Delivery of the Securities shall be made to the Initial Purchasers against payment by the Initial Purchasers of the purchase price thereof by wire transfer of funds immediately available to the order of the Company or as the Company may direct. Delivery of the Securities in definitive form shall be made at the offices of Alston & Bird, One Atlantic Center, 1201 W. Peachtree Street, Atlanta, Georgia 30309-3424 or at such location as the Representative shall reasonably designate in advance of the Closing Time and payment for the Securities shall be made in funds immediately available for the account of the Company or at such other account or accounts designated by the Company. It is understood that each Initial Purchaser has authorized the Representative, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities which it has agreed to purchase. Merrill Lynch, individually and not as Representative of the Initial Purchasers, may (but shall not -11- 13 be obligated to) make payment of the purchase price for the Securities to be purchased by any Initial Purchaser whose funds have not been received by the Closing Time, but such payment shall not relieve such Initial Purchaser from its obligations hereunder. Certificates for the Securities shall be registered in such names and in such denominations ($1,000 or integral multiples thereof) as the Representative may request not less than one full business day in advance of the Closing Time. The Company agrees to have the Securities available for inspection, checking and packaging by the Initial Purchasers in New York, New York, not later than 10:00 A.M. on the business day prior to the Closing Time. SECTION 4. Resale of the Securities. (A) The Initial Purchasers have advised the Issuers that they propose to offer the Securities for resale upon the terms and conditions set forth in this Agreement and in the Offering Memorandum. Each Initial Purchaser hereby represents and warrants (as to itself only) to, and agrees with, the Issuers that it is purchasing the Securities for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "Qualified Institutional Buyer" and is aware that the sale to it is being made in reliance on Rule 144A under the Act or an Accredited Investor. (b) Each Initial Purchaser acknowledges that the Securities have not been registered under the Act and that offers and sales of the Securities will be made only by the Initial Purchasers or Affiliates thereof qualified to do so in the jurisdictions in which such offers or sales are made. Each Initial Purchaser agrees that each such offer or sale shall only be made (i) to persons whom the offeror or seller reasonably believes to be Qualified Institutional Buyers that purchase such Securities for their own accounts or for the account of a Qualified Institutional Buyer to whom notice is given that the transfer is being made in reliance on Rule 144A, (ii) to persons whom the offeror or seller reasonably believes to be Accredited Investors that acquire such Securities for their own accounts or for the account of an Accredited Investor that, prior to such transfer, furnishes to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee), and is acquiring Securities having an aggregate principal amount of not less than $250,000 or (iii) to non-U.S. Persons outside the United States to whom the offeror or seller reasonably believes offers and sales of the Securities may be made in reliance upon Regulation S under the Act. (c) Each Initial Purchaser will take all reasonable steps to inform, and cause each of its U.S. affiliates to take all reasonable steps to inform, persons acquiring Securities from such Initial Purchaser or affiliate, as the case may be, in the United States that the Securities (i) have not been and will not be registered under the Act, (ii) are being sold to them without registration under the Securities Act in reliance on Rule 144A or in accordance with another exemption from registration under the Act, as the case may be, and (iii) may not be offered, sold or otherwise transferred except (A) to the Company or its Subsidiaries, (B) inside the United States to an Accredited Investor that is acquiring such Securities for its own account or for the account of an Accredited Investor for investment purposes and not with a view to, or for offer or sale in connection with, and distribution in violation of the Act and that, prior to such transfer, furnishes to the Trustee a signed letter containing certain representations and agreements (the form of which a letter can be obtained from the Trustee), and is acquiring Securities, and is acquiring -12- 14 Securities having an aggregate principal amount of not less than $250,000, (C) for so long as such Securities are eligible for resale pursuant to Rule 144A, to a person it reasonably believes is a Qualified Institutional Buyer that purchases such Securities for its own account or for the account of a Qualified Institutional Buyer to whom notice is given that the transfer is being made in reliance on Rule 144A, (D) pursuant to offers and sales to non-U.S. Persons that occur outside the United States pursuant to Rule 904 of Regulation S, (E) pursuant to an effective registration statement under the Act or (F) pursuant to another available exemption from the registration requirements of the Act. (d) Each Initial Purchaser (i) understands that all of the Securities will bear a legend substantially similar to that set forth in the Indenture, unless otherwise agreed by the Company and the Trustee; (ii) acknowledges that none of the Trustee, Transfer Agent or Registrar will be required to accept for registration of transfer any Securities acquired by it, except upon presentation of evidence satisfactory to the Company and the Trustee, Transfer Agent or Registrar, as the case may be, that the restrictions set forth herein have been complied with; and (iii) acknowledges that the Issuers, the Trustee, and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements and agrees that if any of the acknowledgments, representations or agreements deemed to have been made by its purchase of the Securities are no longer accurate, it shall promptly notify the Issuers and the Trustee. If it is acquiring the Securities as a fiduciary or agent for one or more investor accounts, each Initial Purchaser represents that it has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each account, and that such acknowledgments, representations and agreements are true and complete with respect to each such account. (e) No sale of the Securities to any one purchaser will be for less than $250,000 principal amount. If any Subsequent Purchaser is a non-bank fiduciary acting on behalf of others, each person for whom it is acting must purchase at least $250,000 principal amount of the Securities. SECTION 5. Covenants of the Issuers. Each of the Issuers covenant with the Initial Purchasers as follows: (a) The Issuers will furnish to the Initial Purchasers and counsel for the Initial Purchasers, without charge, such number of copies of the Preliminary Offering Memorandum and the Final Offering Memorandum and any amendments or supplements thereto as the Initial Purchasers and their counsel may reasonably request. (b) The Issuers will not at any time make any amendment or supplement to the Preliminary Offering Memorandum or the Offering Memorandum without the prior written consent of the Initial Purchasers, which consent will not be unreasonably withheld or delayed. Neither the consent of the Initial Purchasers, nor the Initial Purchasers' delivery of any such amendment or supplement, shall, in and of itself, constitute a waiver of any of the conditions set forth in Section 7 hereof. -13- 15 (c) The Company will immediately notify each Initial Purchaser and confirm such notice in writing of (x) any filing made by any Issuer relating to the offering of the Securities with any securities exchange or any other regulatory body in the United States or any other jurisdiction and (y) prior to the completion of the placement of the Securities by the Initial Purchasers as evidenced by a notice in writing from the Initial Purchasers to the Company, any material changes in or affecting the earnings, business affairs or business prospects of the Company and its Subsidiaries which (i) make any statement in the Offering Memorandum materially false or misleading or (ii) are not disclosed in the Offering Memorandum and are required to be so disclosed. In such event or if at any time prior to completion of the placement of the Securities by the Initial Purchasers to purchasers who are not its affiliates (as determined by the Initial Purchasers) any other event shall occur or condition shall exist as a result of which it is reasonably necessary, in the opinion of the Company, counsel for the Company, the Initial Purchasers or counsel for the Initial Purchasers, to amend or supplement the Offering Memorandum in order that the Offering Memorandum, as then amended or supplemented, will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading or if in the opinion of the Company, counsel for the Company, the Initial Purchasers or counsel for the Initial Purchasers, such amendment or supplement is necessary to comply with applicable law, the Issuers will, subject to paragraph (b) of this Section 5, promptly prepare, at their own expense, such amendment or supplement as may be necessary to correct such untrue statement or omission or to effect such compliance (in form and substance reasonably satisfactory to the Representative and counsel to the Initial Purchasers and whose consent thereto shall not be unreasonably withheld or delayed), so that as so amended or supplemented, the statements in the Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading or so that such Offering Memorandum as so amended or supplemented will comply with applicable law, as the case may be, and furnish to the Initial Purchasers such number of copies of such amendment or supplement as the Initial Purchasers may reasonably request. Each of the Issuers agrees to notify the Initial Purchasers in writing to suspend use of the Offering Memorandum as promptly as practicable after the occurrence of an event specified in this paragraph (c), and the Initial Purchasers hereby agree upon receipt of such notice from the Issuers to suspend use of the Offering Memorandum until the Issuers have amended or supplemented the Offering Memorandum to correct such misstatement or omission or to effect such compliance. (d) None of the Issuers nor any of their affiliates (as defined in Rule 501(b) under the Act ("Affiliates")) will solicit any offer to buy or offer to sell the Securities, the Exchange Securities or the Private Exchange Securities, if any, by means of any form of general solicitation or general advertising (as such terms are used in Regulation D under the Act), or by means of any directed selling efforts (as defined in Rule 902 under the Act) in the United States in connection with the Securities being offered and sold pursuant to Regulation S or in any manner involving a public offering (within the meaning of -14- 16 Section 4(2) of the Act) and not exempt under Regulation S, in each case prior to the effectiveness of a registration statement with respect to the Securities, the Exchange Securities or the Private Exchange Securities, as applicable. (e) None of the Issuers nor any of their affiliates (as defined in Rule 501(b) under the Act) will offer, sell or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Act) which could be integrated with the sale of the Securities in a manner that would require the registration of the Securities under the Act. (f) The Company will, so long as the Securities are outstanding, furnish to the Trustee on a timely basis, pursuant to the Indenture, whether or not the Company has a class of securities registered under the Exchange Act (i) audited year-end consolidated financial statements of the Company (including a balance sheet, income statement and statement of changes of cash flow) prepared in accordance with GAAP and substantially in the form required under Regulation S-X under the Act and the information described in Item 303 of Regulation S-K under the Act with respect to such period and (ii) unaudited quarterly consolidated financial statements of the Company (including a balance sheet, income statement and statement of cash flows) prepared in accordance with GAAP and substantially in the form required by Regulation S-X under the Act and the information described in Item 303 of Regulation S-K under the Act with respect to such period and will furnish to the Initial Purchasers copies of all such reports and information, together with such other documents, reports and information as shall be furnished by the Company to the holders of the Securities or to the Trustee. In the event the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will furnish to holders of Securities and prospective purchasers of Securities designated by such holders, upon request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Act to permit compliance with Rule 144A in connection with resales of the Securities. (g) Each of the Issuers will use its reasonable best efforts in cooperation with the Initial Purchasers to (i) permit the Securities to be eligible for clearance and settlement through The Depository Trust Company and (ii) permit the Securities to be designated as PORTAL securities in accordance with the rules and regulations of the NASD. (h) Prior to the Closing Time, the Company, will furnish on a confidential basis to the Initial Purchasers, if and promptly after they have been prepared, a copy of any unaudited interim consolidated financial statements of the Company for any period subsequent to the period covered by the most recent financial statements of the Company appearing in the Offering Memorandum which have been prepared in the ordinary course of business. (i) The Issuers will arrange for the registration and qualification of the Securities for offering and sale under the applicable securities or "blue sky" laws of such states and other jurisdictions as the Initial Purchasers may reasonably designate in connection with the resale of the Securities as contemplated by this Agreement and the Offering Memorandum and will continue such qualifications in effect for as long as may be -15- 17 necessary to complete the placement of the Securities by the Initial Purchasers; provided that in no event shall any of the Issuers be obligated to (i) qualify as a foreign corporation or as a broker or dealer in securities in any jurisdiction where it would not otherwise be required to so qualify but for this Section 5(i), (ii) file any general consent to service of process in any jurisdiction where it is not at the Closing Time then so subject or (iii) subject itself to taxation in any such jurisdiction if it is not so subject. The Issuers will file such statements and reports as may be required by the laws of each jurisdiction in which the Securities have been qualified as above provided. The Issuers shall promptly advise the Initial Purchasers of the receipt by any of the Issuers of any notification with respect to the suspension of the qualification or exemption from qualification of the Securities for offering or sale in any jurisdiction or the institution, threatening or contemplation of any proceeding for such purpose. (j) The Company will use the proceeds received from the sale of the Securities in the manner specified in the Offering Memorandum under the heading "Use of Proceeds." (k) The Issuers shall not, for a period of 90 days from the date of the Offering Memorandum, without the prior written consent of the Initial Purchasers, directly or indirectly, offer, sell, grant any option to purchase or otherwise dispose of any debt securities of the Company or any of the Subsidiaries or securities that are convertible into debt securities (other than the Exchange Securities and the Private Exchange Securities, if any). The foregoing shall not include any asset backed securities or interests therein related to accounts receivables of the Company and/or any Subsidiary. (l) Until the expiration of two years after the original issuance of the Securities, the Company will not, and will cause its Subsidiaries not to, purchase or agree to purchase or otherwise acquire any Securities which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial owner or otherwise (except as agent acting as a securities broker on behalf of and for the account of customers in the ordinary course of business in unsolicited broker's transactions) unless, upon any such purchase, the Company or any such affiliate shall submit such Securities to the Trustee for cancellation. SECTION 6. Payment of Expenses. (a) Whether or not any sale of the Securities is consummated, the Issuers agree, jointly and severally, to pay and bear all costs and expenses incident to the performance of all of the Issuers' obligations under this Agreement, including (i) the Issuers' preparation and printing of the Preliminary Offering Memorandum, the Offering Memorandum and any amendments or supplements thereto and the cost of furnishing copies thereof to the Initial Purchasers, (ii) the preparation, issuance and printing of the Securities, the Exchange Securities, the Private Exchange Securities, if any, and any survey of state securities or "blue sky" laws or legal investment memoranda, (iii) the delivery to the Initial Purchasers of the Securities, the Exchange Securities or the Private Exchange Securities, (iv) the fees and disbursements of the Issuers' counsel and accountants, (v) the qualification, if required, of the Securities under the applicable state securities or "blue sky" laws in accordance with the provisions of Section 5(i) hereof and any filing for review of the offering, if required, with the -16- 18 NASD, including filing fees and reasonable fees and disbursements of counsel to the Initial Purchasers in connection therewith and in connection with the preparation of any survey of state securities or "blue sky" laws or legal investment memoranda, (vi) any fees charged by rating agencies for rating the Securities, the Exchange Securities and the Private Exchange Securities, if any, (vii) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee, (viii) all expenses (including travel expenses) of the Issuers in connection with any meetings with prospective investors in the Securities, (ix) one-half of the expenses related to the charter or use of any aircraft used in connection with any meetings with prospective investors in the Securities, and (x) all expenses and listing fees in connection with the application for designation of the Securities as PORTAL securities and to permit the Securities, the Exchange Securities and the Private Exchange Securities, as applicable, to be eligible for clearance through The Depository Trust Company. It being understood that, except as otherwise expressly provided in this Section 6, the Initial Purchasers shall pay all other costs and expenses of the Initial Purchasers (including, without limitation, travel, legal fees and expenses and one-half of the expenses related to the charter or use of any aircraft used in connection with any meetings with prospective investors in the Securities). (b) If the sale of the Securities provided for herein is not consummated because the Issuers shall have breached any representation, warranty or covenant or because of any failure, refusal or inability on the part of any of the Issuers to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder; provided, that the Initial Purchasers are not at such time in breach or default of their obligations hereunder and the Initial Purchasers have given notice to the Company that they are otherwise willing to close the transactions contemplated hereby at the Closing Time, then the Issuers agree, jointly and severally, to reimburse the Initial Purchasers promptly upon demand for all reasonable out- of-pocket expenses (including reasonable fees and disbursements of their counsel) that shall have been incurred by it in connection with the proposed purchase and sale of the Securities. SECTION 7. Conditions of the Initial Purchasers' Obligations. The obligations of the Initial Purchasers to purchase and pay for the Securities are subject to the continued accuracy, as of the Closing Time, of the representations and warranties of the Issuers herein contained, to the accuracy of the statements of the Issuers and officers of the Issuers made in any certificate pursuant to the provisions hereof, to the performance by the Issuers of their respective obligations hereunder, and to the following further conditions: (a) At the Closing Time, the Initial Purchasers shall have received the opinions of each of Brian J. Martin, Executive Vice President of Law and General Counsel of the Company, Sommer & Barnard, PC, and Alston & Bird LLP, each dated as of the Closing Time, which, collectively, are in the form set forth below and otherwise reasonably satisfactory to the Initial Purchasers and counsel for the Initial Purchasers, to the effect that: (1) The Company and each of the Guarantors has been duly organized or incorporated, as the case may be, and is validly existing under the laws of its respective state of incorporation, with corporate power and authority to own, lease and operate its assets and properties and conduct its business as described in the Offering Memorandum and to enter into and perform its obligations under this -17- 19 Agreement and each of the other Operative Documents; the Company and each of the Guarantors is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which it conducts its business (based on certificates of officers of the Company) and such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; (2) Each of the Issuers has the requisite corporate or partnership power and authority to own, lease and operate its assets and properties and to conduct its business as described in the Offering Memorandum. Each of the Issuers has the requisite corporate or partnership power and authority to execute, deliver and perform its obligations under the Operative Documents to which it is or is to be a party. Each of the Operative Documents has been duly authorized by each Issuer which is a party thereto; (3) No consent, waiver, approval, authorization, license, qualification or order of or filing or registration with, any court or governmental or regulatory agency or body is required for the execution and delivery by the Issuers of this Agreement, the Registration Rights Agreement or the Indenture or for the issue and sale of the Securities, the Exchange Securities or the Private Exchange Securities (other than with respect to the delivery in book-entry form), if any, or the issuance of the Guarantees by the Guarantors, the performance by the Issuers of their obligations under the Operative Documents, or for the consummation of any of the transactions contemplated hereby or thereby, except, such as may be required (A) in connection with the registration under the Act of the Exchange Securities or the Private Exchange Securities, if any, pursuant to the Registration Rights Agreement (including any filing with the NASD), (B) in connection with the registration under the Act of the Exchange Securities or the Private Exchange Securities pursuant to the Registration Rights Agreement, the qualification of the Indenture under the Trust Indenture Act and (C) under the "blue sky" laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Initial Purchasers (as to which such counsel need express no opinion); (4) The issuance, sale and delivery of the Securities, the Exchange Securities and the Private Exchange Securities (other than with respect to the delivery in book-entry form), if any, the execution, delivery and performance by the Issuers of this Agreement, the Registration Rights Agreement and the Indenture (in each case assuming due authorization and execution by each party other than the Company), and the consummation by the Issuers of the transactions contemplated hereby and thereby and the compliance by the Issuers with the terms of the foregoing do not, and, at the Closing Time, will not conflict with or constitute or result in a breach or violation by the Company or any of the Guarantors of (A) any provision of the Certificate of Incorporation or By-laws of the Company or such Guarantors, (B) any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would -18- 20 constitute a default) by the Issuers, or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Issuers under any material Contract known to such counsel or (C) any law, statute, rule, or regulation or any order, decree or judgment known to such counsel to be applicable to the Issuers, of any court or governmental or regulatory agency or body or arbitrator known to such counsel to have jurisdiction over the Issuers or any of their respective properties or assets; (5) The Purchase Agreement has been duly authorized, executed and delivered by the Company and each of the Guarantors; (6) The Registration Rights Agreement has been duly authorized, executed and delivered by the Company and each of the Guarantors and assuming the due execution and delivery thereof by the Initial Purchasers, constitutes a valid and binding obligation of each of the Issuers; (7) The Indenture has been duly authorized, executed and delivered by the Company and each of the Guarantors and, assuming the due execution and delivery thereof by the Trustee, constitutes a valid and binding obligation of each of the Issuers; (8) The Notes have been duly authorized by the Company and, when executed and authenticated in accordance with the provisions of the Indenture and delivered and paid for in accordance with the terms of this Agreement, and the Exchange Securities and the Private Exchange Securities (other than with respect to the delivery in book-entry form), if any, when executed, authenticated and delivered in exchange for the Securities in accordance with the terms of the Registration Rights Agreement, will be entitled to the benefits of the Indenture and will constitute valid and binding obligations of the Company; (9) the Guarantees have been duly authorized by the Guarantors and when executed and delivered by the Guarantors in accordance with the provisions of the Indenture (assuming the due authentication of the Notes by the Trustee) will be entitled to the benefits of the Indenture and will be valid and binding obligations of each of the Guarantors; (10) To the knowledge of such counsel, other than as described in the Offering Memorandum, no legal, regulatory or governmental proceedings are pending or threatened to which the Company or any of the Subsidiaries is a party or to which the property or assets of the Company or any of the Subsidiaries are subject which in the judgment of the Company could reasonably be expected to have a Material Adverse Effect; -19- 21 (11) The descriptions of the Notes, the Guarantees, the Indenture and the Registration Rights Agreement contained in the Offering Memorandum fairly describe or summarize such documents in all material respects; (12) Neither the Company nor any of the Subsidiaries is in violation of its respective Organizational Documents; provided, that with respect to the business purpose clauses of the charter of the Company and its Subsidiaries, such opinion may be limited to the knowledge of such counsel after due inquiry; to the knowledge of such counsel, no default by the Company or any of the Guarantors exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any Contract; and to the knowledge of such counsel, none of the Issuers is in breach or violation of any law, statute, rule or regulation, or any judgment, decree or order or governmental or regulatory agency or other body having jurisdiction over the Company or any of the Guarantors or any of their respective properties or assets; (13) Assuming that the representations and warranties of the Initial Purchasers contained in Section 4 of this Agreement are true, correct and complete, and assuming compliance by the Initial Purchasers with their covenants in Section 4 hereof, and assuming that the representations and warranties contained in the Transferee Letter (substantially in the form of Appendix A to the Offering Memorandum) completed by Accredited Investors purchasing Securities from the Initial Purchasers are true and correct as of the Closing Time, and assuming compliance by such Accredited Investors with the agreements in the Transferee Letter, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers under, or in connection with the initial resale of such Securities by the Initial Purchasers in accordance with, this Agreement to register the Securities under the Act or to qualify the Indenture under the Trust Indenture Act; (14) None of the Issuers is an "investment company" or a company "controlled by" or required to register as an investment company as such terms are defined in the Investment Company Act of 1940, as amended, and the rules and regulations thereunder; (15) When the Securities are issued and delivered pursuant to this Agreement, such Securities will not be of the same class (within the meaning of Rule 144A) as securities of any of the Issuers which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system; and (16) Neither the consummation of the transactions contemplated hereby nor the sale, issuance, execution or delivery of the Securities will violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. -20- 22 In addition such counsel shall state that such counsel has participated in conferences with representatives of the Initial Purchasers, officers and other representatives of the Issuers and representatives of the independent certified accountants of the Issuers, at which conferences the contents of the Offering Memorandum and the business and affairs of the Company and its Subsidiaries were discussed, and although such counsel has not verified and does not pass upon or assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum (except and only to the extent set forth in subclause (11) above), on the basis of the foregoing, no facts have come to the attention of such counsel which lead such counsel to believe that the Offering Memorandum at the date thereof or as of the Closing Time, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need not express any comment with respect to the financial statements, including the notes thereto and supporting schedules, or any other financial data set forth or referred to in the Offering Memorandum). In rendering such opinions, such counsel (A) need not express any opinion with regard to the application of laws of any jurisdiction other than the Federal law of the United States, the General Corporation Law of the State of Delaware and the laws of the States of Georgia and Indiana and (B) may rely, as to matters of fact, to the extent they deem proper on representations or certificates of responsible officers of the Issuers and certificates of public officials. References to the Offering Memorandum in this subsection (a) include any supplements thereto at or prior to the Closing Time. (b) The Initial Purchasers shall have received the opinion, dated as of the Closing Time, of Cahill Gordon & Reindel, counsel for the Initial Purchasers, with respect to certain matters set forth in clauses (6), (7), (8), (9), (11) and (13) of subsection (a) of this Section 7; provided, however, that for purposes of the opinions expressed in clauses (6) through (9), such counsel shall additionally opine on the enforcement of such documents and agreements. In rendering such opinions, such counsel (A) need not express any opinion with regard to the application of laws of any jurisdiction other than the Federal laws of the United States, the General Corporation Law of the State of Delaware and the laws of the State of New York and (B) may rely, as to matters of fact, to the extent they deem proper on representations or certificates of responsible officers of the Company and certificates of public officials. In addition, such counsel shall additionally state that such counsel has participated in conferences with officers and other representatives of the Issuers and representatives of the independent accountants for the Issuers at which conferences the contents of the Offering Memorandum and related matters were discussed, and although such counsel has not verified and does not pass upon and does not assume any responsibility for the -21- 23 accuracy, completeness or fairness of the statements contained in the Offering Memorandum, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the representations and opinions of officers and other representatives of the Issuers), no facts have come to the attention of such counsel which lead such counsel to believe that the Offering Memorandum, at the date thereof or as of the Closing Time, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no comment with respect to the financial statements, including the notes thereto, or any other financial or statistical data found in or derived from the internal accounting or other records of the Company and its subsidiaries set forth or referred to in the Offering Memorandum). (c) The following conditions contained in clauses (i) and (ii) of this subsection (c) shall have been satisfied at and as of the Closing Time and the Company shall have furnished to the Initial Purchasers a certificate, signed by the Chairman of the Board or the President or the principal financial or accounting officer of the Company, dated as of the Closing Time, to the effect that the signer of such certificate has carefully examined the Offering Memorandum, any amendment or supplement to the Offering Memorandum, and this Agreement and that: (i) the representations and warranties of the Issuers in this Agreement are true and correct in all material respects on and as of the Closing Time with the same effect as if made at the Closing Time and the Issuers have complied with all the agreements and satisfied all the conditions under this Agreement on its part to be performed or satisfied in all material respects at or prior to the Closing Time; (ii) since the date of the most recent financial statements included in the Offering Memorandum (exclusive of any amendment or supplement thereto), there has been no Material Adverse Change, whether or not arising in the ordinary course of business. As used in this subparagraph, the term "Offering Memorandum" means the Offering Memorandum in the form first used to confirm sales of the Securities; and (iii) the sale of the Securities has not been enjoined (temporarily or permanently). (d) At the time that this Agreement is signed and at the Closing Time, Coopers & Lybrand, L.L.P. shall have furnished to the Initial Purchasers a letter or letters, dated respectively as of the date of this Agreement and as of the Closing Time, in form and substance satisfactory to the Initial Purchasers, confirming that they are independent certified public accountants within the meaning of the Act and the applicable published rules and regulations thereunder and containing statements and information of the type ordinarily included in accountants' "comfort letters" to Initial Purchasers with respect to financial statements and certain financial information contained in the Offering -22- 24 Memorandum, in form and substance reasonably satisfactory to counsel for the Initial Purchasers. (e) Subsequent to the date hereof or, if earlier, the dates as of which information is given in the Offering Memorandum (exclusive of any amendment or supplement thereto) and prior to the Closing Time, there shall not have been any Material Adverse Change, or any development involving a prospective Material Adverse Change, in or affecting the business or properties of the Issuers. (f) At the Closing Time, counsel for the Initial Purchasers shall have been furnished with such information, certificates and documents as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as contemplated herein and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all opinions and certificates mentioned above or elsewhere in this Agreement shall be reasonably satisfactory in form and substance to the Initial Purchasers and counsel for the Initial Purchasers. (g) The Issuers and the Trustee shall have entered into the Indenture. (h) The Issuers and the Initial Purchasers shall have entered into the Registration Rights Agreement. (i) At the Closing Time, the Securities shall be rated at least Ba2 by Moody's Investor's Service Inc. and BB by Standard & Poor's Ratings Group, and the Representative shall have received evidence satisfactory to the Representative, confirming that the Securities have such ratings; and since the date of this Agreement, there shall not have occurred a downgrading in the rating assigned to the Securities or any of the Company's other debt securities by any nationally recognized securities rating agency, and no such securities rating agency shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the Securities or any of the Company's other debt securities. If any condition specified in this Section 7 shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Initial Purchasers by notice to the Issuers, and such termination shall be without liability of any party to any other party except as provided in Section 6. Notwithstanding any such termination, the provisions of Sections 1, 8, 9, 13 and 16 shall remain in effect. Notice of such cancellation shall be given to the Issuers in writing or by telephone, facsimile transmission or telegraph confirmed in writing. The Issuers shall furnish to the Initial Purchasers such conformed copies of such opinions, certificates, letters and documents in such quantities as the Initial Purchasers and counsel for the Initial Purchasers shall reasonably request. -23- 25 SECTION 8. Indemnification. (a) The Issuers agree, jointly and severally, to indemnify and hold harmless the Initial Purchasers, their respective Affiliates, and each person, if any, who controls any Initial Purchaser or their respective affiliates within the meaning of Section 15 of the Act or Section 20 of the Exchange Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Memorandum or the Final Offering Memorandum (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Sections 8(c) and 8(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of one counsel chosen by Merrill Lynch (in addition to any local counsel)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchaser through Merrill Lynch expressly for use in the Preliminary Offering Memorandum or the Final Offering Memorandum (or any amendment or supplement thereto). The foregoing indemnity with respect to any untrue statement contained in or any omission from the Preliminary Offering Memorandum shall not inure to the benefit of any Initial Purchaser (or any Affiliate or person who controls such Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) from whom the person asserting any such loss, liability, claim, damage or expense purchased any of the Securities that are the subject thereof if such person was not sent or given a copy of the Final Offering Memorandum (or any amendment or supplement thereto), if the Company shall have previously furnished copies thereof to the Initial Purchasers in accordance with this Agreement, at or prior to the written confirmation of the sale of such Securities to such person and the untrue statement contained in or the omission -24- 26 from the Preliminary Offering Memorandum was corrected in the Final Offering Memorandum (or any amendment or supplement thereto). (b) Each Initial Purchaser agrees, severally and not jointly, to indemnify and hold harmless the Issuers, their respective directors and each person, if any, who controls the Issuers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section 8, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Preliminary Offering Memorandum or Final Offering Memorandum (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Issuers by such Initial Purchaser through Merrill Lynch expressly for use in the Preliminary Offering Memorandum or Final Offering Memorandum (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, enclosing a copy of all papers properly served on such indemnified party, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 8(a) above, one counsel to all the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 8(b) above, counsel to all the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. Notwithstanding the foregoing, if it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action (which approval shall not be unreasonably withheld), unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 8 or Section 9 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes a full and unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and the offer and sale -25- 27 of any Securities and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as to which such indemnified party is liable pursuant to Section 8(a), (b) or (c), as the case may be, then such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 8(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. SECTION 9. Contribution. If the indemnification provided for in Section 8 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuers on the one hand and the Initial Purchasers on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Issuers on the one hand and of the Initial Purchasers on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Issuers on the one hand and the Initial Purchasers on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Initial Purchasers, bear to the aggregate initial offering price of the Securities. The relative fault of the Issuers on the one hand and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Issuers or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Issuers and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 9. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 9 shall be deemed to include any legal or -26- 28 other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 9, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by it were offered to subsequent purchasers exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9, each person, if any, who controls an Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Initial Purchaser, and each director of any of the Issuers, each executive officer of any of the Issuers and each person, if any, who controls any of the Issuers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Issuers. The Initial Purchasers' respective obligations to contribute pursuant to this Section 9 are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 10. Representations, Warranties and Agreements To Survive Delivery. All representations, warranties, indemnities, agreements and other statements of the Issuers and their respective officers and of the Initial Purchasers contained in or made pursuant to this Agreement shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Initial Purchaser or controlling person, or by or on behalf of the Issuers, and shall survive delivery of the Securities to the Initial Purchasers and the payment therefor by the Initial Purchasers. SECTION 11. Termination of Agreement. (a) Termination: General. (a) The Representative may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time if (i) there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Offering Memorandum and on or prior to the Closing Time, any Material Adverse Change whether or not arising in the ordinary course of business, or (ii) since the date of this Agreement and on or prior to the Closing Time, (A) there has occurred any material adverse change in the financial markets in the United States, any outbreak of hostilities or escalation of existing hostilities or other national or international calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representative, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (B) trading in any securities of the Company has been suspended or limited by the -27- 29 Commission or the Nasdaq National Market System, or trading generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market System has been suspended or limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities generally have been required, by any such exchange or by order of the Commission, the NASD or any other governmental authority or (C) a general banking moratorium has been declared by either Federal or New York authorities. As used in this Section 11(a), the term "Offering Memorandum" means the Offering Memorandum in the form first used to confirm sales of the Securities. (b) If this Agreement is terminated pursuant to this Section 11, such termination shall be without liability of any party to any other party except as provided in Section 6 hereof, and provided further that Sections 1, 8, 9, 13 and 16 shall survive such termination and remain in full force and effect. (c) This Agreement may also terminate pursuant to the provisions of Section 7, with the effect stated in such Section. SECTION 12. Default By One of the Initial Purchasers. If one of the Initial Purchasers shall fail at the Closing Time to purchase the Securities which it is obligated to purchase under this Agreement (the "Defaulted Securities"), the other Initial Purchasers shall have the right, but not the obligation, within 24 hours thereafter, to make arrangements for the nondefaulting Initial Purchasers, or any other Initial Purchasers reasonably satisfactory to the Company, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the other Initial Purchasers shall not have completed such arrangements within such 24-hour period, then this Agreement shall terminate without liability on the part of any nondefaulting Initial Purchaser. No action pursuant to this Section shall relieve any defaulting Initial Purchaser from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the non-defaulting Initial Purchasers or an Issuer shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Offering Memorandum or in any other documents or arrangements. As used herein, the term "Initial Purchaser" includes any person substituted for an Initial Purchaser under this Section 12. SECTION 13. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Initial Purchasers shall be directed to the Initial Purchasers c/o Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, North Tower, World Financial Center, New York, New York 10281-1305, attention: Bennett Rosenthal, Managing Director; and notices to the Issuers shall be directed to Proffitt's Inc., 750 Lakeshore Parkway, Birmingham, Alabama 35211, attention: Brian J. Martin, with a copy to Alston & Bird LLP, One Atlantic Center, 1201 W. Peachtree Street, Atlanta, Georgia 30309-3424, attention: H. Sadler Poe and Ralph F. MacDonald, III, and to Sommer & Barnard, PC, -28- 30 4000 Bank One Tower, 111 Monument Circle, Indianapolis, Indiana 46204, attention: James A. Strain. SECTION 14. Information Supplied by the Initial Purchasers. The statements set forth in the last paragraph on the front cover page and in the third, fifth and sixth paragraphs under the heading "Plan of Distribution" in the Offering Memorandum (to the extent such statements relate to the Initial Purchasers) constitute the only information furnished by the Initial Purchasers to the Company for the purposes of Sections 1 and 8 hereof. SECTION 15. Parties. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers and the Issuers and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Initial Purchasers and the Issuers and their respective successors and the controlling persons and officers and directors referred to in Sections 8 and 9 and their heirs and legal representatives, any legal or equitable right, remedy or claim under, by virtue of or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Initial Purchasers and the Issuers and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor by reason merely of such purchase. SECTION 16. Governing Law and Time. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. Specified times of day refer to New York time. SECTION 17. Counterparts. This Agreement may be executed in one or more counterparts and, when each party has executed a counterpart, all such counterparts taken together shall constitute one and the same agreement. [Remainder of Page Intentionally Left Blank] -29- 31 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement by and among the Initial Purchasers, the Company and the Guarantors in accordance with its terms. Very truly yours, PROFFITT'S, INC. By: ------------------------------------ Name: Title: G.R. HERBERGER'S, INC. By: ------------------------------------ Name: Title: PARISIAN, INC. By: ------------------------------------ Name: Title: MCRAE'S, INC. By: ------------------------------------ Name: Title: MCRAE'S STORES PARTNERSHIP By: ------------------------------------ McRae's, Inc., as managing general partner -30- 32 By: --------------------------------------- Name: Title: MCRAE'S OF ALABAMA, INC. By: --------------------------------------- Name: Title: Confirmed and accepted as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By: ---------------------------- Name: Title: GOLDMAN, SACHS & CO. By: ---------------------------- (Goldman, Sachs & Co.) SMITH BARNEY INC. By: --------------------------- Name: Title: -31- 33 SCHEDULE A
Principal Amount of Name of Initial Purchaser Securities - ------------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated. $ 68,750,000 Goldman, Sachs & Co................................ 28,125,000 Smith Barney Inc................................... 28,125,000 ------------ Total............................................. $125,000,000
34 SCHEDULE B Guarantors G.R. Herberger's, Inc. Delaware McRae's, Inc. Mississippi McRae's of Alabama, Inc. Alabama McRae's Stores Partnership Mississippi Parisian, Inc. Alabama
35 SCHEDULE C Subsidiaries of the Company
Organized and Name of Entity Under Laws of - -------------- ------------- G.R. Herberger's, Inc. Delaware McRae's, Inc. Mississippi McRae's of Alambama, Inc. Alabama McRae's Stores Partnership Mississippi Parisian, Inc. Alabama Profitt's Credit Corporation Nevada Yonkers Credit Corporation Delaware
EX-4.4 3 INDENTURE DATED MAY 21, 1997 1 =============================================================================== PROFFITT'S, INC., as Issuer THE SUBSIDIARY GUARANTORS named herein, as Guarantors and THE FIRST NATIONAL BANK OF CHICAGO, as Trustee ----------------------- INDENTURE Dated as of May 21, 1997 ----------------------- $125,000,000 8 1/8% Senior Notes due 2004, Series A 8 1/8% Senior Notes due 2004, Series B =============================================================================== 2 Reconciliation and tie between Trust Indenture Act of 1939, as amended, and Indenture, dated as of May 21, 1997
Trust Indenture Indenture Act Section Section - ------------------ ------------- Section 310 (a)(1) . . . . . . .. . . . . . . . . . . . . 6.09 (a)(2) . . . . . . . . . . . . . . . . . . . 6.09 (a)(3) . . . . . . . . . . . . . . . . . . . Not Applicable (a)(4) . . . . . . . . . . . . . . . . . . . Not Applicable (b) . . . . . . . . . . . . . . . . . . . . . 6.08, 6.10 Section 311 (a) . . . . . . . . . . . . . . . . . . . . . 6.07 (b) . . . . . . . . . . . . . . . . . . . . . 6.07 (c) . . . . . . . . . . . . . . . . . . . . . Not Applicable Section 312 (a) . . . . . . . . . . . . . . . . . . . . . 3.05, 7.01 (b) . . . . . . . . . . . . . . . . . . . . . 7.02 (c) . . . . . . . . . . . . . . . . . . . . . 7.02 Section 313 (a) . . . . . . . . . . . . . . . . . . . . . 7.03 (b) . . . . . . . . . . . . . . . . . . . . . 7.03 (c) . . . . . . . . . . . . . . . . . . . . . 7.03 (d) . . . . . . . . . . . . . . . . . . . . . 7.03 Section 314 (a) . . . . . . . . . . . . . . . . . . . . . 7.04 (a)(4) . . . . . . . . . . . . . . . . . . . 10.10 (b) . . . . . . . . . . . . . . . . . . . . . Not Applicable (c)(1) . . . . . . . . . . . . . . . . . . . 1.04, 4.04, 12.01(c) (c)(2) . . . . . . . . . . . . . . . . . . . 1.04, 4.04, 12.01(c) (c)(3) . . . . . . . . . . . . . . . . . . . Not Applicable (d) . . . . . . . . . . . . . . . . . . . . . Not Applicable (e) . . . . . . . . . . . . . . . . . . . . . 1.04 Section 315 (a) . . . . . . . . . . . . . . . . . . . . . 6.01(a) (b) . . . . . . . . . . . . . . . . . . . . . 6.02 (c) . . . . . . . . . . . . . . . . . . . . . 6.01(b) (d) . . . . . . . . . . . . . . . . . . . . . 6.01(c) (e) . . . . . . . . . . . . . . . . . . . . . 5.14 Section 316 (a) (last sentence) . . . . . . . . . . . . . 3.14 (a)(1)(A) . . . . . . . . . . . . . . . . . . 5.12 (a)(1)(B) . . . . . . . . . . . . . . . . . . 5.13 (a)(2) . . . . . . . . . . . . . . . . . . . Not Applicable (b) . . . . . . . . . . . . . . . . . . . . . 5.08 Section 317 (a)(1) . . . . . . . . . . . . . . . . . . . 5.03 (a)(2) . . . . . . . . . . . . . . . . . . . 5.04 (b) . . . . . . . . . . . . . . . . . . . . . 10.03 Section 318 (a) . . . . . . . . . . . . . . . . . . . . . 1.08
3 TABLE OF CONTENTS
Page ---- PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . 1 Section 1.02. Other Definitions. . . . . . . . . . . . . . . . . . 20 Section 1.03. Rules of Construction. . . . . . . . . . . . . . . . 20 Section 1.04. Form of Documents Delivered to Trustee. . . . . . . . 21 Section 1.05. Acts of Holders. . . . . . . . . . . . . . . . . . . 21 Section 1.06. Notices, etc., to the Trustee, the Company and the Guarantors. . . . . . . . . . . . . . . . . . 22 Section 1.07. Notice to Holders; Waiver. . . . . . . . . . . . . . 22 Section 1.08. Conflict with Trust Indenture Act. . . . . . . . . . 23 Section 1.09. Effect of Headings and Table of Contents. . . . . . . 23 Section 1.10. Successors and Assigns. . . . . . . . . . . . . . . . 23 Section 1.11. Separability Clause. . . . . . . . . . . . . . . . . 23 Section 1.12. Benefits of Indenture. . . . . . . . . . . . . . . . 23 Section 1.13. Governing Law. . . . . . . . . . . . . . . . . . . . 24 Section 1.14. No Recourse Against Others. . . . . . . . . . . . . . 24 Section 1.15. Independence of Covenants. . . . . . . . . . . . . . 24 Section 1.16. Exhibits. . . . . . . . . . . . . . . . . . . . . . . 24 Section 1.17. Counterparts. . . . . . . . . . . . . . . . . . . . . 24 Section 1.18. Duplicate Originals. . . . . . . . . . . . . . . . . 24 ARTICLE TWO NOTE AND GUARANTEE FORMS24 Section 2.01. Form and Dating. . . . . . . . . . . . . . . . . . . 24 ARTICLE THREE THE NOTES Section 3.01. Title and Terms. . . . . . . . . . . . . . . . . . . 25 Section 3.02. Registrar and Paying Agent. . . . . . . . . . . . . . 26 Section 3.03. Execution and Authentication. . . . . . . . . . . . . 26 Section 3.04. Temporary Notes. . . . . . . . . . . . . . . . . . . 28 Section 3.05. Transfer and Exchange.. . . . . . . . . . . . . . . . 28 Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes . . . . . 29
-i- 4 Section 3.07. Payment of Interest; Interest Rights Preserved. . . .30 Section 3.08. Persons Deemed Owners . . . . . . . . . . . . . . . .31 Section 3.09. Cancellation. . . . . . . . . . . . . . . . . . . . .31 Section 3.10. Computation of Interest. . . . . . . . . . . . . . .31 Section 3.11. Legal Holidays. . . . . . . . . . . . . . . . . . . .31 Section 3.12. CUSIP and CINS Numbers. . . . . . . . . . . . . . . .32 Section 3.13. Paying Agent To Hold Money in Trust. . . . . . . . .32 Section 3.14. Treasury Notes. . . . . . . . . . . . . . . . . . . .32 Section 3.15. Deposits of Monies. . . . . . . . . . . . . . . . . .32 Section 3.16. Book-Entry Provisions for Global Notes. . . . . . . .33 Section 3.17. Special Transfer Provisions . . . . . . . . . . . . .34 ARTICLE FOUR DEFEASANCE OR COVENANT DEFEASANCE Section 4.01. Company's Option To Effect Defeasance or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . .37 Section 4.02. Defeasance and Discharge. . . . . . . . . . . . . . .37 Section 4.03. Covenant Defeasance . . . . . . . . . . . . . . . . .38 Section 4.04. Conditions to Defeasance or Covenant Defeasance . . .38 Section 4.05. Deposited Money and U.S. Government Obligations To Be Held in Trust; Other Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . . . .40 Section 4.06. Reinstatement . . . . . . . . . . . . . . . . . . . .40 ARTICLE FIVE REMEDIES Section 5.01. Events of Default . . . . . . . . . . . . . . . . . .41 Section 5.02. Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . . .43 Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. . . . . . . . . . . . . . . .44 Section 5.04. Trustee May File Proofs of Claims . . . . . . . . . .45 Section 5.05. Trustee May Enforce Claims Without Possession of Notes. . . . . . . . . . . . . . . . . . . . . . .45 Section 5.06. Application of Money Collected. . . . . . . . . . . .45 Section 5.07. Limitation on Suits . . . . . . . . . . . . . . . . .46 Section 5.08. Unconditional Right of Holders To Receive Principal, Premium and Interest. . . . . . . . . . . . . . . . .47 Section 5.09. Restoration of Rights and Remedies. . . . . . . . . .47 Section 5.10. Rights and Remedies Cumulative. . . . . . . . . . . .47 Section 5.11. Delay or Omission Not Waiver. . . . . . . . . . . . .47 Section 5.12. Control by Majority . . . . . . . . . . . . . . . . .47 Section 5.13. Waiver of Past Defaults . . . . . . . . . . . . . . .48 Section 5.14. Undertaking for Costs . . . . . . . . . . . . . . . .48 Section 5.15. Waiver of Stay, Extension or Usury Laws. . . . . . .48 Section 5.16. Unconditional Right of Holders To Receive Payment . .49
-ii- 5 ARTICLE SIX THE TRUSTEE Section 6.01. Certain Duties and Responsibilities. . . . . . . . . 49 Section 6.02. Notice of Defaults . . . . . . . . . . . . . . . . . 50 Section 6.03. Certain Rights of Trustee . . . . . . . . . . . . . 50 Section 6.04. Trustee Not Responsible for Recitals, Dispositions of Notes or Application of Proceeds Thereof . . . . . . . . . . . . . . . . . . 51 Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc.. . . . . . . . . . . . . . . . . . 51 Section 6.06. Money Held in Trust . . . . . . . . . . . . . . . . 52 Section 6.07. Compensation and Indemnification of Trustee and Its Prior Claim. . . . . . . . . . . . . . . . . 52 Section 6.08. Conflicting Interests. . . . . . . . . . . . . . . . 52 Section 6.09. Corporate Trustee Required; Eligibility. . . . . . . 52 Section 6.10. Resignation and Removal; Appointment of Successor Trustee. . . . . . . . . . . . . . . . . . 53 Section 6.11. Acceptance of Appointment by Successor . . . . . . . 54 Section 6.12. Merger, Conversion, Amalgamation, Consolidation or Succession to Business. . . . . . . 55 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY55 Section 7.01. Preservation of Information; Company To Furnish Trustee Names and Addresses of Holders. . . . . . . 55 Section 7.02. Communications of Holders. . . . . . . . . . . . . . 56 Section 7.03. Reports by Trustee. . .. . . . . . . . . . . . . . . 56 Section 7.04. Reports by Company and Each Guarantor. . . . . . . . 56 ARTICLE EIGHT CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. Section 8.01. Company May Consolidate, etc., Only on Certain Terms. . . . . . . . . . . . . . . . . . . . 57 Section 8.02. Successor Substituted. . . . . . . . . . . . . . . . 58 ARTICLE NINE SUPPLEMENTAL INDENTURES AND WAIVERS 59 Section 9.01. Supplemental Indentures, Agreements and Waivers Without Consent of Holders. . . . . . . . . . . . . 59 Section 9.02. Supplemental Indentures, Agreements and Waivers with Consent of Holders. . . . . . . . . . . . . . . 60 Section 9.03. Execution of Supplemental Indentures, Agreements and Waivers. . . . . . . . . . . . . . . . . . . . . 61 Section 9.04. Effect of Supplemental Indentures. . . . . . . . . . 62 Section 9.05. Conformity with Trust Indenture Act. . . . . . . . . 62 Section 9.06. Reference in Notes to Supplemental Indentures. . . . 62 Section 9.07. Record Date. . . . . . . . . . . . . . . . . . . . . 62 Section 9.08. Revocation and Effect of Consents. . . . . . . . . . 62
-iii- 6 ARTICLE TEN COVENANTS Section 10.01. Payment of Principal, Premium and Interest . . . . . 63 Section 10.02. Maintenance of Officeor Agency. . . . . . . . . . . 63 Section 10.03. Money for Note Payments To Be Held in Trust. . . . . 63 Section 10.04. Corporate Existence. . . . . . . . . . . . . . . . . 65 Section 10.05. Payment of Taxes and Other Claims. . . . . . . . . . 65 Section 10.06. Maintenance of Properties. . . . . . . . . . . . . . 65 Section 10.07. Insurance. . . . . . . . . . . . . . . . . . . . . . 65 Section 10.08. Books and Records. . .. . . . . . . . . . . . . . . 66 Section 10.09. Note Guarantees. . . . . . . . . . . . . . . . . . . 66 Section 10.10. Provision of Financial Statements. . . . . . . . . . 66 Section 10.11. Change of Control Triggering Event . . . . . . . . . 66 Section 10.12. Limitation on Indebtedness . . . . . . . . . . . . . 68 Section 10.13. Statement by Officers as to Default. . . . . . . . . 70 Section 10.14. Limitation on Restricted Payments. . . . . . . . . . 71 Section 10.15. Limitation on Transactions with Affiliates . . . . . 74 Section 10.16. Disposition of Proceeds of Asset Sales . . . . . . . 75 Section 10.17. Limitation on Liens. . . . . . . . . . . . . . . . . 78 Section 10.18. Limitation on Guarantees by Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . 78 Section 10.19. Restrictions on Preferred Stock of Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . 79 Section 10.20. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . 79 Section 10.21. Limitation on Designations of Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . . . . 80 Section 10.22. Compliance Certificates and Opinions . . . . . . . . 81 Section 10.23. Application of Fall Away Covenants . . . . . . . . . 82 ARTICLE ELEVEN SATISFACTION AND DISCHARGE Section 11.01. Satisfaction and Discharge of Indenture . . . . . . 82 Section 11.02. Application of Trust Money . . . . . . . . . . . . . 83 ARTICLE TWELVE GUARANTEE OF NOTES Section 12.01. Unconditional Guarantee. . . . . . . . . . . . . . . 83 Section 12.02. Execution and Delivery of Note Guarantee . . . . . . 84 Section 12.03. Additional Guarantors. . . . . . . . . . . . . . . . 85 Section 12.04. Release of a Guarantor . . . . . . . . . . . . . . . 85 Section 12.05. Waiver of Subrogation . . . . . . . . . . . . . . . 85 Section 12.06. Reliance on Judicial Order or Certificate of Liquidating Agent Regarding Dissolution, etc. of Guarantors . . . . . . . . . . . . . . . . . . . 86 Section 12.07. Article Twelve Applicable to Paying Agents . . . . . 86 Section 12.08. No Suspension of Remedies. . . . . . . . . . . . . . 87 Section 12.09. Limitation of Subsidiary Guarantor's Liability . . . 87 Section 12.10. Contribution from Other Guarantors . . . . . . . . . 87
-iv- 7 Section 12.11. Obligations Reinstated. . . . . . . . . . . . . . . .87 Section 12.12. No Obligation To Take Action Against the Company. . .87 Section 12.13. Dealing with the Company and Others . . . . . . . . .88
-v- 8 Exhibit A-1 - Form of Series A Note Exhibit A-2 - Form of Series B Note Exhibit B - Form of Legend for Book-Entry Securities Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S Exhibit E - Form of Note Guarantee
-vi- 9 INDENTURE, dated as of May 21, 1997, among Proffitt's, Inc., a corporation incorporated under the laws of the State of Tennessee (the "Company"), as issuer, the Subsidiary Guarantors named herein ("Guarantors"), as guarantors, and THE FIRST NATIONAL BANK OF CHICAGO, as trustee (the "Trustee"). RECITALS The Company has duly authorized the creation of an issue of (i) 8 1/8% Senior Notes due 2004, Series A, and (ii) 8 1/8% Senior Notes due 2004, Series B, to be issued in exchange for the 8 1/8% Senior Notes due 2004, Series A, pursuant to the Registration Rights Agreement (the "Notes", such term to include the Initial Notes, the Private Exchange Notes, if any, and the Unrestricted Notes, if any, treated as a single class of securities under this Indenture), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. The Guarantors have duly authorized their senior guarantee of the Notes and to provide therefor, the Guarantors have duly authorized the execution and delivery of this Indenture and their Note Guarantees (as hereinafter defined) under the terms set forth herein. All things necessary have been done to make the Notes and the Note Guarantees, when executed by the Company and the Guarantors, respectively, and authenticated and delivered hereunder and duly issued by the Company and the Guarantors, respectively, the valid obligations of the Company and the Guarantors and to make this Indenture a valid agreement of each of the Company, the Guarantors and the Trustee in accordance with the terms hereof. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders (as hereinafter defined) of the Notes, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.01. Definitions. "Accounts Receivable Subsidiary" means Younkers Credit Corporation and Proffitt's Credit Corporation and any other present or future Subsidiary (including any credit card bank) of the Company that is, directly or indirectly, wholly owned by the Company (other than director qualifying shares) and organized for the purpose of and engaged in (i) purchasing, financing, and collecting accounts receivable obligations of customers of the Company or its Subsidiaries, (ii) issuing credit cards and financing accounts receivable obligations of customers of 10 the Company and its Subsidiaries, (iii) the sale or financing of such accounts receivable or interests therein and (iv) other activities incident thereto. "Acquired Indebtedness" means, with respect to any specified Person Indebtedness of any other Person (i) assumed in connection with an Asset Acquisition from such Person or (ii) existing at the time such Person becomes a Restricted Subsidiary of any other Person (other than any Indebtedness incurred in connection with, or in contemplation of, such Asset Acquisition or such Person becoming such a Restricted Subsidiary). "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person (other than the G.R. Herberger's 401(k) Employee Stock Purchase Plan and Employment Stock Ownership Plan). For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Acquisition" means (i) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person will become a Restricted Subsidiary or will be merged or consolidated with or into the Company or any Restricted Subsidiary or (ii) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person which constitute substantially all of the assets of such Person, or any division or line of business of such Person, or which is otherwise outside of the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance or transfer or other disposition (including, without limitation, any merger, consolidation or sale-leaseback transaction) to any Person other than the Company or a Restricted Subsidiary, in one or a series of related transactions, of (i) any Capital Stock of any Restricted Subsidiary; (ii) all or substantially all of the assets of any division or line of business of the Company or any Restricted Subsidiary; or (iii) any other properties or assets of the Company or any Restricted Subsidiary other than in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" will not include (a) any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is governed by the first paragraph of Section 8.01; (b) sales of surplus and other property or equipment that has become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Restricted Subsidiary, as the case may be; or (c) any transaction consummated in compliance with Section 10.14. For purposes of Section 10.16, the term "Asset Sale" shall not include any sale, conveyance, transfer, lease or other disposition of (x) any property or asset, whether in one transaction or a series of related transactions (1) constituting a Capitalized Lease Obligation or a transfer consisting solely of a grant of a security interest permitted by the Indenture or (2) involving assets with a Fair Market Value not in excess of $1.0 million, (y) accounts receivable to an Accounts Receivable Subsidiary or to third parties that are not Affiliates of the Company or any Subsidiary of the Company in the ordinary course of business or (z) the sale, transfer or other disposition of shares of Capital Stock or Indebtedness of an Unrestricted Subsidiary or Permitted Investments (other -2- 11 than Permitted Investments of the type described under clause (f) of the definition thereof) to a third party that is not an Affiliate of the Company or any Subsidiary of the Company. "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness multiplied by (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, United States Code or any similar federal or state law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or the law of any other jurisdiction relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Bankruptcy Order" means any court order made in a proceeding pursuant to or within the meaning of any Bankruptcy Law, containing an adjudication of bankruptcy or insolvency, or providing for liquidation, receivership, winding-up, dissolution, "concordate" or reorganization, or appointing a Custodian of a debtor or of all or any substantial part of a debtor's property, or providing for the staying, arrangement, adjustment or composition of indebtedness or other relief of a debtor. "Board of Directors" means the board of directors of the Company or any Guarantor, as the case may be, or any duly authorized committee of such board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or any Guarantor, as the case may be, to have been duly adopted by its respective Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York, State of New York or Charlotte, North Carolina are authorized or obligated by law, regulation or executive order to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person's capital stock, any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed ) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the -3- 12 purpose of the Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP consistently applied. "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with a maturity of not more than one year issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit, Eurodollar time deposits or bankers' acceptances with a maturity of not more than one year of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500.0 million; (iii) commercial paper with a maturity of not more than one year issued by a corporation that is not an Affiliate of the Company organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by Standard & Poor's Ratings Group, at least P-1 by Moody's Investors Service, Inc. the equivalent of any such category of Standard & Poor's Ratings Group or Moody's Investor Services, Inc. used by another nationally recognized Rating Agency; (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (ii) above; and (v) transaction deposit accounts with domestic commercial banks. "Cedel" means Cedel Bank, Societe anonyme. "Change of Control" means the occurrence of any of the following events (whether or not approved by the Board of Directors of the Company): (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person will be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the then outstanding Voting Stock of the Company; (ii) the Company consolidates with, or merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, other than any such transaction where the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the total voting power of the then outstanding Voting Stock of the surviving or transferee corporation immediately after such transaction and the preceding clause (i) is not applicable; (iii) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such board or whose nomination for election by the stockholders of the Company was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (iv) any order, judgment or decree shall be entered against the Company decreeing the dissolution or liquidation of the Company and such order shall remain undischarged or unstayed for a period in excess of sixty days. "Change of Control Triggering Event" means the occurrence of both a Change of Control and a Rating Decline. -4- 13 "Commission" means the Securities and Exchange Commission, as from time to time constituted, or if at any time after the execution of this Indenture such Commission is not existing and performing the applicable duties now assigned to it, then the body or bodies performing such duties at such time. "Company" means the person named as the "Company" in the first paragraph of this Indenture, until a successor person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by any one of its Chairman of the Board, its Vice-Chairman, its Chief Executive Officer, its President or a Vice President, and by its Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and delivered to the Trustee. "Consolidated Cash Flow Available for Fixed Charges" means, for any period, (i) the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) to the extent reducing Consolidated Net Income, Consolidated Non-cash Charges, (c) to the extent reducing Consolidated Net Income, Consolidated Interest Expense, and (d) to the extent reducing Consolidated Net Income, Consolidated Income Tax Expense less (ii)(A) all non-cash items increasing Consolidated Net Income for such period and (B) all cash payments during such period relating to non-cash charges that were added back in determining Consolidated Cash Flow Available for Fixed Charges in any prior period. "Consolidated Fixed Charge Coverage Ratio" means the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of the Company for the four full fiscal quarters immediately preceding the date of the transaction for which consolidated financial information of the Company is available (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of the Company for such Four Quarter Period. For purposes of this definition, "Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Fixed Charges" will be calculated, without duplication, after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence of any Indebtedness of the Company or any of the Restricted Subsidiaries during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the "Reference Period"), including, without limitation, the incurrence of the Indebtedness giving rise to the need to make such calculation, as if such incurrence occurred on the first day of the Reference Period, (ii) an adjustment to eliminate or include, as applicable, the Consolidated Cash Flow Available for Fixed Charges and Consolidated Fixed Charges of the Company directly attributable to assets which are the subject of any Asset Sale or Asset Acquisition (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or one of the Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if such Asset Sale or Asset Acquisition occurred on the first day of the Reference Period, (iii) the retirement of Indebtedness during the Reference Period which cannot -5- 14 thereafter be reborrowed occurring as if retired on the first day of the Reference Period and (iv) an adjustment to eliminate the Restructuring Charges. For purposes of calculating "Consolidated Fixed Charges" for this "Consolidated Fixed Charge Coverage Ratio," interest on Indebtedness incurred during the Reference Period under any revolving credit facility which may be borrowed and repaid without reducing the commitments thereunder shall be the actual interest during the Reference Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter will be deemed to accrue at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined on a fluctuating basis like prime or a similar rate or a factor thereof, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date shall be deemed to have been in effect during the Reference Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Rate Protection Obligations, will be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. If the Company or any Restricted Subsidiary directly or indirectly guarantees Indebtedness of a third Person, the above definition will give effect to the incurrence of such guaranteed Indebtedness as if the Company or any Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. "Consolidated Fixed Charges" means, for any period, the sum of, without duplication, the amounts for such period of (i) Consolidated Interest Expense; and (ii) the product of (x) the aggregate amount of cash dividends and other distributions paid, accrued or scheduled to be paid or accrued during such period in respect of Redeemable Capital Stock times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then-current effective consolidated federal, state and local tax rate of such Person expressed as a decimal. "Consolidated Income Tax Expense" means, for any period, the provision for federal, state, local and foreign income taxes payable by the Company and the Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any period, without duplication, the sum of (a) the interest expense of the Company and the Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (i) any amortization of debt discount attributable to such period, (ii) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (iii) the interest portion of any deferred payment obligation, (iv) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (v) all capitalized interest and all accrued interest, and (b) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and the Restricted Subsidiaries during such period and as determined on a consolidated basis in accordance with GAAP. -6- 15 "Consolidated Net Income" means, for any period, the consolidated net income (or net loss) of the Company and the Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto), (ii) income of the Company and the Restricted Subsidiaries derived from or in respect of Investments in Unrestricted Subsidiaries, except to the extent that cash dividends or distributions are actually received by the Company or a Restricted Subsidiary, (iii) the portion of net income (or net loss) of the Company and the Restricted Subsidiaries allocable to minority interests in unconsolidated Persons, except to the extent that cash dividends or distributions are actually received by the Company or one of the Restricted Subsidiaries, (iv) net income (or net loss) of any Person combined with the Company or one of the Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (v) gains or losses in respect of any Asset Sales by the Company or any of the Restricted Subsidiaries (on an after-tax basis and net of fees and expenses relating to the transaction giving rise thereto), and (vi) the net income of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Restricted Subsidiary or its stockholders. "Consolidated Non-cash Charges" means, for any period, the aggregate depreciation, amortization and other noncash expenses of the Company and the Restricted Subsidiaries reducing Consolidated Net Income for such period (other than any non-cash item requiring an accrual or reserve for cash disbursements in any future period), determined on a consolidated basis in accordance with GAAP. "control" means, with respect to any specified person, the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Indenture is located at One First National Plaza, Suite 1026, Chicago, Illinois 60670-0126, Attention: Corporate Trust Administration except for purposes of Section 3.02 and 10.02. For purposes of such sections, such office is located at 14 Wall Street, 8th Floor, New York, New York 10005. "Credit Facility" means the Credit Agreement dated as of October 11, 1996, among the Company, NationsBank of Texas, National Association, as Agent, and the other financial institutions signatory thereto, as in effect on the Issue Date, and as such agreement may be amended, renewed, extended, substituted, refinanced, replaced, supplemented or otherwise modified from time to time, and includes related notes, guarantees and other agreements executed in connection therewith. -7- 16 "Currency Agreement" means the obligations of any Person pursuant to any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values. "Custodian" means any receiver, interim receiver, receiver and manager, receiver-manager, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law or any other law respecting secured creditors and the enforcement of their security or any other person with like powers whether appointed judicially or out of court and whether pursuant to an interim or final appointment. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Depository" means The Depository Trust Company, its nominees and successors. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the Euroclear System. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. "Exchange Notes" means the 8 1/8% Senior Notes due 2004, Series B, to be issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement. "Exchange Offer" shall have the meaning specified in the Registration Rights Agreement. "Fair Market Value" means, with respect to any asset, the price which could be negotiated in an arm's- length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company acting in good faith conclusively evidenced by a board resolution thereof delivered to the Trustee or, with respect to any asset valued at up to $1.0 million, such determination may be made by a duly authorized officer of the Company evidenced by an officer's certificate delivered to the Trustee. "Foreign Subsidiary" means a Restricted Subsidiary not organized or existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof. "Four Quarter Period" has the meaning set forth in the definition of "Consolidated Fixed Charge Coverage Ratio." "GAAP" means, at any date of determination, generally accepted accounting principles in effect in the United States which are applicable at the date of determination and which are consistently applied for all applicable periods. -8- 17 "Global Notes" means one or more Regulation S Global Notes and 144A Global Notes. "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. A guarantee shall include, without limitation, any agreement to maintain or preserve any other Person's financial condition or to cause any other Person to achieve certain levels of operating results. "Guarantor" means (i) each of G.R. Herberger's, Inc., Parisian, Inc., McRae's, Inc., McRae's Stores Partnership, McRae's of Alabama, Inc., and their respective successors and (ii) each other Subsidiary formed, created or acquired before or after the Issue Date required to become a Guarantor after the Issue Date pursuant to Section 10.18. "Holder" or "Noteholder" means a Person in whose name a Note is registered in the Note Register. "Indebtedness" means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade payable and other accrued current liabilities incurred in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit (but excluding obligations with respect to trade letters of credit to the extent such trade letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed not later than the third Business Day following receipt by such Person of a demand for reimbursement), bankers' acceptances or other similar credit transaction and in connection with any agreement obligating such Person to purchase, redeem, exchange, convert or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, now or hereafter outstanding, (ii) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (iv) all Capitalized Lease Obligations of such Person, (v) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (vi) all guarantees by such Person of Indebtedness of another Person (other than guarantees of operating leases of a Restricted Subsidiary of such Person), (vii) all -9- 18 Redeemable Capital Stock valued at its involuntary maximum fixed repurchase price plus accrued and unpaid dividends, (viii) all net payment obligations under or in respect of Currency Agreements and Interest Rate Protection Obligations of such Person, and (ix) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (i) through (viii) above. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price will be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness will be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair Market Value to be determined in good faith by the Board of Directors of the issuer of such Redeemable Capital Stock. Sales (on a "true-sale" non-recourse basis) and the servicing of receivables transferred from the Company or a Restricted Subsidiary, or transfers of cash, to an Accounts Receivable Subsidiary as a capital contribution or in exchange for Indebtedness of such Accounts Receivable Subsidiary or cash shall not be deemed Indebtedness hereunder. "Indenture" means this instrument as originally executed (including all exhibits and schedules hereto) and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Indenture Obligations" means the obligations of the Company and any other obligor under this Indenture or under the Notes, to pay principal of, premium, if any, and interest on the Notes when due and payable, whether at maturity, by acceleration, call for redemption or repurchase or otherwise, and all other amounts due or to become due under or in connection with this Indenture, the Notes or the Note Guarantees and the performance of all other obligations to the Trustee (including, but not limited to, payment of all amounts due the Trustee under Section 6.07 hereof) and the Holders of the Notes under this Indenture, the Notes and the Note Guarantees, according to the terms thereof. "Initial Notes" means the 8 1/8% Senior Notes due 2004, Series A, of the Company. "Initial Purchasers" means Merrill Lynch, Goldman Sachs & Co. and Smith Barney Inc. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "interest," when used with respect to any Note, means the amount of all interest accruing on such Note, including all additional interest payable on the Notes pursuant to the Registration Rights Agreement and all interest accruing subsequent to the occurrence of any events specified in Sections 5.01(h), (i) and (j) or which would have accrued but for any such event, whether or not such claims are allowable under applicable law. "Interest Payment Date" means, when used with respect to any Note, the Stated Maturity of an installment of interest on such Note, as set forth in such Note. -10- 19 "Interest Rate Protection Obligations" means the obligations of any Person pursuant to any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or a floating rate of interest on the same notional amount or any other arrangement involving payments by or to such Person based upon fluctuations in interest rates. "Investment" means, with respect to any Person, any direct or indirect advance, loan or other extension of credit (including by means of a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others or otherwise), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by any other Person. Investments shall exclude extensions of trade credit in accordance with normal trade practices. In addition to the foregoing, any foreign exchange contract, Currency Agreement, Interest Rate Protection Obligation or similar agreement shall constitute an Investment. "Investment Grade Rating" means a rating of BBB-- and Baa3 or higher, in each case by the applicable Rating Agency, or the equivalents thereof. "Issue Date" means the original issue date of the Notes hereunder. "Leveraged Subsidiary" means any Restricted Subsidiary that has incurred Indebtedness (other than Acquired Indebtedness pursuant to the first paragraph of Section 10.12 and Indebtedness described in clauses (iv), (v), (vii), (viii), (ix) and (xi) of the second paragraph of Section 10.12 and any permitted refinancings or replacements thereof incurred under clause (x)) pursuant to such covenant for so long as such Indebtedness, or any refinancing thereof, is outstanding. "Lien" means any mortgage, charge, pledge, lien (statutory or other), privilege, security interest, hypothecation, cessation and transfer, assignment for security, claim, deposit arrangement or other encumbrance upon or with respect to any property of any kind, whether real, personal or mixed, movable or immovable, now owned or hereafter acquired. A Person will be deemed to own subject to a Lien any property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease Obligation or other title retention agreement. "Material Subsidiary" means each Restricted Subsidiary of the Company that is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the Issue Date). "Maturity Date" means, with respect to any Note, the date on which any principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. -11- 20 "Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith Incorporated. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage commissions and other reasonable fees and expenses (including fees and expenses of legal counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP consistently applied against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other postemployment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale (provided that the amount of any such reserves shall be deemed to constitute Net Cash Proceeds at the time such reserves shall have been released or are not otherwise required to be retained as a reserve). "Non-U.S. Person" has the meaning assigned to such term in Regulation S. "Note Guarantee" means the guarantee by each of the Guarantors of the Notes and the Company's obligations under this Indenture. "Notes" shall have the meaning specified in the recitals of this Indenture. "Offering Memorandum" means the Offering Memorandum dated May 15, 1997 pursuant to which the Notes and the Note Guarantees were offered, and any supplement thereto. "Officer" means, with respect to the Company or any Guarantor, the Chairman of the Board, a Vice Chairman, the President, a Vice President, the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer. "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman, the President or a Vice President, and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, of the Company or any Guarantor, as the case may be, and delivered to the Trustee. "144A Global Note" means a permanent global note in registered form representing the aggregate principal amount of Notes sold in reliance on Rule 144A under the Securities Act. "Opinion of Counsel" means a written opinion of counsel who may be counsel for the Company, a Guarantor, or the Trustee, and who shall be reasonably acceptable to the Trustee. "Outstanding" means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: -12- 21 (I) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (II) Notes, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company or any Guarantor or any Affiliate thereof) in trust or set aside and segregated in trust by the Company or any Guarantor or any Affiliate thereof (if the Company or such Guarantor or Affiliate shall act as Paying Agent) for the Holders of such Notes; provided, however, that if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (III) Notes with respect to which the Company has effected defeasance or covenant defeasance as provided in Article Four, to the extent provided in Sections 4.02 and 4.03; and (IV) Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a bona fide purchaser in whose hands the Notes are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company, any Guarantor or any other obligor upon the Notes or any Affiliate of the Company, any Guarantor or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes that a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. The Company shall notify the Trustee, in writing, when it repurchases or otherwise acquires Notes, of the aggregate principal amount of such Notes so repurchased or otherwise acquired. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company, any Guarantor or any other obligor upon the Notes or any Affiliate of the Company, any Guarantor or such other obligor. If the Paying Agent holds, in its capacity as such, on any Maturity Date or on any optional redemption date money sufficient to pay all accrued interest and principal with respect to such Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Notes cease to be Outstanding and interest on them ceases to accrue. Notes may also cease to be outstanding to the extent expressly provided in Article Four. "Parisian Notes" means the 9 7/8% Senior Subordinated Notes due 2003 of Parisian. -13- 22 "Permitted Investment" means (a) Cash Equivalents; (b) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers' compensation, performance and other similar deposits; (c) loans, extensions of credit and advances to officers, directors and employees which are outstanding on the Issue Date or which do not exceed $7.5 million in the aggregate at any one time outstanding and payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; (d) Interest Rate Protection Obligations permitted under clause (vii) of the second paragraph of Section 10.12 and Currency Agreements; (e) Investments by any Restricted Subsidiary in the Company; (f) Investments by the Company or any Restricted Subsidiary in a Restricted Subsidiary that is a Guarantor or another Person, if as a result of or in connection with such Investment such other Person becomes a Restricted Subsidiary; (g) Investments represented by accounts receivable created or acquired in the ordinary course of business; (h) Investments in the form of the sale (on a "true-sale" non-recourse basis) or the servicing of receivables transferred from the Company or any Restricted Subsidiary, or transfers of cash, to an Accounts Receivable Subsidiary as a capital contribution or in exchange for Indebtedness of such Accounts Receivable Subsidiary or cash in the ordinary course of business; (i) Investments representing capital stock or obligations issued to the Company or any Restricted Subsidiary in settlement of claims against any other Person by reason of a composition or readjustment of debt or a reorganization of any debtor of the Company or such Restricted Subsidiary; (j) loans or other advances to vendors in connection with in-store merchandising to be repaid either on a lump-sum basis or over a period of time by delivery of merchandise; (k) Investments in credit card receivables arising from any proprietary credit card issued by or for the benefit of the Company or an Affiliate of the Company; and (l) Investments acquired by the Company or any Restricted Subsidiary in connection with an Asset Sale permitted under Section 10.16 (other than pursuant to the second sentence of the first paragraph thereof). "Permitted Liens" means (a) Liens on property of (or on shares of Capital Stock or debt securities of) a Person existing at the time such Person (i) is merged into or consolidated with the Company or any Restricted Subsidiary or (ii) becomes a Restricted Subsidiary; provided, however, that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not secure any property or assets of the Company or any Restricted Subsidiary other than the property or assets subject to the Liens prior to such merger, consolidation or acquisition; (b) Liens imposed by law such as landlords', carriers', warehousemen's and mechanics' Liens and other similar Liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith and by appropriate proceedings; (c) Liens existing on the Issue Date; (d) Liens securing only the Notes; (e) Liens in favor of the Company or Liens on any property or assets of a Subsidiary (or on shares of Capital Stock or debt securities of a Subsidiary) in favor of the Company or any Restricted Subsidiary; (f) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent for more than 90 days or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided, however, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (g) easements, reservation of rights of way, restrictions and other similar easements, licenses, restrictions on the use of properties, or imperfections of title that in the aggregate are not material in amount and do not in any case materially detract from the -14- 23 properties subject thereto or interfere with the ordinary conduct of the business of the Company and the Restricted Subsidiaries; (h) Liens resulting from the deposit of cash or notes in connection with contracts, tenders or expropriation proceedings, or to secure workers' compensation, surety or appeal bonds, costs of litigation when required by law, public and statutory obligations, obligations under franchise arrangements entered into in the ordinary course of business and other obligations of a similar nature arising in the ordinary course of business; (i) Liens securing any revolving credit facility under the Credit Facility; (j) Liens securing Indebtedness consisting of Capitalized Lease Obligations, Purchase Money Indebtedness (other than Indebtedness incurred to finance an Asset Acquisition), mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred solely for the purpose of financing all or any part of the purchase price or cost of construction or installation of assets used in the business of the Company or the Restricted Subsidiaries, or repairs, additions or improvements to such assets; provided, however, that (I) such Liens secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such assets or repair, addition or improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the incurrence of such Indebtedness), (II) such Liens do not extend to any other assets of the Company or the Restricted Subsidiaries (and, in the case of repair, addition or improvements to any such assets, such Lien extends only to the assets (and improvements thereto or thereon) repaired, added to or improved), (III) the incurrence of such Indebtedness is permitted by Section 10.12 and (IV) such Liens attach prior to 90 days after such purchase, construction, installation, repair, addition or improvement; (k) Liens to secure any Refinancings (or successive Refinancings), in whole or in part, of any Indebtedness secured by Liens referred to in the clauses above so long as such Lien does not extend to any other property (other than improvements thereto); (l) Liens securing letters of credit entered into in the ordinary course of business and consistent with past business practice; (m) Liens on and pledges of the capital stock of (A) any Unrestricted Subsidiary securing any Indebtedness of such Unrestricted Subsidiary and (B) an Accounts Receivable Subsidiary; (n) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and the Restricted Subsidiaries, taken as a whole; (o) any interest or title of a lessor in any property that is (i) subject to any lease or (ii) located on the real property subject to any lease; (p) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary that does not give rise to an Event of Default; (q) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any Restricted Subsidiary in the ordinary course of business and (r) Liens on the property or assets or Capital Stock of Accounts Receivable Subsidiaries and Liens arising out of any sale of accounts receivable in the ordinary course to or by an Accounts Receivable Subsidiary. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Note" means, with respect to any particular Note, every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 3.06 hereof in exchange for a mutilated Note or in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. -15- 24 "Preferred Stock" means, with respect to any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person. "Private Exchange Securities" shall have the meaning specified in the Registration Rights Agreement. "Private Placement Legend" shall mean the first paragraph of the legend initially set forth in the Securities in the form set forth on Exhibit A-1. "Purchase Money Indebtedness" means Indebtedness of the Company or any Restricted Subsidiary incurred for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of any real or personal property; provided, however, that the aggregate principal amount of such Indebtedness does not exceed the lesser of the Fair Market Value of such property or the original purchase price or the original cost of any such assets or repair, addition or improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the incurrence of such Indebtedness). "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act. "Rating Agencies" means (i) Standard & Poor's Ratings Group and (ii) Moody's Investors Service, Inc. or (iii) if Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or both shall not make a rating of the Notes publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by the Company, which shall be substituted for Standard & Poor's Ratings Group, Moody's Investors Service, Inc. or both, as the case may be. "Rating Category" means (i) with respect to Standard & Poor's Ratings Group, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's Investors Service, Inc., any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such category of Standard & Poor's Ratings Group or Moody's Investors Service, Inc. used by another Rating Agency. In determining whether the rating of the Notes has decreased by one or more gradations, gradations within Rating Categories (+ and - -- for Standard & Poor's Ratings Group; 1, 2 and 3 for Moody's Investors Service, Inc.; or the equivalent gradations for another Rating Agency) shall be taken into account (e.g., with respect to Standard & Poor's Ratings Group, a decline in a rating from BB+ to BB, as well as from BB-- to B+, will constitute a decrease of one gradation). "Rating Date" means the date which is 90 days prior to the earlier of (i) a Change of Control and (ii) public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control. "Rating Decline" means the occurrence of the following on, or within 90 days after, the earlier of (i) the occurrence of a Change of Control and (ii) the date of public notice of -16- 25 the occurrence of a Change of Control or of the public notice of the intention of the Company to effect a Change of Control (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrading by any of the Rating Agencies): (a) in the event that the Notes have an Investment Grade Rating, the rating of the Notes by both such Rating Agencies shall be reduced below Investment Grade, or (b) in the event the Notes are rated below Investment Grade by both such Rating Agencies on the Rating Date, the rating of the Notes by either Rating Agency shall be decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "Redeemable Capital Stock" means any class or series of Capital Stock to the extent that, either by its terms, by the terms of any security into which it is convertible or exchangeable, or by contract or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to the final stated maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to such maturity, or is convertible into or exchangeable for debt securities at any time prior to such maturity. "Reference Period" has the meaning set forth in the definition of "Consolidated Fixed Charge Coverage Ratio." "Refinance" means, with respect to any Indebtedness, any refinancing, redemption, retirement, renewal, replacement, extension or refunding of such Indebtedness. "Registrable Securities" shall have the meaning specified in the Registration Rights Agreement. "Registration Rights Agreement" means the Registration Rights Agreement dated as of May 21, 1997 by and among the Company, the Subsidiary Guarantors named therein and the Initial Purchasers, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Regular Record Date" means the Regular Record Date specified in the Notes. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Note" means a permanent global note in registered form representing the aggregate principal amount of Notes sold in reliance on Regulation S under the Securities Act. "Responsible Officer" means, with respect to the Trustee, the chairman or vice chairman of the board of directors, the chairman or vice chairman of the executive committee of the board of directors, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller and any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer of the Trustee to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. -17- 26 "Restricted Note" means a Note that constitutes a "restricted security" within the meaning of Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Note. "Restricted Subsidiary" means any Subsidiary of the Company that has not been designated by the Board of Directors of the Company, by a Board Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with Section 10.21 hereof. Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of Section 10.21 hereof. "Restructuring Charges" means all nonrecurring charges related to Asset Acquisitions and Asset Sales, including merger, restructuring and integration charges incurred or accrued during the last full fiscal year of the Company ending prior to the Issue Date. "Rule 144A" means Rule 144A under the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder. "Special Record Date" means, with respect to the payment of any Defaulted Interest, a date fixed by the Trustee pursuant to Section 3.07 hereof. "Stated Maturity" means, with respect to any Note or any installment of interest thereon, the dates specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable and, when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest, is due and payable. "Subordinated Indebtedness" means, with respect to the Company, Indebtedness of the Company which is expressly subordinated in right of payment to the Notes or, with respect to any Guarantor, Indebtedness of such Guarantor which is expressly subordinated in right of payment to the Note Guarantee of such Guarantor. "Subsidiary" means, with respect to any Person, (a) any corporation of which the outstanding shares of Voting Stock having at least a majority of the votes entitled to be cast in the election of directors shall at the time be owned, directly or indirectly, by such Person, or (b) any other Person of which at least a majority of the shares of Voting Stock are at the time, directly or indirectly, owned by such first named Person. "Surviving Entity" has the meaning set forth under "Consolidations, Mergers, Sale of Assets, Etc." "Transaction Date" has the meaning set forth in the definition of "Consolidated Fixed Charge Coverage Ratio." -18- 27 "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended. "Trustee" means the person named as the "Trustee" in the first paragraph of this Indenture, until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Notes" means one or more Notes that do not and are not required to bear the Private Placement Legend in the form set forth in Exhibit A, including, without limitation, the Exchange Notes. "Unrestricted Subsidiary" means each Accounts Receivable Subsidiary and each Subsidiary of the Company (other than a Guarantor) designated as such pursuant to and in compliance with the covenant described in Section 10.21. Any such Designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the Notes, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of which 100% of the outstanding Capital Stock is owned by the Company and/or another Wholly-Owned Restricted Subsidiary. For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Restricted Subsidiary. -19- 28 Section 1.02. Other Definitions.
Defined in Term Section ---- ---------- "Act" 1.05 "Affiliate Transaction" 10.15 "Agent Member" 3.16 "Asset Sale Offer" 10.16 "Asset Sale Offer Purchase Date" 10.16 "Change of Control Date" 10.11 "Change of Control Offer" 10.11 "Change of Control Purchase Date" 10.11 "covenant defeasance" 4.03 "Defaulted Interest" 3.07 "defeasance" 4.02 "Defeased Notes" 4.01 "Designation" 10.21 "Designation Amount" 10.21 "Event of Default" 5.01 "incur" 10.12 "insolvent person" 4.04 "Note Register" 3.05 "Registrar" 3.02 "Other Indebtedness" 10.18 "Paying Agent" or "Agent" 3.02 "Permitted Indebtedness" 10.12 "Physical Notes" 2.01 "Restricted Payment" 10.14 "Restricted Period" 3.17 "Revocation" 10.21 "Surviving Entity" 8.01 "Unutilized Net Cash Proceeds" 10.16
Section 1.03. Rules of Construction. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (A) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (B) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; -20- 29 (C) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (D) the words "herein" "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (E) all references to "$" or "dollars" refer to the lawful currency of the United States of America; and (F) the words "include," "included" and "including" as used herein are deemed in each case to be followed by the phrase "without limitation." Section 1.04. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such person, or that they be so certified or covered by only one document, but one such person may certify or give an opinion with respect to some matters and one or more other persons as to other matters, and any such person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company or any Guarantor may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or any Guarantor stating that the information with respect to such factual matters is in the possession of the Company or any Guarantor, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated, with proper identification of each matter covered therein, and form one instrument. Section 1.05. Acts of Holders. (A) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and -21- 30 evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution (as provided below in subsection (b) of this Section 1.05) of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01 hereof) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (B) The fact and date of the execution by any person of any such instrument or writing may be proved in any reasonable manner which the Trustee deems sufficient. (C) The ownership of Notes shall be proved by the Note Register. (D) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Note shall bind every future Holder of the same Note or the Holder of every Note issued upon the transfer thereof or in exchange therefor or in lieu thereof to the same extent as the original Holder, in respect of anything done, suffered or omitted to be done by the Trustee, any Paying Agent or the Company or any Guarantor in reliance thereon, whether or not notation of such action is made upon such Note. Section 1.06. Notices, etc., to the Trustee, the Company and the Guarantors. . Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (A) the Trustee by any Holder or by the Company or any Guarantor shall be sufficient for every purpose hereunder if made, given, furnished or filed, in writing, to or with the Trustee at One First National Plaza, Suite 1026, Chicago, Illinois 60670-0126, Attention: Corporate Trust Administration or at any other address previously furnished in writing to the Holders, the Company and the Guarantors by the Trustee; or (B) the Company or a Guarantor by the Trustee or by any Holder shall be sufficient for every purpose (except as otherwise expressly provided herein) hereunder if in writing and mailed, first-class postage prepaid, to the Company or such Guarantor addressed to it at Proffitt's, Inc., 750 Lakeshore Parkway, Birmingham, Alabama 35211, Attention: Chief Executive Officer, or at any other address previously furnished in writing to the Trustee by the Company. Section 1.07. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise expressly provided herein) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any -22- 31 particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice when mailed to a Holder in the aforesaid manner shall be conclusively deemed to have been received by such Holder whether or not actually received by such Holder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event as required by any provision of this Indenture, then any method of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. Section 1.08. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with any provision of the Trust Indenture Act or another provision which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, such provision or requirement of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or 2 excluded, as the case may be. Section 1.09. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.10. Successors and Assigns. All covenants and agreements in this Indenture by the Company and the Guarantors, shall bind their respective successors and assigns, whether so expressed or not. Section 1.11. Separability Clause. In case any provision in this Indenture or in the Notes or any Note Guarantee issued pursuant hereto shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 1.12. Benefits of Indenture. Nothing in this Indenture or in the Notes or in any Note Guarantee issued pursuant hereto, express or implied, shall give to any person (other than the parties hereto and their successors hereunder, any Paying Agent and the Holders) any benefit or any legal or equitable right, remedy or claim under this Indenture. -23- 32 Section 1.13. Governing Law. THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. Section 1.14. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company or of a Guarantor shall not have any liability for any obligations of the Company or a Guarantor under the Notes, the Note Guarantee or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Section 1.15. Independence of Covenants. All covenants and agreements in this Indenture shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or condition exists. Section 1.16. Exhibits. All exhibits attached hereto are by this reference made a part hereof with the same effect as if herein set forth in full. Section 1.17. Counterparts. This Indenture may be executed in any number of counterparts and by telecopier, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 1.18. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. ARTICLE TWO NOTE AND GUARANTEE FORMS Section 2.01. Form and Dating. The Notes and the Trustee's certificate of authentication with respect thereto and the Note Guarantees shall be in substantially the forms set forth, or referenced, in Exhibit A-1, Exhibit A-2 and Exhibit E, respectively, annexed hereto, with such appropriate insertions, -24- 33 omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any applicable law or with the rules of the Depository, any clearing agency or any securities exchange or as may, consistently herewith, be determined by the officers executing such Notes and Note Guarantees, as evidenced by their execution thereof. The definitive Notes and Note Guarantees shall be printed, typewritten, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes and such Note Guarantees may be listed, all as determined by the officers executing such Notes and Note Guarantees, as evidenced by their execution of such Notes and Note Guarantees. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The terms and provisions contained in the Notes shall constitute, and are expressly made, a part of this Indenture. ARTICLE THREE THE NOTES Section 3.01. Title and Terms. The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to $125,000,000 in aggregate principal amount of Notes, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 3.03, 3.04, 3.05, 3.06, 9.06, 10.11 or 10.16. The final Stated Maturity of the Notes shall be May 15, 2004, and the Notes shall bear interest at the rate of 8 1/8% per annum from the Issue Date or from the most recent Interest Payment Date to which interest has been paid, as the case may be, payable semi-annually thereafter on May 15 and November 15, in each year, commencing on November 15, 1997, to the Holders of record at the close of business on the May 1 and November 1, respectively, immediately preceding such Interest Payment Dates, until the principal thereof is paid or duly provided for. Interest on any overdue principal, interest (to the extent lawful) or premium, if any, shall be payable on demand. The Notes shall be not be redeemable at the option of the Company at any time. At the election of the Company, the entire Indebtedness on the Notes or certain of the Company's obligations and covenants and certain Events of Default thereunder may be defeased as provided in Article Four. -25- 34 Section 3.02. Registrar and Paying Agent. The Company shall maintain an office or agency (which shall be located in the Borough of Manhattan in The City of New York, State of New York) where Notes may be presented for registration of transfer or for exchange (the "Registrar"), an office or agency (which shall be located in the Borough of Manhattan in The City of New York, State of New York) where Notes may be presented for payment (the "Paying Agent" or "Agent") and an office or agency where notices and demands to or upon the Company in respect of the Notes, the Note Guarantees and this Indenture may be served. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" or "Agent" includes any additional paying agent. The Company may act as its own Paying Agent, except for the purposes of payments on account of principal on the Notes pursuant to Sections 10.11 and 10.16 hereof. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the Trust Indenture Act. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such and shall be entitled to appropriate compensation in accordance with Section 6.07 hereof. The Company initially appoints the Trustee as the Registrar and Paying Agent and agent for service of notices and demands in connection with the Notes. Section 3.03. Execution and Authentication. The Initial Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 hereto. The Exchange Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit A-2 hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company shall approve the form of the Notes and any notation, legend or endorsement thereon. Each Note shall be dated the date of issuance and shall show the date of its authentication. Each Note shall have an executed Note Guarantee from each of the Guarantors endorsed thereon substantially in the form of Exhibit E hereto. The terms and provisions contained in the Notes annexed hereto as Exhibits A-1 and A-2 shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold in reliance on Rule 144A and Notes offered and sold in reliance on Regulation S shall be issued initially in the form of one or more Global Notes, substantially in the form set forth in Exhibit A-1, deposited with the Trustee, as custodian for the Depository, duly executed by the Company (and having an executed Note Guarantee from each of the Guarantors endorsed thereon) and authenticated by the Trustee as hereinafter provided and -26- 35 shall bear the legend set forth in Exhibit B. The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as 2 hereinafter provided. Notes (i) offered and sold to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and (ii) issued in exchange for interests in a Global Note pursuant to Section 3.17 may be issued in the form of permanent certificated Notes in registered form in substantially the form set forth in Exhibit A-1 (the "Physical Notes"). All Notes offered and sold in reliance on Regulation S shall remain in the form of a Global Note until the consummation of the Exchange Offer pursuant to the Registration Rights Agreement; provided, however, that all of the time periods specified in the Registration Rights Agreement to be complied with by the Company and the Guarantors have been so complied with. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign, and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Notes for the Company, and the Note Guarantees for the Guarantors, by manual or facsimile signature. If an Officer or Assistant Secretary whose signature is on a Note or a Note Guarantee, as the case may be, was an Officer or Assistant Secretary at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Note, the Note shall nevertheless be valid. The Trustee shall authenticate (i) Initial Notes for original issue in an aggregate principal amount not to exceed $125,000,000, (ii) Private Exchange Notes from time to time only in exchange for a like principal amount of Initial Notes and (iii) Unrestricted Notes from time to time only in exchange for (A) a like principal amount of Initial Notes or (B) a like principal amount of Private Exchange Notes, in each case upon a written order of the Company in the form of an Officers' Certificate of the Company. Each such written order shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated, whether the Notes are to be Initial Notes, Private Exchange Notes or Unrestricted Notes and whether (subject to this Section 3.03) the Notes are to be issued as Physical Notes or Global Notes and such other information as the Trustee may reasonably request. The aggregate principal amount of Notes outstanding at any time may not exceed $125,000,000, except as provided in Section 3.06. Notwithstanding the foregoing, all Notes issued under this Indenture shall vote and consent together on all matters (as to which any of such Notes may vote or consent) as one class and no series of Notes will have the right to vote or consent as a separate class on any matter. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. -27- 36 The Notes shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and any integral multiple thereof. Section 3.04. Temporary Notes. Until definitive Notes are prepared and ready for delivery, the Company may execute and upon a Company Order the Trustee shall authenticate and deliver temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes, in any authorized denominations, but may have variations that the Company reasonably considers appropriate for temporary Notes as conclusively evidenced by the Company's execution of such temporary Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay but in no event later than the date that the Exchange Offer is consummated. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 10.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of like tenor and of authorized denominations. Until so exchanged the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. Section 3.05. Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.02 being sometimes referred to herein as the "Note Register") in which, subject to such reasonable regulations as the Registrar may prescribe, the Company shall provide for the registration of Notes and of transfers and exchanges of Notes. The Trustee is hereby initially appointed Registrar for the purpose of registering Notes and transfers of Notes as herein provided. When Notes are presented to the Registrar or a co-Registrar with a request from the Holder of such Notes to register the transfer or exchange for an equal principal amount of Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested; provided, however, that every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer or exchange in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. Whenever any Notes are so presented for exchange, the Company and any Guarantor shall execute, and the Trustee shall authenticate and deliver, the Notes and Note Guarantees which the Holder making the exchange is entitled to receive. No service charge shall be made to the Noteholder for any registration of transfer or exchange. The Company may require from the Noteholder payment of a sum sufficient to cover any transfer taxes or other governmental charge that may be imposed in relation to a transfer or exchange, but this provision shall not apply to any exchange pursuant to Section 10.11, 10.16 or 9.06 hereof (in which events the Company will be responsible for the -28- 37 payment of all such taxes which arise solely as a result of the transfer or exchange and do not depend on the tax status of the Holder). The Trustee shall not be required to exchange or register the transfer of any Note for a period of 15 days immediately preceding the first mailing of notice of redemption of Notes to be redeemed or of any Note selected, called or being called for redemption except, in the case of any Note where public notice has been given that such Note is to be redeemed in part, the portion thereof not to be redeemed. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Any Holder of a beneficial interest in a Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Notes may be effected only through a book-entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book-entry system. Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes. If a mutilated Note is surrendered to the Trustee or if the Holder of a Note of any series claims that the Note has been lost, destroyed or wrongfully taken, the Company shall execute and upon a Company Order, the Trustee shall authenticate and deliver a replacement Note of like tenor and principal amount, bearing a number not contemporaneously outstanding, and the Guarantors shall execute a replacement Note Guarantee, if the Holder of such Note furnishes to the Company and to the Trustee evidence reasonably acceptable to them of the ownership and the destruction, loss or theft of such Note and an indemnity bond shall be posted by such Holder, sufficient in the judgment of the Company or the Trustee, as the case may be, to protect the Company, the Trustee or any Agent from any loss that any of them may suffer if such Note is replaced. The Company may charge such Holder for the Company's and any Guarantor's expenses in replacing such Note (including (i) expenses of the Trustee charged to the Company and (ii) any tax or other governmental charge that may be imposed) and the Trustee may charge the Company for the Trustee's expenses in replacing such Note. Every replacement Note and Note Guarantee issued pursuant to this Section in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company and each Guarantor, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. -29- 38 carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. Section 3.08. Persons Deemed Owners. Prior to and at the time of due presentment for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name any Note is registered in the Note Register as the owner of such Note for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 3.07) interest on such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 3.09. Cancellation. All Notes surrendered for payment, redemption, registration of transfer or exchange shall be delivered to the Trustee and, if not already canceled, shall be promptly canceled by it. The Company and any Guarantor may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company or such Guarantor may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly canceled by the Trustee. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer or exchange, redemption or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 3.09, except as expressly permitted by this Indenture. All canceled Notes held by the Trustee shall be destroyed and certification of their destruction delivered to the Company unless by a Company Order the Company shall direct that the canceled Notes be returned to it. The Trustee shall provide the Company a list of all Notes that have been canceled from time to time as requested by the Company. Section 3.10. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed. Section 3.11. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, date established for the payment of Defaulted Interest or Stated Maturity of any Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of principal, premium, if any, or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date, date established for the payment of Defaulted Interest or at the Stated Maturity, as the case may be. In such event, no interest shall accrue with respect to such payment for the period from and after such Interest Payment Date, Redemption Date, date established for -31- 39 Section 3.07. Payment of Interest; Interest Rights Preserved. Interest on any Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date and interest on such defaulted interest at the then applicable interest rate borne by the Notes, to the extent lawful (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the Regular Record Date; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in subsection (a) or (b) below: (A) The Company may elect to make payment of any Defaulted Interest to the persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as provided in this subsection (a). Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company in writing of such Special Record Date. In the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at its address as it appears in the Note Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the persons in whose names the Notes (or their respective Predecessor Notes) are registered on such Special Record Date and shall no longer be payable pursuant to the following subsection (b). (B) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this subsection (b), such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall -30- 40 the payment of Defaulted Interest or Stated Maturity, as the case may be, to the next succeeding Business Day and, with respect to any Interest Payment Date, interest for the period from and after such Interest Payment Date shall accrue with respect to the next succeeding Interest Payment Date. Section 3.12. CUSIP and CINS Numbers. The Company in issuing the Notes may use "CUSIP" and "CINS" numbers (if then generally in use), and if so, the Trustee shall use the CUSIP or CINS numbers, as the case may be, in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP or CINS number, as the case may be, printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee in writing of any change in the CUSIP or CINS number of any type of Notes. Section 3.13. Paying Agent To Hold Money in Trust. Each Paying Agent shall hold in trust for the benefit of the Noteholders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, or interest on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. Money held in trust by the Paying Agent need not be segregated except as required by law and in no event shall the Paying Agent be liable for any interest on any money received by it hereunder. The Company at any time may require the Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed and the Trustee may at any time during the continuance of any Event of Default, upon a Company Order to the Paying Agent, require such Paying Agent to pay forthwith all money so held by it to the Trustee and to account for any funds disbursed. Upon making such payment, the Paying Agent shall have no further liability for the money delivered to the Trustee. Section 3.14. Treasury Notes. In determining whether the Holders of the required aggregate principal amount of Notes have concurred in any direction, waiver, consent or notice, Notes owned by the Company or an Affiliate of the Company shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which the Trustee actually knows are so owned shall be so considered. The Company shall notify the Trustee, in writing, when it or any of its Affiliates repurchases or otherwise acquires Notes, of the aggregate principal amount of such Notes so repurchased or otherwise acquired. Section 3.15. Deposits of Monies. Prior to 12:00 p.m. noon New York City time on each Interest Payment Date, maturity date, Change of Control Purchase Date and Asset Sale Offer Purchase Date, the Company shall have deposited with the Paying Agent in immediately available funds money -32- 41 sufficient to make cash payments, if any, due on such Interest Payment Date, maturity date, Change of Control Purchase Date and Asset Sale Offer Purchase Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date, maturity date, Change of Control Purchase Date and Asset Sale Offer Purchase Date, as the case may be. Section 3.16. Book-Entry Provisions for Global Notes. (A) The Global Notes initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit B. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (B) Transfers of Global Notes shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depository and the provisions of Sections 3.03 and 3.17. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Notes if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Note, or that it will cease to be a "Clearing Agency" under the Exchange Act, and in either case a successor Depository is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depository to issue Physical Notes. (C) In connection with any transfer or exchange of a portion of the beneficial interest in any Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Notes of like tenor and principal amount of authorized denominations. (D) In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange -33- 42 for its beneficial interest in the Global Notes, an equal aggregate principal amount at maturity of Physical Notes of like tenor of authorized denominations. (E) Any Physical Note constituting a Restricted Note delivered in exchange for an interest in a Global Note pursuant to subparagraph (b), (c) or (d) of this Section 3.16 shall, except as otherwise provided by Section 3.17, bear the Private Placement Legend. (F) The Holder of any Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. Section 3.17. Special Transfer Provisions. (A) Transfers to Non-QIB Institutional Accredited Investors. The following additional provisions shall apply with respect to the registration of any proposed transfer of an Initial Note to any Institutional Accredited Investor which is not a QIB: (I) the Registrar shall register the transfer of any Initial Note, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after the second anniversary of the Issue Date; provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Note, or portion thereof, at any time on or prior to the second anniversary of the Issue Date and such transfer can otherwise be lawfully made under the Securities Act without registering such Initial Notes thereunder or (y) the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto and any legal opinions and certifications required thereby; (II) if the proposed transferor is an Agent Member seeking to transfer an interest in a Global Note, upon receipt by the Registrar of (x) written instructions given in accordance with the Depository's and the Registrar's procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, together with any required legal opinions and certifications, the Registrar shall register the transfer and reflect on its books and records the date and a decrease in the principal amount of the Global Note from which such interests are to be transferred in an amount equal to the principal amount of the Notes to be transferred and the Company shall execute and upon a Company Order, the Trustee shall authenticate Physical Notes in a principal amount equal to the principal amount of the Global Note to be transferred. (B) Transfers to Non-U.S. Persons. The following additional provisions shall apply with respect to the registration of any proposed transfer of an Initial Note to any Non-U.S. Person: (I) the Registrar shall register the transfer of any Initial Note, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after the second anniversary of the Issue Date; provided, however, that neither the Company nor -34- 43 any Affiliate of the Company has held any beneficial interest in such Note, or portion thereof, at any time on or prior to the second anniversary of the Issue Date and such transfer can otherwise be lawfully made under the Securities Act without registering such Initial Notes thereunder or (y) the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto; (II) if the proposed transferee is an Agent Member and the Notes to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in the Regulation S Global Note upon receipt by the Registrar of (x) written instructions given in accordance with the Depository's and the Registrar's procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, together with any required legal opinions and certifications, the Registrar shall register the transfer and reflect on its books and records the date and an increase in the principal amount of the Regulation S Global Note in an amount equal to the principal amount of Physical Notes to be transferred, and the Trustee shall cancel the Physical Notes so transferred; (III) if the proposed transferor is an Agent Member seeking to transfer an interest in a Global Note, upon receipt by the Registrar of (x) written instructions given in accordance with the Depository's and the Registrar's procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, together with any required legal opinions and certifications, the Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the Global Note from which such interests are to be transferred in an amount equal to the principal amount of the Notes to be transferred and (B) an increase in the principal amount of the Regulation S Global Note in an amount equal to the principal amount of the Global Note to be transferred; and (IV) until the 41st day after the Issue Date (the "Restricted Period"), an owner of a beneficial interest in the Regulation S Global Note may not transfer such interest to a transferee that is a U.S. person or for the account or benefit of a U.S. person within the meaning of Rule 902(o) of the Securities Act. During the Restricted Period, all beneficial interests in the Regulation S Global Note shall be transferred only through Cedel or Euroclear, either directly if the transferor and transferee are participants in such systems, or indirectly through organizations that are participants. (C) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of an Initial Note to a QIB (excluding Non-U.S. Persons): (I) the Registrar shall register the transfer of any Initial Note, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after the second anniversary of the Issue Date; provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Note, or portion thereof, at any time on or prior to the second anniversary of the Issue Date and such transfer can otherwise be lawfully made under the Securities Act without registering such Initial Note thereunder or (y) such transfer is being made by a proposed transferor who -35- 44 has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; (II) if the proposed transferee is an Agent Member and the Notes to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in the 144A Global Note, upon receipt by the Registrar of written instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall register the transfer and reflect on its book and records the date and an increase in the principal amount of the 144A Global Note in an amount equal to the principal amount of Physical Notes to be transferred, and the Trustee shall cancel the Physical Note so transferred; and (III) if the proposed transferor is an Agent Member seeking to transfer an interest in a Global Note, upon receipt by the Registrar of written instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the Global Note from which interests are to be transferred in an amount equal to the principal amount of the Notes to be transferred and (B) an increase in the principal amount of the 144A Global Note in an amount equal to the principal amount of the Global Note to be transferred. (D) Private Placement Legend. Upon the registration of transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) the circumstances contemplated by paragraph (a)(i)(x) of this Section 3.17 exist, (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (iii) such Note has been sold pursuant to an effective registration statement under the Securities Act. (E) Other Transfers. If a Holder proposes to transfer a Note constituting a Restricted Note pursuant to any exemption from the registration requirements of the Securities Act other than as provided for by Section 3.17(a), (b) and (c), the Registrar shall only register such transfer or exchange if such transferor delivers an Opinion of -36- 45 Counsel satisfactory to the Company and the Registrar that such transfer is in compliance with the Securities Act and the terms of this Indenture; provided, however, that the Company may, based upon the opinion of its counsel, instruct the Registrar by a Company Order not to register such transfer in any case where the proposed transferee is not a QIB Non-U.S. person or Institutional Accredited Investor. (F) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 3.16 or this Section 3.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable prior written notice to the Registrar. ARTICLE FOUR DEFEASANCE OR COVENANT DEFEASANCE Section 4.01. Company's Option To Effect Defeasance or Covenant Defeasance. The Company may, at its option by Board Resolution, at any any time, with respect to the Notes, elect to have either Section 4.02 or Section 4.03 be applied to all of the Outstanding Notes (the "Defeased Notes"), upon compliance with the conditions set forth below in this Article Four. Section 4.02. Defeasance and Discharge. Upon the Company's exercise under Section 4.01 of the option applicable to this Section 4.02, the Company and each Guarantor shall be deemed to have been discharged from their obligations with respect to the Defeased Notes and the related Note Guarantees on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Defeased Notes, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 4.05 and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Company, and, upon Company Request, shall execute proper instruments acknowledging the same), except for the following, which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of Defeased Notes to receive, solely from the trust fund described in Section 4.04 and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's obligations with respect to such Defeased Notes under Sections 3.04, 3.05, 3.06, -37- 46 10.02 and 10.03, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 6.07, and (d) this Article Four. Subject to compliance with this Article Four, the Company may exercise its option under this Section 4.02 notwithstanding the prior exercise of its option under Section 4.03 with respect to the Notes. Section 4.03. Covenant Defeasance. Upon the Company's exercise under Section 4.01 of the option applicable to this Section 4.03, the Company and each Guarantor shall be released from their obligations under any covenant or provision contained in Sections 10.06 through 10.22 and the provisions of Articles Eight shall not apply, with respect to the Defeased Notes, on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Defeased Notes shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Defeased Notes, the Company and each Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or Article, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or Article or by reason of any reference in any such Section or Article to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 5.01(c) or (d), but, except as specified above, the remainder of this Indenture and such Defeased Notes shall be unaffected thereby. Section 4.04. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 4.02 or Section 4.03 to the Defeased Notes: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09 who shall agree to comply with the provisions of this Article Four applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Notes, (a) cash in an amount, or (b) U.S. Government Obligations which through the scheduled payment of principal, premium, if any, and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (c) a combination thereof, in any such case, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of, premium, if any, and interest on the Defeased Notes at the Stated Maturity of such principal or installment of principal, premium, if any, or interest; provided, however, that the Trustee shall have been irrevocably instructed to apply such cash or the proceeds of such U.S. Government Obligations to said payments with respect to the Notes; -38- 47 (2) No Default shall have occurred and be continuing on the date of such deposit or, insofar as Sections 5.01(h), (i) or (j) are concerned, at any time during the period ending on the ninety-first day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (3) Neither the Company nor any Subsidiary of the Company is an "insolvent person" within the meaning of any applicable Bankruptcy Law on the date of such deposit or at any time during the period ending on the ninety-first day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (4) Such defeasance or covenant defeasance shall not cause the Trustee for the Notes to have a conflicting interest in violation of Section 6.08 and for purposes of the Trust Indenture Act with respect to any securities of the Company or any Guarantor; (5) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any Guarantor is a party or by which it is bound; (6) In the case of an election under Section 4.02, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date hereof, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (7) In the case of an election under Section 4.03, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (8) The Company shall have delivered to the Trustee, an Opinion of Counsel to the effect that, immediately following the ninety-first day after the deposit, the trust funds established pursuant to this Article will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally under any applicable U.S. Federal or state law; (9) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit made by the Company pursuant to its election under Section 4.02 or 4.03 was not made by the Company with the intent of preferring the Holders or any -39- 48 Guarantor over the other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (10) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that (i) all conditions precedent (other than conditions requiring the passage of time) provided for relating to either the defeasance under Section 4.02 or the covenant defeasance under Section 4.03 (as the case may be) have been complied with as contemplated by this Section 4.04 and (ii) if any other Indebtedness of the Company or any Guarantor shall then be outstanding or committed, such defeasance or covenant defeasance will not violate the provisions of the agreements or instruments evidencing such Indebtedness. Opinions required to be delivered under this Section may have such qualifications as are customary for opinions of the type required and reasonably acceptable to the Trustee. Section 4.05. Deposited Money and U.S. Government Obligations To Be Held in Trust; Other Miscellaneous Provisions. Subject to the proviso of the last paragraph of Section 10.03, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 4.05, the "Trustee") pursuant to Section 4.04 in respect of the Defeased Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee and hold it harmless against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 4.04 or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Defeased Notes. Anything in this Article Four to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 4.04 which, in the opinion of an internationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance. Section 4.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 4.02 or 4.03, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting -40- 49 such application, then the obligations of the Company and of any Guarantor under this Indenture, the Notes and the Note Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to Section 4.02 or 4.03, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money and U.S. Government Obligations in accordance with Section 4.02 or 4.03, as the case may be; provided, however, that if the Company makes any payment of principal, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money and U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE FIVE REMEDIES Section 5.01. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (A) default in the payment of the principal of or premium, if any, when due and payable, on any of the Notes (at its Stated Maturity, upon optional redemption, required purchase, scheduled principal payment or otherwise); or (B) default in the payment of an installment of interest on any of the Notes, when due and payable, continued for 30 days or more; or (C) the Company or any Guarantor fails to comply with any of its obligations described under Article Eight or Sections 10.11 or 10.16 hereof; or (D) the Company or any Guarantor fails to perform or observe any other term, covenant or agreement contained in the Notes, any Note Guarantee or this Indenture (other than a default specified in (a), (b) or (c) above) for a period of 45 days after written notice of such failure requiring the Company to remedy the same and stating that such notice is a "Notice of Default" hereunder shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Notes then Outstanding; or (E) default or defaults under one or more agreements, indentures or instruments under which the Company or any Restricted Subsidiary then has outstanding Indebtedness in excess of $25,000,000 individually or in the aggregate and either (i) such Indebtedness is already due and payable in full or (ii) such default or defaults results in the acceleration of the maturity of such Indebtedness; or -41- 50 (F) any Note Guarantee ceases to be in full force and effect or is declared null and void or any Guarantor denies that it has any further liability under any Note Guarantee, or gives notice to such effect (other than by reason of the termination of this Indenture or the release of any such Note Guarantee in accordance with Section 12.04 hereof) and such condition shall have continued for a period of 30 days after written notice of such condition requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Notes then Outstanding; or (G) one or more judgments, orders or decrees of any court or regulatory or administrative agency for the payment of money in excess of $25,000,000 either individually or in the aggregate shall have been rendered against the Company or any Restricted Subsidiary or any of their respective properties and shall not have been discharged and either (a) any creditor shall have commenced an enforcement proceeding upon such judgment, order or decree or (b) there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment, order or decree, by reason of a pending appeal or otherwise, will not be in effect; or (H) the Company or any Material Subsidiary of the Company pursuant to or under or within the meaning of any Bankruptcy Law: (I) commences a voluntary case or proceeding; (II) consents to the making of a Bankruptcy Order in an involuntary case or proceeding or the commencement of any case against it; (III) consents to the appointment of a Custodian of it or for any substantial part of its property; (IV) makes a general assignment for the benefit of its creditors; (V) files an answer or consent seeking reorganization or relief; (VI) shall admit in writing its inability to pay its debts generally; or (VII) consents to the filing of a petition in bankruptcy; or (I) a court of competent jurisdiction in any involuntary case or proceeding enters a Bankruptcy Order against the Company or any Material Subsidiary, and such Bankruptcy Order remains unstayed and in effect for 60 consecutive days; or (J) a Custodian shall be appointed out of court with respect to the Company or any Material Subsidiary or with respect to all or any substantial part of the assets or properties of the Company or any Material Subsidiary. -42- 51 Section 5.02. Acceleration of Maturity; Rescission and Annulment. If (x) an Event of Default (other than an Event of Default specified in Section 5.01(h), (i) or (j) with respect to the Company) occurs and is continuing then and in every such case the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding may, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the Notes then Outstanding shall, declare all principal of all the Notes to be due and payable immediately in an amount equal to the principal amount of the Notes, premium, if any, thereon plus accrued and unpaid interest, if any, to the date the Notes become due and payable by a notice in writing to the Company (and to the Trustee, if given by the Holders) and upon any such declaration such principal, premium, if any, and interest, shall become immediately due and payable. If an Event of Default specified in Section 5.01(h), (i) or (j) with respect to the Company occurs and is continuing, then the principal of, premium, if any, and accrued and unpaid interest, if any, on all the Notes then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of Notes. At any time after a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article, the Holders of a majority in aggregate principal amount of the Notes then Outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration of acceleration and its consequences if: (A) the Company has paid or deposited with the Trustee a sum sufficient to pay (I) all amounts due the Trustee under Section 6.07, including the reasonable compensation, fees, expenses, disbursements and advances of the Trustee, its agents and counsel, (II) all overdue interest on all Notes, (III) the principal of and premium, if any, on any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate then borne by the Notes, and (IV) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate then borne by the Notes; and (B) all Events of Default, other than the non-payment of principal of, premium, if any, and any accrued and unpaid interest on, the Notes that have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent Default or impair any right consequent thereon. Notwithstanding the foregoing, in the event of a declaration of acceleration in respect of the Notes because an Event of Default specified in Section 5.01(e) shall have occurred -43- 52 and be continuing, such declaration of acceleration shall be automatically annulled if the Indebtedness that is the subject of such Event of Default has been discharged or paid or the requisite holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness and written notice of such discharge or rescission, as the case may be, shall have been given to the Trustee by the Company and by the requisite holders of such Indebtedness or a trustee, fiduciary or agent for such holders, within 60 days after such declaration of acceleration in respect of the Notes and no other Event of Default has occurred which has not been cured or waived during such 60-day period. Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company and each Guarantor covenant that if an Event of Default specified in Section 5.01(i) or 5.01(ii) shall have occurred and be continuing, the Company and each Guarantor will, jointly and severally, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal, premium, if any, and interest, with interest upon the overdue principal, premium, if any, and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest, at the rate then borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company and each Guarantor, fail to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may, but is not obligated under this paragraph to, institute a judicial proceeding for the collection of the sums so due and unpaid and may, but is not obligated under this paragraph to, prosecute such proceeding to judgment or final decree, and may, but is not obligated under this paragraph to, enforce the same against the Company, any Guarantor or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any Guarantor or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion, but is not obligated under this paragraph to, (i) proceed to protect and enforce its rights and the rights of the Holders under this Indenture or any Note Guarantee by such appropriate private or judicial proceedings as the Trustee shall deem most effectual to protect and enforce such rights, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted herein, including, without limitation, seeking recourse against any Guarantor or (ii) proceed to protect and enforce any other proper remedy, including, without limitation, seeking recourse against any Guarantor. No recovery of any such judgment upon any property of the Company or any Guarantor shall affect or impair any rights, powers or remedies of the Trustee or the Holders. -44- 53 Section 5.04. Trustee May File Proofs of Claims. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Notes, including each Guarantor or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (A) to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, fees, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (B) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any Custodian, in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 5.05. Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture, the Notes or any Note Guarantee may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, fees, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. Section 5.06. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such -45- 54 money on account of principal, premium, if any, or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: First: to the Trustee for amounts due under Section 6.07; Second: to Holders for interest accrued on the Notes, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for interest; Third: to Holders for principal and premium, if any, amounts owing under the Notes, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and premium, if any; and Fourth: the balance, if any, to the Company. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Noteholders pursuant to this Section 5.06. Section 5.07. Limitation on Suits. No Holder of any Notes shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (A) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (B) the Holders of not less than 25% in principal amount of the Outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (C) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (D) the Trustee for 15 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (E) no direction inconsistent with such written request has been given to the Trustee during such 15- day period by the Holders of a majority in aggregate principal amount of the Outstanding Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture, any Note or any Note Guarantee to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, any Note or any Note Guarantee, except in the manner provided in this Indenture and for the equal and ratable benefit of all the Holders. -46- 55 Section 5.08. Unconditional Right of Holders To Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive cash payment of the principal of, premium, if any, and (subject to Section 3.07 hereof) interest on such Note on the respective Stated Maturities expressed in such Note (or, in the case of redemption, on the respective Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. Section 5.09. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture, any Note or any Note Guarantee and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, each of the Guarantor, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 5.10. Rights and Remedies Cumulative. Except as provided in Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 5.12. Control by Majority. The Holders of a majority in aggregate principal amount of the Outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided, however, that: (A) such direction shall not be in conflict with any rule of law or with this Indenture, any Note or any Note Guarantee or expose the Trustee to personal liability; and -47- 56 (B) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 5.13. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Outstanding Notes may on behalf of the Holders of all the Notes waive any past Default hereunder and its consequences, except a Default (A) in the payment of the principal of, premium, if any, or interest on any Note or (B) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Note affected thereby. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Section 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.14 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Notes, or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, or interest on any Note on or after the respective Stated Maturities expressed in such Note (or, in the case of redemption, on or after the respective Redemption Dates). Section 5.15. Waiver of Stay, Extension or Usury Laws. Each of the Company and the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company or any Guarantor from paying all or any portion of the principal of, premium, if any, or interest on the Notes contemplated herein or in the Notes or which may affect the covenants or the performance of this Indenture; and each of the Company and the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the -48- 57 Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 5.16. Unconditional Right of Holders To Receive Payment. Notwithstanding any other provision in this Indenture and any other provision of any Note, the right of any Holder of any Note to receive payment of the principal of, premium, if any, and interest on such Note on or after the respective Stated Maturities (or the respective Redemption Dates, in the case of redemption) expressed in such Note, or after such respective dates, shall not be impaired or affected without the consent of such Holder. ARTICLE SIX THE TRUSTEE Section 6.01. Certain Duties and Responsibilities. (A) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (B) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (C) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. -49- 58 (D) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.01. Section 6.02. Notice of Defaults. Within 60 days after the occurrence of any Default, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Note Register, notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of, premium, if any, or interest on any Note, the Trustee shall be protected in withholding such notice if and so long as a trust committee of Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. Section 6.03. Certain Rights of Trustee. Subject to Section 6.01 hereof and the provisions of Section 315 of the Trust Indenture Act: (A) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (B) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors of the Company or any Guarantor may be sufficiently evidenced by a Board Resolution thereof; (C) the Trustee may consult with counsel and any written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel; (D) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by the Trustee in compliance with such request or direction; (E) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture other than any liabilities arising out of its own negligence; -50- 59 (F) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval, appraisal, bond, debenture, note, coupon, security, other evidence of indebtedness or other paper or document unless requested in writing so to do by the Holders of not less than a majority in aggregate principal amount of the Notes then Outstanding; provided, however, that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such investigation shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Company upon demand; provided, further, the Trustee in its discretion may make such further inquiry or investigation into such facts or matters as it may deem fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (G) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. Section 6.04. Trustee Not Responsible for Recitals, Dispositions of Notes or Application of Proceeds Thereof. The recitals contained herein and in the Notes, except the Trustee's certificates of authentication, shall be taken as the statements of the Company and the Guarantors, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes or of any Note Guarantee except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Notes and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility and Qualification on Form T-1, if any, to be supplied to the Company are true and accurate subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Notes or the proceeds thereof. Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc. The Trustee, any Paying Agent, Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Notes, with the same rights it would have if it were not the Trustee, Paying Agent, Registrar or such other agent and, subject to Sections 6.08 and 6.13 hereof and Sections 310 and 311 of the Trust Indenture Act, may otherwise deal with the Company and receive, collect, hold and retain collections from the Company with the same rights it would have if it were not the Trustee, Paying Agent, Registrar or such other agent. -51- 60 Section 6.06. Money Held in Trust. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required herein or by law. The Trustee shall not be under any liability for interest on any moneys received by it hereunder. Section 6.07. Compensation and Indemnification of Trustee and Its Prior Claim. The Company and each Guarantor covenant and agree: (a) to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it hereunder (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) to reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, fees, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation, fees, and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ), except any such expense, disbursement or advance as may arise from its negligence or bad faith; and (c) to indemnify the Trustee and each predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder, including enforcement of this Section 6.07. The obligations of the Company and each Guarantor under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, fees, disbursements and advances shall constitute an additional obligation hereunder and shall survive the satisfaction and discharge of this Indenture. To secure the obligations of the Company and of each Guarantor to the Trustee under this Section 6.07, the Trustee shall have a prior Lien upon all property and funds held or collected by the Trustee as such, except funds and property paid by the Company or any Guarantor and held in trust for the benefit of the Holders of particular Notes. Section 6.08. Conflicting Interests. The Trustee shall be subject to and comply with the provisions of Section 310(b) of the Trust Indenture Act. Section 6.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Trust Indenture Act Sections 310(a)(1) and (2) and which shall have a combined capital and surplus of at least $100,000,000, and have a Corporate Trust Office in the Borough of Manhattan in The City of New York, State of New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of any Federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any -52- 61 time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 6.10. Resignation and Removal; Appointment of Successor Trustee. (A) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (B) The Trustee, or any trustee or trustees hereinafter appointed, may at any time resign by giving written notice thereof to the Company at least 20 Business Days prior to the date of such proposed resignation. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument executed by authority of the Board of Directors of the Company, a copy of which shall be delivered to the resigning Trustee and a copy to the successor Trustee. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 20 Business Days after the giving of such notice of resignation, the resigning Trustee may, or (if an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 Business Days after the giving of such notice of resignation) any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper, appoint a successor Trustee. (C) The Trustee may be removed at any time by an Act of the Holders of a majority in principal amount of the Outstanding Notes, delivered to the Trustee and to the Company. (D) If at any time: (1) the Trustee shall fail to comply with the provisions of Section 310(b) of the Trust Indenture Act in accordance with Section 6.08 hereof after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.09 hereof and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose or rehabilitation, conservation or liquidation, then, in any case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 5.14, the Holder of any Note who has been a bona fide Holder of a Note for at least six -53- 62 months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor Trustee. (E) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution of its Board of Directors, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders of the Notes and accepted appointment in the manner hereinafter provided, the Holder of any Note who has been a bona fide Holder for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (F) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Notes as their names and addresses appear in the Note Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Section 6.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee as if originally named as Trustee hereunder; but, nevertheless, on the written request of the Company or the successor Trustee, upon payment of amounts due it pursuant to Section 6.07, such retiring Trustee shall duly assign, transfer and deliver to the successor Trustee all moneys and property at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor Trustee all the rights, powers, duties and obligations of the retiring Trustee. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a prior claim upon all property or funds held or collected by such Trustee to secure any amounts then due it pursuant to the provisions of Section 6.07. No successor Trustee with respect to the Notes shall accept appointment as provided in this Section 6.11 unless at the time of such acceptance such successor Trustee shall be eligible to act as Trustee under this Article. -54- 63 Upon acceptance of appointment by any successor Trustee as provided in this Section 6.11, the successor shall give notice thereof to the Holders of the Notes, by mailing such notice to such Holders at their addresses as they shall appear on the Note Register. If the acceptance of appointment is substantially contemporaneous with the resignation, then the notice called for by the preceding sentence may be combined with the notice called for by Section 6.10. If the Company fails to give such notice within 10 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be given at the expense of the Company. Section 6.12. Merger, Conversion, Amalgamation, Consolidation or Succession to Business Any corporation into which the Trustee may be merged or converted or with which it may be consolidated or amalgamated, or any corporation resulting from any merger, conversion, amalgamation or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided such corporation shall be eligible under this Article Six to serve as Trustee hereunder. In case at the time such successor to the Trustee under this Section 6.12 shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Notes so authenticated; and, in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee under this Section 6.12 may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificate shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have been authenticated. ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 7.01. Preservation of Information; Company To Furnish Trustee Names and Addresses of Holders. (A) The Trustee shall preserve the names and addresses of the Noteholders and otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee before each Interest Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Noteholders. Neither the Company nor the Trustee shall be under any responsibility with regard to the accuracy of such list. -55- 64 (B) The Company will furnish or cause to be furnished to the Trustee (I) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date; and (II) at such other times as the Trustee may reasonably request in writing, within 30 days after receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and so long as the Trustee shall be the Registrar, no such list need be furnished pursuant to this Subsection 7.01(b). Section 7.02. Communications of Holders. Holders may communicate with other Holders with respect to their rights under this Indenture or under the Notes pursuant to Section 312(b) of the Trust Indenture Act. The Company and the Trustee and any and all other persons benefited by this Indenture shall have the protection afforded by Section 312(c) of the Trust Indenture Act. Section 7.03. Reports by Trustee. Within 60 days after May 1 of each year commencing with the first May 1 following the date of this Indenture, the Trustee shall mail to all Holders, as their names and addresses appear in the Note Register, a brief report dated as of such May 1, in accordance with, and to the extent required under Section 313 of the Trust Indenture Act. At the time of its mailing to Holders, a copy of each such report shall be filed by the Trustee with the Company, the Commission and with each stock exchange on which the Notes are listed. The Company shall notify the Trustee when the Notes are listed on any stock exchange. Section 7.04. Reports by Company and Each Guarantor. The Company and each Guarantor shall: (A) file with the Commission, the copies of annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) required to be filed with Commission pursuant to Section 13 or Section 15 of the Exchange Act, whether or not the Company or any Guarantor has a class of securities registered under the Exchange Act; (B) file with the Trustee within 15 days after it files or would be required to file the information specified in subsection (a) of this Section 7.04 reports and documents with the Commission copies of such information; (C) file with the Trustee and the Commission in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, -56- 65 documents and reports with respect to compliance by the Company and each Guarantor with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (D) transmit by mail to all Holders, as their names and addresses appear in the Note Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company and each Guarantor pursuant to subsections (a) and (c) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. Section 8.01. Company May Consolidate, etc., Only on Certain Terms. The Company will not, in a single transaction or through a series of related transactions, merge or consolidate with or into or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to, any Person or Persons, and the Company will not permit any of the estricted Subsidiaries to enter into any such transaction or series of related transactions if such transaction or series of related transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and the Restricted Subsidiaries (determined on a consolidated basis for the Company and the Restricted Subsidiary), to any other Person or Persons, unless at the time and after giving effect thereto: (I) either (A)(1) if the transaction or transactions is a merger or consolidation involving the Company, the Company shall be the surviving Person of such merger or consolidation or (2) if the transaction or transactions is a merger or consolidation involving a Restricted Subsidiary, such Restricted Subsidiary shall be the surviving Person of such merger or consolidation, or (B)(1) the Person formed by such consolidation or into which the Company or such Restricted Subsidiary is merged or to which the properties and assets of the Company or such Restricted Subsidiary, as the case may be, substantially as an entirety, are transferred (any such surviving Person or transferee Person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and (2)(x) in the case of a transaction involving the Company, the Surviving Entity shall expressly assume, by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and this Indenture and the Registration Rights Agreement and, in each case, the Notes, this Indenture and the Registration Rights Agreement shall remain in full force and effect, or (y) in the case of a transaction involving a Restricted Subsidiary that is a Guarantor, the Surviving Entity shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of such -57- 66 Restricted Subsidiary under its Note Guarantee and this Indenture and the Registration Rights Agreement and, in each case, such Note Guarantee and this Indenture and the Registration Rights Agreement shall remain in full force and effect; (II) immediately after giving effect to such transaction or series of transactions on a pro forma basis, no Default shall have occurred and be continuing; (III) if the Company is then subject to Section 10.12, the Company, or the Surviving Entity, as the case may be, immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), could incur $1.00 of additional Indebtedness under Section 10.12 hereof; (IV) each Guarantor, unless it is the other party to the transaction or transactions described above or in connection therewith its Guarantee will be released and discharged in accordance with the terms of this Indenture, shall have by supplemental indenture confirmed that its Note Guarantee shall apply to the obligations of the Company or the Surviving Entity, as the case may be, under this Indenture and the Notes; and (V) the Company or the Surviving Entity, as the case may be, shall have delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel each stating that such transaction or series of related transactions and, if a supplemental indenture is required in connection with such transaction or series of related transactions to effectuate such assumption, such supplemental indenture complies with this Indenture. No Guarantor (other than a Guarantor whose Note Guarantee is to be released in accordance with the terms of its Note Guarantee and this Indenture as provided in the second sentence of Section 10.18 shall, in any transaction or series of related transactions, consolidate with or merge with or into another Person, whether or not such Person is affiliated with such Guarantor and whether or not such Guarantor is the Surviving Entity, unless (i) the Surviving Entity (if other than such Guarantor) is a corporation organized and validly existing under the laws of the United States, any State thereof or the District of Columbia; (ii) the Surviving Entity (if other than such Guarantor) expressly assumes by a supplemental indenture all the obligations of such Guarantor under its Note Guarantee and the performance and observance of every covenant of this Indenture and the Registration Rights Agreement to be performed or observed by such Guarantor; and (iii) immediately after giving effect to such transaction or series of related transactions on a pro forma basis, no Default shall have occurred and be continuing. Section 8.02. Successor Substituted. Upon any consolidation, combination or merger, or any sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or any Guarantor in accordance with Section 8.01 hereof in which the Company or a Guarantor is not the Surviving Entity, such Surviving Entity shall succeed to, and -58- 67 be substituted for, and may exercise every right and power of, the Company or such Guarantor, as the case may be, under this Indenture, the Notes, the Note Guarantee of such Guarantor and the Registration Rights Agreement with the same effect as if such successor had been named as the Company or such Guarantor, as the case may be, herein, and in the Notes and, thereafter, except in the case of (a) a lease or (b) any sale, assignment, conveyance, transfer, lease or other disposition to a Restricted Subsidiary of the Company or such Guarantor, the Company or such Guarantor, as the case may be, shall be discharged from all obligations and covenants under this Indenture, the Notes, the Note Guarantees and the Registration Rights Agreement, as applicable. For all purposes of this Indenture and the Notes (including this Article Eight and Sections 10.12, 10.14 and 10.17 hereof), Subsidiaries of any Surviving Entity will, upon such transaction or series of related transactions described in this Article Eight, become Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant to Section 10.21 and all Indebtedness, and all Liens on property or assets, of the Company and the Restricted Subsidiaries in existence immediately prior to such transaction or series of related transactions will be deemed to have been incurred upon such transaction or series of related transactions. ARTICLE NINE SUPPLEMENTAL INDENTURES AND WAIVERS Section 9.01. Supplemental Indentures, Agreements and Waivers Without Consent of Holders. Without the consent of any Holders, the Company and the Guarantors, when authorized by a Board Resolution of the Board of Directors of the Company and each Guarantor, and the Trustee, at any time and from time to time, may amend, waive, modify or supplement this Indenture or the Notes or the Note Guarantees for any of the following purposes: (A) to evidence the succession of another person to the Company or a Guarantor, and the assumption by any such successor of the covenants of the Company or such Guarantor herein and in the Notes and/or in any Note Guarantee, as the case may be; (B) to add to the covenants of the Company or any Guarantor for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company or any Guarantor, as applicable, herein, in the Notes or in any Note Guarantee, as the case may be; (C) to cure any ambiguity, to correct or supplement any provision herein, in the Notes or in any Note Guarantee which may be defective or inconsistent with any other provision herein or to make any other provisions with respect to matters or questions arising under this Indenture, the Notes or any Note Guarantee; provided, however, that, in each case, such provisions shall not materially adversely affect the legal rights of the Holders; -59- 68 (D) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act, as contemplated by Section 9.05 hereof or otherwise; (E) to add a Guarantor pursuant to the requirements of Section 10.18 hereof or otherwise; (F) to evidence and provide the acceptance of the appointment of a successor Trustee hereunder; (G) to mortgage, pledge, hypothecate or grant a security interest in any property or assets in favorof the Trustee for the benefit of the Holders as security for the payment and performance of the Indenture Obligations; or (H) to make any other change that does not materially adversely affect the legal rights of any Holder; provided, however, that the Company has delivered to the Trustee an Opinion of Counsel stating that such change, agreement or waiver does not materially adversely affect the legal rights of any Holder. Section 9.02. Supplemental Indentures, Agreements and Waivers with Consent of Holders. With the written consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Notes delivered to the Company, each Guarantor and the Trustee, the Company and each Guarantor (if a party thereto) when authorized by a Board Resolution, together with the Trustee, may amend, waive, modify or supplement any other provision of this Indenture or the Notes or the Note Guarantees; provided, however, that no such amendment, waiver, modification or supplement may, without the written consent of the Holder of each Outstanding Note affected thereby: (I) reduce the principal of or change the Stated Maturity of any Note, or alter the provisions with respect to the redemption or repurchase of the Notes in any manner adverse to the Holders of the Notes; (II) reduce the rate of or change the time for payment of interest on any such Note; (III) change the place or currency of payment of principal of (or premium) or interest on any such Note; (IV) modify any provisions of this Indenture relating to the waiver of past defaults (other than to add sections of this Indenture or the Notes subject thereto) or the right of the Holders of Notes to institute suit for the enforcement of any payment on or with respect to any such Note or any Note Guarantee in respect thereof or the modification and amendment provisions of this Indenture and the Notes (other than to add -60- 69 sections of this Indenture or the Notes which may not be amended, supplemented or waived without the consent of each Holder therein affected); (V) modify any of the provisions of clauses (i) through (ix) of this Section 9.02 or reduce the percentage of the principal amount of outstanding Notes necessary for amendment to or waiver of compliance with any provision of this Indenture or the Notes or for waiver of any Default in respect thereof; (VI) waive a default in the payment of principal of, interest on, or redemption payment with respect to, the Notes (except a rescission of acceleration of the Notes by the Holders thereof as provided in this Indenture and a waiver of the payment default that resulted from such acceleration); (VII) modify the ranking or priority of any Note or the Note Guarantee in respect thereof of any Guarantor in any manner adverse to the Holders of the Notes; (VIII) modify the provisions of Section 10.11 or 10.16 or modify any of the provisions or definitions with respect thereto in a manner materially adverse to the Holders of Notes affected thereby otherwise than in accordance with this Indenture; or (IX) release any Guarantor from any of its obligations under its Note Guarantee or this Indenture otherwise than in accordance with this Indenture. Upon the written request of the Company and each Guarantor accompanied by a copy of a Board Resolution of the Board of Directors of each of them authorizing the execution of any such supplemental indenture or other agreement, instrument or waiver, and upon the filing with the Trustee of evidence of the consent of Holders as aforesaid, the Trustee shall join with the Company and each Guarantor in the execution of such supplemental indenture or other agreement, instrument or waiver. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture or other agreement, instrument or waiver, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.03. Execution of Supplemental Indentures, Agreements and Waivers. In executing, or accepting the additional trusts created by, any supplemental indenture, agreement, instrument or waiver permitted by this Article Nine or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01 hereof) shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate from each obligor under the Notes entering into such supplemental indenture, agreement, instrument or waiver, each stating that the execution of such supplemental indenture, agreement, instrument or waiver (a) is authorized or permitted by this Indenture and (b) does not violate the provisions of any agreement or instrument evidencing any other Indebtedness of the Company, any Guarantor or any other Subsidiary of the Company. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture, agreement, instrument or waiver -61- 70 which affects the Trustee's own rights, duties or immunities under this Indenture, the Notes, any Note Guarantee or otherwise. Section 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article Nine, this Indenture, the Notes, if applicable, and/or the applicable Note Guarantee shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture, the Notes, if applicable, and/or the applicable Note Guarantee, as the case may be, for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the Trust Indenture Act as then in effect. Section 9.06. Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors of the Company, to any such supplemental indenture may be prepared and executed by the Company and each Guarantor and authenticated and delivered by the Trustee upon a Company Order in exchange for Outstanding Notes. Section 9.07. Record Date. The Company may, but shall not be obligated to, fix, a record date for the purpose of determining the Holders entitled to consent to any supplemental indenture, agreement or instrument or any waiver, and shall promptly notify the Trustee of any such record date. If a record date is fixed those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such supplemental indenture, agreement or instrument or waiver or to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. Section 9.08. Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if a notation of the consent is not made on any Note. However, any such Holder, or subsequent Holder, may revoke the consent as to his Note or portion of a Note if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. An amendment or waiver shall become effective in accordance with its terms and thereafter bind every Holder. -62- 71 ARTICLE TEN COVENANTS Section 10.01. Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of, premium, if any, and interest on the Notes in accordance with the terms of the Notes and this Indenture. Section 10.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan in The City of New York, State of New York, an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The office of the Trustee at its Corporate Trust Office will be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York, State of New York) where the Notes may be presented or surrendered for any or all such purposes, and may from time to time rescind such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York, State of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. Section 10.03. Money for Note Payments To Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of, premium, if any, or interest on any of the Notes, segregate and hold in trust for the benefit of the Holders entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. If the Company is not acting as Paying Agent, the Company will, on or before each due date of the principal of, premium, if any, or interest on, any Notes, deposit with a Paying Agent a sum in same day funds sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held in trust for the benefit of the Holders entitled to such -63- 72 principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. If the Company is not acting as Paying Agent, the Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent will agree with the Trustee, subject to the provisions of this Section 10.03, that such Paying Agent will: (A) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Notes in trust for the benefit of the Holders entitled thereto until such sums shall be paid to such Holders or otherwise disposed of as herein provided; (B) give the Trustee notice of any Default by the Company or any Guarantor (or any other obligor upon the Notes) in the making of any payment of principal of, premium, if any, or interest on the Notes; (C) at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (D) acknowledge, accept and agree to comply in all aspects with the provisions of this Indenture relating to the duties, rights and liabilities of such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent will be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company upon receipt of a Company Request therefor, or (if then held by the Company) will be discharged from such trust; and the Holder of such Note will thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, will thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, at the option of the Company in the New York Times or the Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Company. -64- 73 Section 10.04. Corporate Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory), licenses and franchises of the Company and each of the Restricted Subsidiaries; provided, however, that the Company will not be required to preserve any such right, license or franchise if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and the Restricted Subsidiaries as a whole and that the loss thereof is not adverse in any material respect to the Holders; provided, further, that the foregoing will not prohibit a sale, transfer or conveyance of a Subsidiary of the Company or any of its assets in compliance with the terms of this Indenture. Section 10.05. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all material taxes, assessments and governmental charges levied or imposed (i) upon the Company or any of its Restricted Subsidiaries or (ii) upon the income, profits or property of the Company or any of the Restricted Subsidiaries and (b) all material lawful claims for labor, materials and supplies, which, if unpaid, could reasonably be expected to become a Lien upon the property of the Company or any of the Restricted Subsidiaries; provided, however, that the Company will not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (x) whose amount, applicability or validity is being contested in good faith by appropriate proceedings properly instituted and diligently conducted or (y) if the failure to so pay, discharge or cause to be paid or discharged could not reasonably be expected to have a Material Adverse Effect (as defined in the Purchase Agreement). Section 10.06. Maintenance of Properties. The Company will cause all material properties owned by the Company or any of the Restricted Subsidiaries or used or held for use in the conduct of their respective businesses to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 10.06 will prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any of the Restricted Subsidiaries and is not disadvantageous in any material respect to the Holders. Section 10.07. Insurance. The Company will at all times keep all of its and the Restricted Subsidiaries' properties which are of an insurable nature insured with insurers, believed by the Company in good faith to be financially sound and responsible, against loss or damage to the extent that property of similar character is usually and customarily so insured by corporations similarly situated and owning like properties. -65- 74 Section 10.08. Books and Records. The Company will keep proper books of record and account, in which full and correct entries will be made of all financial transactions and the assets and business of the Company and each Restricted Subsidiary of the Company in material compliance with GAAP. Section 10.09. Note Guarantees. Each of the Guarantors and the Company will, and the Company will cause each of the Guarantors to, ensure at all times that, unless otherwise permitted by this Indenture, each Note Guarantee will remain in full force and effect and shall not be subordinated by written agreement in right of payment to any Indebtedness or other obligations of the Guarantors, unless required by applicable law. Section 10.10. Provision of Financial Statements. The Company will file with the Commission (so long as the Commission will accept any such filings) the Trustee and the Initial Purchasers the annual reports, quarterly reports and other documents required to be filed with the Commission pursuant to Sections 13 and 15 of the Exchange Act, whether or not the Company has a class of securities registered under the Exchange Act. The Company will also comply with the other provisions of Section 314(a) of the Trust Indenture Act. Section 10.11. Change of Control Triggering Event. In the event of a Change of Control Triggering Event (the date of such occurrence, the "Change of Control Date"), the Company will notify the Holders of Notes in writing of such occurrence and will make an offer to purchase (the "Change of Control Offer") on a Business Day (the "Change of Control Purchase Date") not more than 30 nor less than 20 Business Days following the Change of Control Date all Notes then Outstanding at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. Failure to mail the notice of a Change of Control Offer on the date specified below or to have satisfied the foregoing condition precedent by the date that such notice is required to be mailed will constitute a covenant Default under Section 5.01(c). Notice of a Change of Control Offer shall be mailed by the Company not more than 20 Business Days after the Change of Control Date to the Holders of Notes at their last registered addresses with a copy to the Trustee and the Paying Agent. The Change of Control Offer shall remain open from the time of mailing for at least 20 Business Days and until 5:00 p.m., New York City time, on the Change of Control Purchase Date. The notice, which shall govern the terms of the Change of Control Offer, shall include such disclosures as are required by law and shall state: (A) that the Change of Control Offer is being made pursuant to this Section 10.11 and that all Notes tendered into the Change of Control Offer will be accepted for payment; -66- 75 (B) the purchase price (including the amount of accrued interest, if any) for each Note, the Change of Control Purchase Date and the date on which the Change of Control Offer expires; (C) that any Note not tendered for payment will continue to accrue interest in accordance with the terms thereof; (D) that, unless the Company shall default in the payment of the purchase price, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Purchase Date; (E) that Holders electing to have Notes purchased pursuant to a Change of Control Offer will be required to surrender their Notes to the Paying Agent at the address specified in the notice prior to 5:00 p.m., New York City time, on the Change of Control Purchase Date and must complete any form letter of transmittal proposed by the Company and acceptable to the Trustee and the Paying Agent; (F) that Holders of Notes will be entitled to withdraw their election if the Paying Agent receives, not later than 5:00 p.m., New York City time, on the Change of Control Purchase Date, a facsimile transmission or letter setting forth the name of the Holders, the principal amount of Notes the Holders delivered for purchase, the Note certificate number (if any) and a statement that such Holder is withdrawing his election to have such Notes purchased; (G) that Holders whose Notes are purchased only in part will be issued Notes of like tenor equal in principal amount to the unpurchased portion of the Notes surrendered; (H) the instructions that Holders must follow in order to tender their Notes; and (I) information concerning the business of the Company, the most recent annual and quarterly reports of the Company filed with the Commission pursuant to the Exchange Act (or, if the Company is not required to file any such reports with the Commission, the comparable reports prepared pursuant to Section 10.10), a description of material developments in the Company's business, information with respect to pro forma historical financial information after giving effect to such Change of Control and such other information concerning the circumstances and relevant facts regarding such Change of Control and Change of Control Offer as would, in the good faith judgment of the Company, be material to a Holder of Notes in connection with the decision of such Holder as to whether or not it should tender Notes pursuant to the Change of Control Offer. On the Change of Control Purchase Date, the Company will (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money, in immediately available funds, sufficient to pay the purchase price of all Notes or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Notes so accepted together with an Officers' Certificate setting forth the Notes or portions thereof tendered to and accepted for payment by the Company. The Paying Agent will promptly mail or deliver to -67- 76 the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Note of like tenor equal in principal amount to any unpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Change of Control Offer not later than the first Business Day following the Change of Control Purchase Date. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act, and any other securities laws or regulations in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 10.11, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 10.11 by virtue thereof. Section 10.12. Limitation on Indebtedness. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume, issue, guarantee or in any manner become liable for or with respect to, contingently or otherwise (in each case, to "incur"), the payment of any Indebtedness (including any Acquired Indebtedness); provided, however, that (i) the Company and any Guarantor may incur Indebtedness (including Acquired Indebtedness) and (ii) any Restricted Subsidiary may incur Acquired Indebtedness, if, in either case, immediately after giving pro forma effect thereto, the Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2.00:1. Notwithstanding the foregoing, the Company and, to the extent specifically set forth below, the Restricted Subsidiaries may incur each and all of the following (collectively, "Permitted Indebtedness"): (I) Indebtedness of the Company and the Guarantors under the Credit Facility in an aggregate principal amount at any one time outstanding not to exceed the greater of (i) $350 million and (ii) 65% of Eligible Inventory (as defined under the Credit Facility) of the Company and the Restricted Subsidiaries (determined on a consolidated basis); (II) Indebtedness of the Company or any Guarantor under the Indenture, the Notes and the Note Guarantees; (III) Indebtedness of the Company or any Restricted Subsidiary not otherwise referred to in this paragraph that is outstanding on the Issue Date, except Indebtedness to be repaid as described under "Use of Proceeds" in the Offering Memorandum (other than Indebtedness repaid that is permitted to be reborrowed under clause (i) above); (IV) Indebtedness of the Company or any Restricted Subsidiary in respect of performance bonds, bankers' acceptances, trade letters of credit of the Company or any Restricted Subsidiary and surety bonds provided by the Company or any Restricted Subsidiary in the ordinary course of business; -68- 77 (V) Indebtedness of any Restricted Subsidiary owed to and held by the Company or any Subsidiary that is a Guarantor, and Indebtedness of the Company owed to and held by any Subsidiary that is a Guarantor which is unsecured and subordinated in right of payment to the payment and performance of the Company's obligations under the Indenture and the Notes; provided, however, that an incurrence of Indebtedness that is not permitted by this clause (v) shall be deemed to have occurred upon (a) any sale or other disposition of any Indebtedness of the Company or any Restricted Subsidiary referred to in this clause (v) to a Person (other than the Company or any Subsidiary that is a Guarantor), (b) any sale or other disposition of Capital Stock of any Restricted Subsidiary which holds Indebtedness of the Company or another Restricted Subsidiary such that such Restricted Subsidiary ceases to be a Restricted Subsidiary and (c) the designation of a Restricted Subsidiary which holds Indebtedness of the Company or any other Restricted Subsidiary as an Unrestricted Subsidiary; (VI) any guarantees of Indebtedness by a Restricted Subsidiary incurred in compliance with Section 10.18 hereof; (VII) Interest Rate Protection Obligations of the Company or any Restricted Subsidiary covering Indebtedness of the Company or any Restricted Subsidiary (which Indebtedness is otherwise permitted to be incurred under this covenant) to the extent the notional principal amount of such Interest Rate Protection Obligations does not exceed the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate; (VIII) Indebtedness of the Company or any Restricted Subsidiary under Currency Agreements relating to (a) Indebtedness of the Company or any Restricted Subsidiary and/or (b) obligations to purchase or sell assets or properties, in each case, incurred in the ordinary course of business of the Company or any Restricted Subsidiary; provided, however, that such Currency Agreements do not increase the Indebtedness or other obligations of the Company or any Restricted Subsidiary outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (IX) Purchase Money Indebtedness (other than Indebtedness incurred in connection with an Asset Acquisition) and Capitalized Lease Obligations of the Company or any Restricted Subsidiary in an aggregate amount not exceeding (i) $25.0 million incurred in any one year and (ii) $50.0 million outstanding at any time; (X) (a) Indebtedness of the Company or any Guarantor to the extent the proceeds thereof are used to Refinance Indebtedness of the Company or any Guarantor or any Restricted Subsidiary incurred under the first paragraph of this covenant or Indebtedness referred to under clause (ii) or (iii) above and (b) Indebtedness of any Restricted Subsidiary that is not a Guarantor to the extent the proceeds thereof are used to Refinance Indebtedness of any Restricted Subsidiary that is not a Guarantor incurred under the first paragraph of this covenant or Indebtedness referred to under clause (iii) above; provided, however, that, in the case of either clause (a) or (b), the principal amount -69- 78 of Indebtedness incurred pursuant to this clause (x) (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of the principal amount of Indebtedness so refinanced (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness, plus any accreted value attributable thereto since the original issuance of such Indebtedness), plus the amount of any premium required to be paid in connection with such Refinancing pursuant to the terms of such Indebtedness or the amount of any premium reasonably determined by the Company or a Restricted Subsidiary, as applicable, as necessary to accomplish such Refinancing by means of a tender offer or privately negotiated purchase, plus the amount of expenses in connection therewith; and (XI) in addition to the items referred to in clauses (i) through (x) above, additional Indebtedness of the Company and the Restricted Subsidiaries not to exceed an aggregate principal amount at any time outstanding of $50.0 million. For purposes of determining compliance with this Section 10.12, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness permitted by this covenant, the Company in its sole discretion shall classify such item of Indebtedness and only be required to include the amount of such Indebtedness as one of such types. After the Notes have been assigned an Investment Grade Rating by both Rating Agencies, and notwithstanding that the Notes may later cease to have an Investment Grade Rating, the Company and the Restricted Subsidiaries will not be subject to the provisions of this Section; provided, that no Default has occurred and is continuing at the time the Notes have been assigned such rating. Section 10.13. Statement by Officers as to Default. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, a written statement signed by the chairman or a chief executive officer, the principal financial officer or principal accounting officer of the Company, stating (i) that a review of the activities of the Company during the preceding fiscal year has been made under the supervision of the signing officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and (ii) that, to the knowledge of each officer signing such certificate, the Company has kept, observed, performed and fulfilled each and every covenant and condition contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions, conditions and covenants hereof (or, if a Default shall have occurred, describing all such Defaults of which such officers may have knowledge, their status and what action the Company is taking or proposes to take with respect thereto). When any Default has occurred and is continuing, or if the Trustee or any Holder or the trustee for or the holder of any other evidence of Indebtedness of the Company or any Restricted Subsidiary gives any notice or takes any other action with respect to a claimed default (other than with respect to Indebtedness (other than -70- 79 Indebtedness evidenced by the Notes) in the principal amount of less than $10,000,000), the Company will promptly notify the Trustee of such Default, notice or action and will deliver to the Trustee by registered or certified mail or by telegram, or facsimile transmission followed by hard copy by registered or certified mail an Officers' Certificate specifying such event, notice or other action within five Business Days after the Company becomes aware of such occurrence and what action the Company is taking or proposes to take with respect thereto. Section 10.14. Limitation on Restricted Payments. (A) The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly: (I) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock of the Company or any Restricted Subsidiary or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any Restricted Subsidiary (other than dividends or distributions made to the Company or a Restricted Subsidiary and dividends and distributions payable solely in Capital Stock of the Company (other than Redeemable Capital Stock) or in rights to purchase Capital Stock of the Company (other than Redeemable Capital Stock) or dividends and distributions made by a Restricted Subsidiary on a pro rata basis to all shareholders of such Restricted Subsidiary); or (II) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company (other than any such Capital Stock owned by the Company or a Restricted Subsidiary that is a Guarantor); or (III) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Subordinated Indebtedness (other than any Subordinated Indebtedness owed to and held by the Company or a Restricted Subsidiary that is a Guarantor); or (IV) make any Investment (other than a Permitted Investment) (such payments or Investments (other than an exception thereto) described in the preceding clauses (i), (ii), (iii) and (iv) are collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than in cash, shall be the Fair Market Value of the asset(s) proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment): (A) no Default shall have occurred and be continuing; (B) the aggregate amount of all Restricted Payments declared or made from and after the Issue Date and all Designation Amounts would not exceed the sum of (1) 50% of cumulative Consolidated Net Income of the Company during the period (treated as one accounting period) beginning on the Issue Date and -71- 80 ending on the last day of the fiscal quarter of the Company immediately preceding the date of such proposed Restricted Payment for which consolidated financial information of the Company is available (or, if such cumulative Consolidated Net Income of the Company for such period shall be a deficit, minus 100% of such deficit), plus (2) the aggregate net cash proceeds received by the Company either (x) as capital contributions to the Company increasing its common equity after the Issue Date or (y) from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock but including Capital Stock issued upon the conversion of convertible Indebtedness, in exchange for outstanding Indebtedness or from the exercise of options, warrants or rights to purchase Capital Stock (other than Redeemable Capital Stock)) of the Company to any Person (other than to a Restricted Subsidiary of the Company) after the Issue Date (excluding the net cash proceeds from any issuance and sale of Capital Stock financed, directly or indirectly, using funds borrowed from the Company or any Restricted Subsidiary until and to the extent such borrowing is repaid), plus (3) without duplication of any amounts included in clause (1) above, in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount (to the extent not included in Consolidated Net Income) equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment which was treated as a Restricted Payment, in either case, less the cost of the disposition of such Investment and net of taxes, plus (4) without duplication of any amounts included in clause (1) above so long as the Designation thereof was treated as a Restricted Payment made after the Issue Date, with respect to any Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in accordance with Section 10.21, the Fair Market Value of the Company's interest in such Subsidiary; provided, however, that such amount shall not in any case exceed the Designation Amount with respect to such Restricted Subsidiary at the time of its Designation, plus (5) $25.0 million, minus (6) the Designation Amount (measured as of the date of Designation) with respect to any Subsidiary of the Company which has been designated as an Unrestricted Subsidiary after the Issue Date in accordance with Section 10.21; and (C) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 10.12 above. For purposes of the preceding clause (B)(2), upon the issuance of Capital Stock either from the conversion of convertible Indebtedness or exchange for outstanding Indebtedness or upon the exercise of options, warrants or rights, the amount counted as net cash proceeds received will be the cash amount received by the Company at the original issuance of the Indebtedness that is so converted or exchanged or from the issuance of options, warrants or rights, as the case may be, plus the incremental amount of cash received by the Company, if any, upon the conversion, exchange or exercise thereof. None of the foregoing provisions of this Section 10.14 will prohibit or restrict (i) the payment of any dividend within 60 days after the date of its declaration, if at the date of -72- 81 declaration such payment would be permitted by the provisions of the Indenture; (ii) so long as no Default shall have occurred and be continuing or would arise therefrom, the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company in exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of other shares of Capital Stock (other than Redeemable Capital Stock) of the Company to any Person (other than to a Restricted Subsidiary); provided, however, that any such net proceeds and the value of any Capital Stock issued in exchange for such retired Capital Stock are excluded from clause (B)(2) of the preceding paragraph; (iii) so long as no Default shall have occurred and be continuing or would arise therefrom, any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness made by exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of (A) Capital Stock (other than Redeemable Capital Stock) of the Company to any Person (other than to a Restricted Subsidiary); provided, however, that any such net cash proceeds and the value of any Capital Stock issued in exchange for Subordinated Indebtedness are excluded from clause (B)(2) of the preceding paragraph or (B) Indebtedness of the Company or any Guarantor so long as such Indebtedness (1) is subordinated to the Notes or the Note Guarantees of such Guarantor, as the case may be, at least to the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased, acquired or retired and (2) does not have a Stated Maturity earlier than the Stated Maturity for the Subordinated Indebtedness being redeemed, repurchased or otherwise acquired or retired; (iv) Investments constituting Restricted Payments made as a result of the receipt of noncash consideration from any Asset Sale made pursuant to and in compliance with Section 10.16; (v) so long as no Default shall have occurred and be continuing, the Refinancing of the Parisian Notes; (vi) so long as no Default shall have occurred and be continuing, any purchase, redemption or other acquisition or retirement for value of any Capital Stock (including any option, warrant or right to purchase Capital Stock) (other than Redeemable Capital Stock) of the Company for purposes of making contributions of such Capital Stock of the Company to employees of the Company or its Subsidiaries pursuant to any qualified employee benefit or similar plan; (vii) a Restricted Payment to pay for the repurchase, retirement or other acquisition or retirement for value of Capital Stock (or warrants or options convertible into or exchangeable for such Capital Stock) of the Company held by any future, present or former employee, director or consultant of the Company or any Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement; provided, however, that the aggregate amount of Restricted Payments made pursuant to this clause (vii) does not exceed in any calendar year $2.5 million (with the unused amount in any calendar year being carried over to succeeding calendar years subject to a maximum of $5.0 million in any calendar year); (viii) payments or distributions to dissenting stockholders pursuant to applicable law, pursuant to or in connection with an Asset Sale or Asset Acquisition that complies with the provisions of the Indenture; (ix) repurchases of Capital Stock (or warrants or options convertible into or exchangeable for such Capital Stock) deemed to occur upon exercise of stock options to the extent that shares of such Capital Stock (or warrants or options convertible into or exchangeable for such Capital Stock) represents a portion of the exercise price of such options; and (x) the repurchase or retirement of Capital Stock of the Company in exchange for the cancellation of Indebtedness owed to the Company or any Restricted Subsidiary; provided, however, that the Fair Market Value of such Capital Stock is not less than the outstanding principal balance of and accrued and unpaid interest on, the Indebtedness so canceled. In computing the amount of -73- 82 Restricted Payments previously made for purposes of clause (B) of the preceding paragraph, Restricted Payments under the immediately preceding clauses (i), (iv), (vi), (vii) and (viii) shall be included. After the Notes have been assigned an Investment Grade Rating by both Rating Agencies, and notwithstanding that the Notes may later cease to have an Investment Grade Rating, the Company and the Restricted Subsidiaries will not be subject to the provisions of this Section; provided that no Default has occurred and is continuing at the time the Notes have been assigned such rating. Section 10.15. Limitation on Transactions with Affiliates. Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, conduct any business or enter into or suffer to exist any transaction or series of related transactions with, or for the benefit of, any of their respective Affiliates or any beneficial holder of 10% or more of any class of Voting Stock of the Company or any officer or director of the Company or any Restricted Subsidiary (each, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the Restricted Subsidiary, as the case may be, than those which could have been obtained in a comparable transaction at such time from Persons who do not have such a relationship and (ii) with respect to any Affiliate Transaction or series of Affiliate Transactions involving aggregate payments or value equal to or greater than $5.0 million, the Company shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with the preceding clause (i) and, with respect to any Affiliate Transaction or series of Affiliate Transactions involving aggregate payments or value equal to or greater than $10.0 million, further certifying that such Affiliate Transaction or series of Affiliate Transactions has been approved by a majority of the Board of Directors of the Company, including a majority of the disinterested directors of the Board of Directors of the Company. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to (i) transactions with or among the Company and the Restricted Subsidiaries who are Guarantors; (ii) customary directors' fees, indemnification and similar arrangements, consulting fees, employee salaries, bonuses or employment agreements, compensation or employee benefit arrangements and incentive arrangements with any officer, director or employee of the Company or any Restricted Subsidiary entered into in the ordinary course of business (including customary benefits thereunder) and payments under any indemnification arrangements permitted by applicable law; (iii) the issue and sale by the Company to its stockholders of Capital Stock (other than Redeemable Capital Stock); (iv) any dividends made in compliance with Section 10.14 above; (v) loans and advances to officers, directors, employees and consultants of the Company or any Restricted Subsidiary for travel, entertainment, moving and other relocation expenses, in each case made in the ordinary course of business; (vi) transactions with or by any Accounts Receivable Subsidiary made in the ordinary course of business and transactions related to any proprietary credit card issued by or for the benefit of the Company or an Affiliate of the Company in the ordinary course of business; (vii) any agreement or Affiliate Transactions as in effect on the Issue Date and any transaction contemplated thereby; and (viii) tax sharing agreements between the Company and any of its Subsidiaries providing for the payment by such Subsidiary of an -74- 83 amount equal to the hypothetical United States tax liability of the Subsidiary as if such Subsidiary had filed its own U.S. federal tax return for any given taxable year. After the Notes have been assigned an Investment Grade Rating by both Rating Agencies, and notwithstanding that the Notes may later cease to have an Investment Grade Rating, the Company and the Restricted Subsidiaries will not be subject to the provisions of this Section; provided that no Default has occurred and is continuing at the time the Notes have been assigned such rating. Section 10.16. Disposition of Proceeds of Asset Sales. The Company will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, make any Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of and (ii) at least 75% of such consideration consists of (A) cash or Cash Equivalents, (B) properties and capital assets to be used in the same line of business being conducted by the Company or any Restricted Subsidiary at such time or (C) Capital Stock in any Person which thereby becomes a Wholly Owned Restricted Subsidiary whose assets consist primarily of properties and capital assets used in the same line of business being conducted by the Company or any Restricted Subsidiary at such time. In lieu of the consideration described in clause (ii) above, the Company or any Restricted Subsidiary may receive consideration from an Asset Sale or Asset Sales consisting of obligations payable to the sellers of such asset or assets in an aggregate amount not to exceed $25.0 million at any time outstanding; provided, however, that all consideration received from an Asset Sale or Asset Sales in excess of such $25.0 million shall be subject to the next preceding sentence. The amount of any (i) Indebtedness of a Restricted Subsidiary that is not a Guarantor that is actually assumed by the transferee in such Asset Sale and from which the Company and the Restricted Subsidiaries are fully released shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or the Restricted Subsidiaries (and excluding any liabilities that are incurred in connection with or in anticipation of such Asset Sale) and (ii) notes or other similar obligations received by the Company or any Restricted Subsidiary from such transferee that are immediately converted, sold or exchanged (or are converted, sold or exchanged within thirty days of the related Asset Sale) by the Company or the Restricted Subsidiaries into cash shall be deemed to be cash, in an amount equal to the net cash proceeds realized upon such conversion, sale or exchange for purposes of determining the percentage of cash consideration received by the Company or the Restricted Subsidiaries. The Company or such Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof to (i) repay Indebtedness of the Company or any Guarantor which is secured by a Lien on the assets or property of the Company or any Guarantor which was the subject of such Asset Sale and permanently reduce any related commitment, (ii) repay Indebtedness (other than Subordinated Indebtedness) of any Restricted Subsidiary that is not a Guarantor in respect of which neither the Company nor any Guarantor is liable and permanently reduce any related commitment, (iii) repay any Indebtedness (other than Subordinated Indebtedness) of the Company or any Guarantor not repaid pursuant to the preceding clause (i) or (ii), or (iv) make Asset Acquisitions or acquire, construct or improve -75- 84 properties or capital assets, in each case, to be used in the same line of business being conducted by the Company or any Restricted Subsidiary at such time. To the extent all or part of the Net Cash Proceeds of any Asset Sale are not applied within 365 days of such Asset Sale as described in clause (i), (ii), (iii) or (iv) of the immediately preceding paragraph (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days after such 365th day, make an offer to purchase (the "Asset Sale Offer") all outstanding Notes up to a maximum principal amount (expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date; provided, however, that the Asset Sale Offer may be deferred until there are aggregate Unutilized Net Cash Proceeds equal to or in excess of $10.0 million, at which time the entire amount of such Unutilized Net Cash Proceeds, and not just the amount in excess of $10.0 million, shall be applied as required pursuant to this paragraph. Notwithstanding the foregoing, the Company may retain up to $20.0 million of Net Cash Proceeds of Asset Sales without applying it as required by the foregoing. With respect to any Asset Sale Offer effected pursuant to this Section 10.16, among the Notes, to the extent the aggregate principal amount of Notes tendered pursuant to such Asset Sale Offer exceeds the Unutilized Net Cash Proceeds to be applied to the repurchase thereof, such Notes shall be purchased pro rata based on the aggregate principal amount of such Notes tendered by each Holder. To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of Notes tendered by the Holders of the Notes pursuant to such Asset Sale Offer, the Company may retain and utilize any portion of the Unutilized Net Cash Proceeds not applied to repurchase the Notes for any purpose consistent with the other terms of the Indenture. Notice of an Asset Sale Offer shall be mailed by the Company not more than 20 Business Days after the obligation to make such Asset Sale Offer arises to the Holders of Notes at their last registered addresses with a copy to the Trustee and the Paying Agent. The Asset Sale Offer shall remain open from the time of mailing for at least 20 Business Days and until 5:00 p.m., New York City time, on the date fixed for Purchase of Notes validly tendered and not withdrawn, which date shall be not later than the 30th Business Day following the mailing of such Asset Sale Offer (the "Asset Sale Offer Purchase Date"). The notice, which shall govern the terms of the Asset Sale Offer, shall include such disclosures as are required by law and shall state: (A) that the Asset Sale Offer is being made pursuant to this Section 10.16 and that all Notes tendered into the Asset Sale Offer will be accepted for payment; provided, however, that if the aggregate principal amount of Notes tendered in an Asset Sale Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Unutilized Net Cash Proceeds, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000 or multiples thereof shall be purchased) and that the Asset Sale Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law; -76- 85 (B) the purchase price (including the amount of accrued interest, if any) for each Note, the Asset Sale Offer Purchase Date and the date on which the Asset Sale Offer expires; (C) that any Note not tendered for payment will continue to accrue interest in accordance with the terms thereof; (D) that, unless the Company shall default in the payment of the purchase price, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Asset Sale Offer Purchase Date; (E) that Holders electing to have Notes purchased pursuant to an Asset Sale Offer will be required to surrender their Notes to the Paying Agent at the address specified in the notice prior to 5:00 p.m., New York City time, on the Asset Sale Offer Purchase Date and must complete any form letter of transmittal proposed by the Company and acceptable to the Trustee and the Paying Agent; (F) that Holders of Notes will be entitled to withdraw their election if the Paying Agent receives, not later than 5:00 p.m., New York City time, on the Asset Sale Offer Purchase Date, a facsimile transmission or letter setting forth the name of the Holders, the principal amount of Notes the Holders delivered for purchase, the Note certificate number (if any) and a statement that such Holder is withdrawing his election to have such Notes purchased; (G) that Holders whose Notes are purchased only in part will be issued Notes of like tenor equal in principal amount to the unpurchased portion of the Notes surrendered; (H) the instructions that Holders must follow in order to tender their Notes; and (I) information concerning the business of the Company, the most recent annual and quarterly reports of the Company filed with the Commission pursuant to the Exchange Act (or, if the Company is not required to file any such reports with the Commission, the comparable reports prepared pursuant to Section 10.10), a description of material developments in the Company's business, information with respect to pro forma historical financial information after giving effect to such Asset Sale and such other information concerning the circumstances and relevant facts regarding such Asset Sale and Asset Sale Offer as would, in the good faith judgment of the Company, be material to a Holder of Notes in connection with the decision of such Holder as to whether or not it should tender Notes pursuant to the Asset Sale Offer. On the Asset Sale Offer Purchase Date, the Company will (i) accept for payment Notes or portions thereof tendered pursuant to the Asset Sale Offer, (ii) deposit with the Paying Agent money, in immediately available funds, sufficient to pay the purchase price of all Notes or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Notes so accepted together with an Officers' Certificate setting forth the Notes or portions thereof tendered to and accepted for payment by the Company. The Paying Agent will promptly mail or deliver to the -77- 86 Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Note of like tenor equal in principal amount to any unpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Asset Sale Offer not later than the first Business Day following the Asset Sale Offer Purchase Date. In the event that the Company makes an Asset Sale Offer, the Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act, and any other applicable securities laws or regulations and any applicable requirements of any securities exchange on which the Notes are listed, and any violation of the provisions of the Indenture relating to such Asset Sale Offer occurring as a result of such compliance shall not be deemed a Default or an Event of Default. After the Notes have been assigned an Investment Grade Rating by both Rating Agencies, and notwithstanding that the Notes may later cease to have an Investment Grade Rating, the Company and the Restricted Subsidiaries will not be subject to the provisions of this Section; provided, that no Default has occurred and is continuing at the time the Notes have been assigned such rating. Section 10.17. Limitation on Liens. The Company will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind (other than Permitted Liens), upon any of its property or assets, whether now owned or acquired after the Issue Date, or any proceeds therefrom, or assign or convey any right to receive income therefrom to secure either (i) Subordinated Indebtedness, unless the Notes, in the case of the Company, and the Note Guarantees, in the case of a Restricted Subsidiary that is a Guarantor, are secured by a Lien on such property, assets or proceeds that is senior in priority to the Liens securing such Subordinated Indebtedness or (ii) any other Indebtedness, unless the Notes and the Note Guarantees, in the case of a Restricted Subsidiary that is a Guarantor, are equally and ratably secured thereby. Section 10.18. Limitation on Guarantees by Restricted Subsidiaries. The Indenture will provide that the Company will not cause or permit any of the Restricted Subsidiaries, directly or indirectly, to guarantee the payment of any Indebtedness of the Company or any Restricted Subsidiary ("Other Indebtedness"), except for guarantees to suppliers, lessors, licensees, contractors, franchises or customers incurred in the ordinary course of business, unless such Subsidiary (A) is a Guarantor or (B) simultaneously executes and delivers a supplemental indenture to the Indenture pursuant to which it will become a Guarantor under the Indenture; provided, however, that if such Other Indebtedness is (i) Indebtedness that is ranked pari passu in right of payment with the Notes or the Note Guarantee of such Restricted Subsidiary, as the case may be, the Note Guarantee of such Subsidiary shall be pari passu in right of payment with the guarantee of the Other Indebtedness; or (ii) Subordinated Indebtedness, the Note Guarantee of such Subsidiary shall be senior in right of payment to the guarantee of the -78- 87 Other Indebtedness (which guarantee of such Subordinated Indebtedness shall provide that such guarantee is subordinated to the Note Guarantees of such Subsidiary to the same extent and in the same manner as the other Indebtedness is subordinated to the Notes or the Note Guarantee of such Restricted Subsidiary, as the case may be). Section 10.19. Restrictions on Preferred Stock of Restricted Subsidiaries. The Company will not sell, and will not cause or permit any of the Restricted Subsidiaries to issue, any Preferred Stock of any Restricted Subsidiary (other than to the Company or to a Wholly-Owned Restricted Subsidiary) or permit any Person (other than the Company or a Wholly-Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary. After the Notes have been assigned an Investment Grade Rating by both Rating Agencies, and notwithstanding that the Notes may later cease to have an Investment Grade Rating, the Company and the Restricted Subsidiaries will not be subject to the provisions of this Section; provided, that no Default has occurred and is continuing at the time the Notes have been assigned such rating. Section 10.20. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist, or enter into any agreement with any Person that would cause to become effective, any consensual encumbrance or restriction of any kind, on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distribution on or in respect of its Capital Stock or any other interest or participation in, or measured by, its profits, to the Company or any other Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make loans or advances to, or guarantee any Indebtedness or other obligations of, the Company or any other Restricted Subsidiary or (d) transfer any of its property or assets to the Company or any other Restricted Subsidiary, except any encumbrance or restriction (i) with respect to a Restricted Subsidiary that is not a Restricted Subsidiary on the Issue Date, in existence at the time such Person becomes a Restricted Subsidiary (but not created in contemplation thereof); provided, however, that such encumbrances and restrictions are not applicable to the Company or any Restricted Subsidiary, or the properties or assets of the Company or any Restricted Subsidiary, other than such Person; (ii) arising as a result of customary non- assignment provisions in leases entered into in the ordinary course of business; (iii) existing under any agreement governing the terms of or otherwise arising as a result of Purchase Money Indebtedness (other than Indebtedness incurred to finance an Asset Acquisition) for property acquired in the ordinary course of business that only imposes encumbrances and restrictions on the property so acquired; (iv) contained in any agreement for the sale or disposition of the Capital Stock or assets of any Restricted Subsidiary; provided, however, that such encumbrances and restrictions described in this clause (iv) are only applicable to such Restricted Subsidiary or assets, as applicable, and any such sale or disposition is made in compliance with Section 10.16 to the extent applicable thereto; or (v) existing under any agreement that refinances or replaces the agreements containing the -79- 88 encumbrance or restrictions in the foregoing clause (i); provided, however, that the terms and conditions of any such restrictions permitted under this clause (v) are not materially less favorable to the holders of the Notes than those under or pursuant to the agreement evidencing the Indebtedness refinanced. After the Notes have been assigned an Investment Grade Rating by both Rating Agencies, and notwithstanding that the Notes may later cease to have an Investment Grade Rating, the Company and the Restricted Subsidiaries will not be subject to the provisions of this Section; provided, that no Default has occurred and is continuing at the time the Notes have been assigned such rating. Section 10.21. Limitation on Designations of Unrestricted Subsidiaries. The Company may designate after the Issue Date any Subsidiary (other than a Guarantor) as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if: (A) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (B) the Company would be permitted under this Indenture to make an Investment (other than a Permitted Investment) at the time of Designation (assuming the effectiveness of such Designation) pursuant to the first paragraph of Section 10.14 in an amount (the "Designation Amount") equal to the Fair Market Value of the Company's interest in such Subsidiary on such date calculated in accordance with GAAP; (C) if the Company is then subject to Section 10.12, the Company would be permitted under this Indenture to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the proviso of the first paragraph of Section 10.12 hereof at the time of such Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to the covenant described in Section 10.14 hereof for all purposes of the Indenture in the Designation Amount. The Company shall not and shall not cause or permit any Restricted Subsidiary to at any time (x) provide credit support for, or subject any of its property or assets (other than the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) (other than Permitted Investments in Unrestricted Subsidiaries) or (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary and (ii) no Unrestricted Subsidiary shall at any time guarantee or otherwise provide credit support for any obligation of the Company or any Restricted Subsidiary. For purposes of the foregoing, the Designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be deemed to be the Designation of all of the Subsidiaries of such Subsidiary. The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: -80- 89 (D) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; (E) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of the Indenture; (F) if the Company is then subject to Section 10.12, unless such redesignated Subsidiary shall not have any Indebtedness outstanding (other than Indebtedness that would be Permitted Indebtedness), immediately after giving effect to such proposed Revocation, and the incurrence of any such additional Indebtedness, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described in Section 10.12; and (G) any transaction (or series of related transactions) between such Subsidiary and any of its Affiliates that occurred while such Subsidiary was an Unrestricted Subsidiary would be permitted by Section 10.15 as if such transaction (or series of related transactions) had occurred at the time of such Revocation. All Designations and Revocations must be evidenced by Board Resolutions of the Company delivered to the Trustee certifying compliance with the foregoing provisions. Section 10.22. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company, the Guarantors and any other obligor on the Notes will furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) relating to the proposed action have been complied with, and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents, certificates and/or opinions is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture will include: (I) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (II) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; -81- 90 (III) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether such covenant or condition has been complied with; and (IV) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 10.23. Application of Fall Away Covenants. After the Notes have been assigned an Investment Grade Rating by both Rating Agencies and the Company and the Guarantors shall no longer be subject to the agreements and covenants contained in clause (iii) of the first paragraph of Section 8.01, Sections 10.12, 10.14, 10.15, 10.16, 10.19, 10.20 and clause (c) of the first and fourth paragraphs of 10.21 as therein provided, such provisions shall no longer have application for any purpose of this Indenture (including, without limitation, for purposes of Article Five, Article Eight, Article Nine and Article Twelve hereof). ARTICLE ELEVEN SATISFACTION AND DISCHARGE Section 11.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to surviving rights or registration of transfer or exchange of Notes herein expressly provided for) and the Trustee, on written demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when either (A) all Notes theretofore authenticated and delivered (other than (A) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 hereof and (B) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or (B) (I) all such Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee in trust an amount of money in dollars sufficient to pay and discharge the entire Indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for the principal of, premium, if any, and interest to the date of such deposit; (II) the Company or any Guarantor has paid or caused to be paid all other sums payable hereunder by the Company and the Guarantor; and -82- 91 (III) the Company and each of the Guarantors have delivered to the Trustee (i) irrevocable instructions to apply the deposited money toward payment of the Notes at the Stated Maturities and the Redemption Dates thereof, and (ii) an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with; provided, that such Opinion of Counsel may rely, as to matters of fact, upon an Officers' Certificate. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.07 and, if money shall have been deposited with the Trustee pursuant to subclause (a)(ii) of this Section 11.01, the obligations of the Trustee under Section 11.02 and the last paragraph of Section 10.03 shall survive. Section 11.02. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the persons entitled thereto, of the principal of, premium, if any, and interest on the Notes for whose payment such money has been deposited with the Trustee. ARTICLE TWELVE GUARANTEE OF NOTES Section 12.01. Unconditional Guarantee. Each Guarantor hereby jointly and severally fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company or any other Note Guarantor to the Holders or the Trustee hereunder or thereunder, that: (a) the principal of, premium, if any, and interest on the Notes will be duly and punctually paid in full when due, whether at maturity, upon redemption, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on the Notes and all other obligations of the Company or the Guarantor to the Holders or the Trustee hereunder or thereunder (including fees, expenses or other) and all other Indenture Obligations will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other Indenture Obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Holders, for whatever reason, each Guarantor shall be obligated to pay, or to perform or cause the performance of, the -83- 92 same immediately. An Event of Default under this Indenture or the Notes shall constitute an event of default under this Guarantee, and shall entitle the Holders of Notes to accelerate the obligations of the Guarantor hereunder in the same manner and to the same extent as the obligations of the Company. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, any release of any other Guarantor, the recovery of any judgment against the Company, any action to enforce the same, whether or not a Note Guarantee is affixed to any particular Note, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives the benefit of diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that its Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and this Note Guarantee. This Note Guarantee is a guarantee of payment and not of collection. If any Holder or the Trustee is required by any court or otherwise to return to the Company or to any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or such Guarantor, any amount paid by the Company or such Guarantor to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between it, on the one hand, and the Holders of Notes and the Trustee, on the other hand, (a) subject to this Article Twelve, the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Five hereof for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (b) in the event of any acceleration of such obligations as provided in Article Five hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Note Guarantor for the purpose of this Guarantee. Section 12.02. Execution and Delivery of Note Guarantee. To further evidence the Note Guarantee set forth in Section 12.01, each Guarantor hereby agrees that a notation of such Note Guarantee shall be endorsed on each Note authenticated and delivered by the Trustee and executed by either manual or facsimile signature of an Officer of each Guarantor. Each of the Guarantors hereby agrees that its Note Guarantee set forth in Section 12.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. If an Officer of a Guarantor whose signature is on this Indenture or a Note Guarantee no longer holds that office at the time the Trustee authenticates such Note or at any time thereafter, such Guarantor's Note Guarantee of such Note shall be valid nevertheless. -84- 93 The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Note Guarantee set forth in this Indenture on behalf of each Guarantor. Section 12.03. Additional Guarantors. Any person that was not a Guarantor on the date of this Indenture may become a Guarantor by executing and delivering to the Trustee (a) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such person to the provisions (including the representations and warranties) of this Indenture as a Guarantor, (b) in the event that as of the date of such supplemental indenture any Registrable Securities are outstanding, an instrument in form and substance satisfactory to the Trustee which subjects such person to the provisions of the Registration Rights Agreement with respect to such outstanding Registrable Securities, and (c) an Opinion of Counsel to the effect that such supplemental indenture has been duly authorized and executed by such person and constitutes the legal, valid and binding obligation of such person (subject to such customary assumptions and exceptions as may be acceptable to the Trustee in its reasonable discretion). Section 12.04. Release of a Guarantor. (i) Upon the sale, exchange, transfer or other disposition (by merger or otherwise), other than a lease, of a Subsidiary of the Company that is a Guarantor of all of the Capital Stock of such Subsidiary or all, or substantially all, the assets of such Subsidiary, to any person that is not an Affiliate of the Company, and which sale or other disposition is otherwise in compliance with the terms of this Indenture or (ii) at the request of the Company, in the event that the lenders under the Credit Facility (or any other revolving credit or term loan facility entitled to a guarantee from such Guarantor) unconditionally release such Guarantor from its guarantee obligations under such facility, if such Guarantor is not a Leveraged Subsidiary; provided, however, that a release of a Guarantor that is a Leveraged Subsidiary may only be obtained under the circumstances described in this clause (ii) if, after giving effect to the release, either (x) such Guarantor would have been permitted to incur all of its then outstanding Indebtedness under Section 10.12 or (y) Section 10.12 has been terminated pursuant to its terms. Such Guarantor shall be deemed automatically and unconditionally released and discharged from all obligations under this Article Twelve without any further action required on the part of the Trustee or any Holder. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request of the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section and the Company's rights of redemption in accordance with the terms of the Notes in this Section 12.04. Any Guarantor not so released will remain liable for the full amount of principal of, premium, if any, and interest on the Notes as provided in this Article Twelve. Section 12.05. Waiver of Subrogation. Until this Indenture is discharged and all of the Notes are discharged and paid in full, each Guarantor hereby irrevocably waives and agrees not to exercise any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of the Company's obligations under the Notes or this -85- 94 Indenture and such Guarantor's obligations under this Note Guarantee and this Indenture, in any such instance including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, and any right to participate in any claim or remedy against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and any amounts owing to the Trustee or the Holders of Notes under the Notes, this Indenture, or any other document or instrument delivered under or in connection with such agreements or instruments, shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Notes, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied to the Notes, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 12.05 is knowingly made in contemplation of such benefits. Section 12.06. Reliance on Judicial Order or Certificate of Liquidating Agent Regarding Dissolution, etc. of Guarantors. Upon any payment or distribution of assets of any Guarantor referred to in this Article Twelve, the Trustee, subject to the provisions of Section 6.01, and the Holders, shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve; provided, however, that the foregoing shall apply only if such court has been fully apprised of the provisions of this Article Twelve. Section 12.07. Article Twelve Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article Twelve shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article Twelve in addition to or in place of the Trustee. -86- 95 Section 12.08. No Suspension of Remedies. Nothing contained in this Article Twelve shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Article Five or to pursue any rights or remedies hereunder or under applicable law. Section 12.09. Limitation of Subsidiary Guarantor's Liability. Each Guarantor that is a Subsidiary of the Company, and by its acceptance hereof each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee by such Guarantor pursuant to its Note Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under this Note Guarantee shall be limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor, and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Note Guarantee or pursuant to its contribution obligations under this Article Twelve, will result in the obligations of such Guarantor under its Note Guarantee not constituting such fraudulent transfer or conveyance. Section 12.10. Contribution from Other Guarantors. Each Guarantor that makes a payment or distribution under its Note Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the net assets of each Guarantor, determined in accordance with GAAP. Section 12.11. Obligations Reinstated. The obligations of each Guarantor hereunder shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment which would otherwise have reduced the obligations of any Guarantor hereunder (whether such payment shall have been made by or on behalf of the Company or by or on behalf of a Guarantor) is rescinded or reclaimed from any of the Holders upon the insolvency, bankruptcy, liquidation or reorganization of the Company or any Guarantor or otherwise, all as though such payment had not been made. If demand for, or acceleration of the time for, payment by the Company is stayed upon the insolvency, bankruptcy, liquidation or reorganization of the Company, all such Indebtedness otherwise subject to demand for payment or acceleration shall nonetheless be payable by each Guarantor as provided herein. Section 12.12. No Obligation To Take Action Against the Company. Neither the Trustee nor any other Person shall have any obligation to enforce or exhaust any rights or remedies or to take any other steps under any security for the Indenture Obligations or against the Company or any other Person or any property of the Company or any other Person before the Trustee is entitled to demand payment and performance by any or all Guarantors of their liabilities and obligations under their Note Guarantees or under this Indenture. -87- 96 Section 12.13. Dealing with the Company and Others. The Holders, without releasing, discharging, limiting or otherwise affecting in whole or in part the obligations and liabilities of any Guarantor hereunder and without the consent of or notice to any Guarantor, may (A) grant time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Company or any other Person; (B) take or abstain from taking security or collateral from the Company or from perfecting security or collateral of the Company; (C) release, discharge, compromise, realize, enforce or otherwise deal with or do any act or thing in respect of (with or without consideration) any and all collateral, mortgages or other security given by the Company or any third party with respect to the obligations or matters contemplated by this Indenture or the Notes; (D) accept compromises or arrangements from the Company; (E) apply all monies at any time received from the Company or from any security upon such part of the Indenture Obligations as the Holders may see fit or change any such application in whole or in part from time to time as the Holders may see fit; and (F) otherwise deal with, or waive or modify their right to deal with, the Company and all other Persons and any security as the Holders or the Trustee may see fit. [signatures on following pages] -88- 97 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. PROFFITT'S, INC. By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: G.R. HERBERGER'S, INC. By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: PARISIAN, INC. By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: MCRAE'S, INC. By: ------------------------------ Name: Title: -89- 98 By: ------------------------------ Name: Title: MCRAE'S STORES PARTNERSHIP By: McRae's, Inc., as managing general partner By: By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: MCRAE'S OF ALABAMA, INC. By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: THE FIRST NATIONAL BANK OF CHICAGO, as Trustee By: ------------------------------ Name: Title: -90- 99 EXHIBIT A-1 [FORM OF NOTE] THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF REGULATION S, (E) TO AN ACCREDITED INVESTOR THAT IS ACQUIRING THE SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT (AND IF ACQUIRING THE SECURITIES FROM SUCH AN ACCREDITED INVESTOR, IS ACQUIRING SECURITIES HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $250,000), OR (F) PURSUANT A-1-1 100 TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE, THE TRANSFER AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. A-1-2 101 PROFFITT'S, INC. 8 1/8% SENIOR NOTES DUE 2004 CUSIP No. __________ No. ___________ $ PROFFITT'S, INC., a corporation incorporated under the laws of the State of Tennessee (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to _______________ or registered assigns, the principal sum of _______________ Dollars on May 15, 2004, at the office or agency of the Company referred to below, and to pay interest thereon on May 15 and November 15 (each an "Interest Payment Date"), of each year, commencing on November 15, 1997, accruing from the Issue Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate of 8 1/8% per annum, until the principal hereof is paid or duly provided for. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture referred to on the reverse hereof, be paid to the person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the May 1 and November 1 (each a "Regular Record Date"), whether or not a Business Day, as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid, or duly provided for, and interest on such defaulted interest at the then applicable interest rate borne by the Notes, to the extent lawful, shall forthwith cease to be payable to the Holder on such Regular Record Date, and may be paid to the person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice of which shall be given to Holders of Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in such Indenture. Payment of the principal of, premium, if any, and interest on this Note will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan in The City of New York, State of New York, or at such other office or agency of the Company as may be maintained for such purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of the person entitled thereto as such address shall appear on the Note Register. A-1-3 102 Reference is hereby made to the further provisions of this Note set forth on the reverse hereof. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. [Remainder of Page Intentionally Left Blank] A-1-4 103 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: PROFFITT'S, INC. By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the 8 1/8% Senior Notes due 2004, Series A, referred to in the within-mentioned Indenture. THE FIRST NATIONAL BANK OF CHICAGO, as Trustee By: ------------------------------ Authorized Officer A-1-5 104 [REVERSE OF NOTE] 1. Indenture. This Note is one of a duly authorized issue of Notes of the Company designated as its 8 1/8% Senior Notes due 2004, Series A (herein called the "Initial Notes"). The Notes are limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $125,000,000, which may be issued under an indenture (herein called the "Indenture") dated as of May 21, 1997, by and among the Company, each of the Guarantors named in the Indenture (the "Guarantors") and The First National Bank of Chicago, as trustee (herein called the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee, the Guarantors and the Holders of the Notes, and of the terms upon which the Notes are, and are to be, authenticated and delivered. The Notes include the Initial Notes, the Private Exchange Securities and the Unrestricted Notes (including the Exchange Notes referred to below), issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement. The Initial Notes and the Unrestricted Notes are treated as a single class of securities under the Indenture. All capitalized terms used in this Note which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Section Section 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of such terms. No reference herein to the Indenture and no provisions of this Note or of the Indenture shall alter or impair the obligation of the Company or any Guarantor, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note at the times, place, and rate, and in the coin or currency, herein prescribed. 2. Note Guarantees. This Note is initially entitled to the benefits of the certain senior Note Guarantees of the Guarantors and may thereafter be entitled to certain other senior Note Guarantees made for the benefit of the Holders. Reference is hereby made to Article Twelve of the Indenture and to the Note Guarantees endorsed on this Note for a statement of the respective rights, limitations of rights, duties and obligations thereunder of the Guarantors, the Trustee and the Holders. 3. Registration Rights. Pursuant to the Registration Rights Agreement by and among the Company, the Guarantors and the Initial Purchasers, the Company and the Guarantors will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note together with the Note Guarantees hereof endorsed hereon for 8 1/8% Senior Notes due 2004, Series B, of the Company (herein called the "Exchange Notes") and the Note Guarantees endorsed thereon, which have been registered under the A-1-6 105 Securities Act, in like principal amount and having identical terms as the Notes (other than as set forth in this paragraph) and the Note Guarantees endorsed hereon, respectively. The Holders of Notes shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 4. Redemption. The Notes will not be subject to redemption at the option of the Company at any time. 5. Offers to Purchase. Sections 10.11 and 10.16 of the Indenture provide that upon the occurrence of a Change of Control Triggering Event and following certain Asset Sales, and subject to certain conditions and limitations contained therein, the Company shall make an offer to purchase all or a portion of the Notes in accordance with the procedures set forth in the Indenture. 6. Defaults and Remedies. If an Event of Default occurs and is continuing, the principal of all of the Outstanding Notes, plus all accrued and unpaid interest, if any, to and including the date the Notes are paid, may be declared due and payable in the manner and with the effect provided in the Indenture. 7. Defeasance. The Indenture contains provisions (which provisions apply to this Note) for defeasance at any time of (a) the entire indebtedness of the Company and the Guarantors on this Note and (b) certain restrictive covenants and related Defaults and Events of Default, in each case upon compliance by the Company with certain conditions set forth therein. 8. Amendments and Waivers. The Indenture permits, with certain exceptions as provided therein, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past Defaults under the Indenture and this Note and their consequences. Any such consent or waiver by or on behalf of the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. 9. Denominations, Transfer and Exchange. The Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes of a different authorized denomination, as requested by the Holder surrendering the same. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable on the Note Register of the Company, upon surrender of this A-1-7 106 Note for registration of transfer at the office or agency of the Company maintained for such purpose in the Borough of Manhattan in The City of New York, State of New York, or at such other office or agency of the Company as may be maintained for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any registration of transfer or exchange or redemption of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. 10. Persons Deemed Owners. Prior to and at the time of due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note shall be overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. 11. Termination of Certain Covenants. After the Notes have been assigned an Investment Grade Rating by both Rating Agencies, and notwithstanding that the Notes may later cease to have an Investment Grade Rating, the Company and the Restricted Subsidiaries will no longer be subject to the provisions of Sections 10.12, 10.14, 10.15, 10.16, 10.19 and 10.20, clause (c) of the first and fourth paragraphs of Section 10.21 and clause (iii) of Section 8.01(a) of the Indenture; provided, that no Default has occurred and is continuing at the time the Notes have been assigned such rating. 12. GOVERNING LAW. THE INDENTURE, THIS NOTE AND EACH NOTE GUARANTEE SET FORTH BELOW SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture. Requests may be made to: Proffitt's, Inc., 750 Lakeshore Parkway, Birmingham, Alabama 35211. A-1-8 107 ASSIGNMENT FORM If you the holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to _______________________________________________________________________________ (Insert assignee's social security or tax ID number)___________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for such agent. In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the date two years (or such shorter period of time as permitted by Rule 144 under the Securities Act or any successor provision thereunder) after the later of the original issuance date appearing on the face of this Note (or any Predecessor Note) or the last date on which the Company or any Affiliate of the Company or any Guarantor was the owner of this Note (or any Predecessor Note), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that: [Check One] [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or [ ] (b) this Note is being transferred other than in accordance with (a) above and documents, including (i) a transferee certificate substantially in the form of Exhibit C to the Indenture in the case of a transfer to non-QIB Accredited Investors or (ii) a transferor certificate substantially in the form of Exhibit D to the Indenture A-1-9 108 in the case of a transfer pursuant to Regulation S, are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked and, in the case of (b) above, if the appropriate document is not attached or otherwise furnished to the Trustee, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 3.17 of the Indenture shall have been satisfied. _______________________________________________________________________________ Date: Your signature: -------------- ---------------------------------------- (Sign exactly as your name appears on the other side of this Note) By: ------------------------------------ NOTICE: To be executed by an executive officer Signature Guarantee: -------------------- TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A (including the information specified in Rule 144A(d)(4)) or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ---------------------------- -------------------------- NOTICE: To be executed by an executive officer A-1-10 109 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 10.11 or 10.16 of the Indenture, check the appropriate box: Section 10.11 [ ] Section 10.16 [ ] If you wish to have a portion of this Note purchased by the Company pursuant to Section 10.11 or 10.16 of the Indenture, state the amount: $ ============ Date: Your signature: -------------- ---------------------------------------- (Sign exactly as your name appears on the other side of this Note) By: ------------------------------------ NOTICE: To be executed by an executive officer Signature Guarantee: -------------------- A-1-11 110 EXHIBIT A-2 PROFFITT'S, INC. ---------------- 8 1/8% SENIOR NOTES DUE 2004 CUSIP No. __________ No. ___________ $ PROFFITT'S, INC., a corporation incorporated under the laws of the State of Tennessee (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to _______________ or registered assigns, the principal sum of _______________ Dollars on May 15, 2004, at the office or agency of the Company referred to below, and to pay interest thereon on May 15 and November 15 (each an "Interest Payment Date"), of each year, commencing on November 15, 1997, accruing from the Issue Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate of [ ]% per annum, until the principal hereof is paid or duly provided for. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture referred to on the reverse hereof, be paid to the person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the May 1 and November 1 (each a "Regular Record Date"), whether or not a Business Day, as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid, or duly provided for, and interest on such defaulted interest at the then applicable interest rate borne by the Notes, to the extent lawful, shall forthwith cease to be payable to the Holder on such Regular Record Date, and may be paid to the person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice of which shall be given to Holders of Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in such Indenture. Payment of the principal of, premium, if any, and interest on this Note will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan in The City of New York, State of New York, or at such other office or agency of the Company as may be maintained for such purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, A-2-1 111 however, that payment of interest may be made at the option of the Company by check mailed to the address of the person entitled thereto as such address shall appear on the Note Register. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. [Remainder of Page Intentionally Left Blank] A-2-2 112 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: PROFFITT'S, INC. By: --------------------------- Name: Title: By: --------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the 8 1/8% Senior Notes due 2004, Series B, referred to in the within-mentioned Indenture. THE FIRST NATIONAL BANK OF CHICAGO, as Trustee By: ---------------------------- Authorized Officer A-2-3 113 [REVERSE OF NOTE] 1. Indenture. This Note is one of a duly authorized issue of Notes of the Company designated as its 8 1/8% Senior Notes due 2004, Series B (herein called the "Unrestricted Notes"). The Notes are limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $125,000,000, which may be issued under an indenture (herein called the "Indenture") dated as of May 21, 1997, by and among the Company, each of the Guarantors named in the Indenture (the "Guarantors") and The First National Bank of Chicago, as trustee (herein called the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee, the Guarantors and the Holders of the Notes, and of the terms upon which the Notes are, and are to be, authenticated and delivered. The Notes include the Initial Notes, the Private Exchange Securities and the Unrestricted Notes (including the Exchange Notes), issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement. The Initial Notes and the Unrestricted Notes are treated as a single class of securities under the Indenture. All capitalized terms used in this Note which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Section Section 77aaa-77bbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of such terms. No reference herein to the Indenture and no provisions of this Note or of the Indenture shall alter or impair the obligation of the Company or any Guarantor, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note at the times, place, and rate, and in the coin or currency, herein prescribed. 2. Note Guarantees. This Note is initially entitled to the benefits of the certain senior Note Guarantees of the Guarantors and may thereafter be entitled to certain other senior Note Guarantees made for the benefit of the Holders. Reference is hereby made to Article Twelve of the Indenture and to the Note Guarantees endorsed on this Note for a statement of the respective rights, limitations of rights, duties and obligations thereunder of the Guarantors, the Trustee and the Holders. 3. Redemption. The Notes will not be subject to redemption at the option of the Company at any time. 4. Offers to Purchase. Sections 10.11 and 10.16 of the Indenture provide that upon the occurrence of a Change of Control Triggering Event and following certain Asset Sales, and subject to certain conditions and limitations contained therein, the Company shall make an A-2-4 114 offer to purchase all or a portion of the Notes in accordance with the procedures set forth in the Indenture. 5. Defaults and Remedies. If an Event of Default occurs and is continuing, the principal of all of the Outstanding Notes, plus all accrued and unpaid interest, if any, to and including the date the Notes are paid, may be declared due and payable in the manner and with the effect provided in the Indenture. 6. Defeasance. The Indenture contains provisions (which provisions apply to this Note) for defeasance at any time of (a) the entire indebtedness of the Company and the Guarantors on this Note and (b) certain restrictive covenants and related Defaults and Events of Default, in each case upon compliance by the Company with certain conditions set forth therein. 7. Amendments and Waivers. The Indenture permits, with certain exceptions as provided therein, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past Defaults under the Indenture and this Note and their consequences. Any such consent or waiver by or on behalf of the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. 8. Denominations, Transfer and Exchange. The Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes of a different authorized denomination, as requested by the Holder surrendering the same. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable on the Note Register of the Company, upon surrender of this Note for registration of transfer at the office or agency of the Company maintained for such purpose in the Borough of Manhattan in The City of New York, State of New York, or at such other office or agency of the Company as may be maintained for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any registration of transfer or exchange or redemption of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. A-2-5 115 9. Persons Deemed Owners. Prior to and at the time of due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note shall be overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. 10. Termination of Certain Covenants. After the Notes have been assigned an Investment Grade Rating by both Rating Agencies, and notwithstanding that the Notes may later cease to have an Investment Grade Rating, the Company and the Restricted Subsidiaries will no longer be subject to the provisions of Sections 10.12, 10.14, 10.15, 10.16, 10.19 and 10.20, clause (c) of the first and fourth paragraphs of Section 10.21 and clause (iii) of Section 8.01(a) of the Indenture; provided, that no Default has occurred and is continuing at the time the Notes have been assigned such rating. 11. GOVERNING LAW. THE INDENTURE, THIS NOTE AND EACH NOTE GUARANTEE SET FORTH BELOW SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture. Requests may be made to: Proffitt's, Inc., 750 Lakeshore Parkway, Birmingham, Alabama 35211. A-2-6 116 ASSIGNMENT FORM If you the holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to _______________________________________________________________________________ (Insert assignee's social security or tax ID number)___________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for such agent. Date: Your signature: -------------- ---------------------------------------- (Sign exactly as your name appears on the other side of this Note) By: ------------------------------------ NOTICE: To be executed by an executive officer Signature Guarantee: -------------------- A-2-7 117 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 10.11 or 10.16 of the Indenture, check the appropriate box: Section 10.11 [ ] Section 10.16 [ ] If you wish to have a portion of this Note purchased by the Company pursuant to Section 10.11 or 10.16 of the Indenture, state the amount: $ ============ Date: Your signature: -------------- ---------------------------------------- (Sign exactly as your name appears on the other side of this Note) By: ------------------------------------- NOTICE: To be executed by an executive officer Signature Guarantee: -------------------- A-2-8 118 EXHIBIT B FORM OF LEGEND FOR BOOK-ENTRY SECURITIES Any Global Note authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Note) in substantially the following form: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. B-1 119 EXHIBIT C Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors Proffitt's, Inc. 750 Lakeshore Parkway Birmingham, AL 35211 Ladies and Gentlemen: In connection with our proposed purchase of $ aggregate principal amount of the 8 1/8 % Senior Notes due 2004 (the "Notes" of Proffitt's Inc. (the "Company"), we confirm that: 1. We understand that the Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to (x) the date which is two years (or such shorter period of time as permitted by Rule 144 under the Securities Act) after the later of the date of original issue of the Notes and (y) such later date, if any, as may be required by any subsequent change in applicable law (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) so long as the Notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person we reasonably believe is a "qualified institutional buyer" under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States to "foreign purchasers" (as defined below) in offshore transactions meeting the requirements of Rule 904 of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act (an "Accredited Investor") that is purchasing for its own account or for the account of such an institutional "accredited investor," or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject, in each of the foregoing cases, to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and to compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (c) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to C-1 120 the Trustee, which shall provide, among other things, that the transferee is an Accredited Investor within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company, the Trustee and the Transfer Agent and Registrar reserve the right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of the Notes pursuant to clause (d), (e) or (f) above to require the delivery of an opinion of counsel, certification and/or other information satisfactory to the Company and the Trustee. 2. We are an Accredited Investor or a QIB purchasing Notes for our own account or for the account of one or more Accredited Investors, and we are acquiring the Notes for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act or the securities laws of any state of the United States and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment in the Notes for an indefinite period. 3. We are acquiring the Notes purchased by us for our own account or for one or more accounts as to each of which we exercise sole investment discretion and we and any such account are (a) a QIB, aware that the sale is being made in reliance on Rule 144A under the Securities Act, (b) an Accredited Investor, or (c) a person other than a U.S. person ("foreign purchasers"), which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust) in offshore transactions meeting the requirements of Rules 903 and 904 of Regulation S under the Securities Act. 4. We have received a copy of the Offering Memorandum and acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in order to verify the information contained in the Offering Memorandum. 5. We are not purchasing the Notes for or on behalf of, and will not transfer the Notes to, any pension or welfare plan (as defined in Section 3 of ERISA, except as may be permitted under ERISA and as described under "Notice to Investors" in the Offering Memorandum. 6. In the event that we purchase any Notes, we will acquire Notes having an outstanding principal amount of at least $250,000 for our own account and $250,000 for each account for which we are acting. We understand that the Trustee and the Transfer Agent will not be required to accept for registration of transfer any Notes acquired by us, except upon presentation of evidence satisfactory to the Company and the Trustee that the foregoing restrictions on transfer have been complied with. We further understand that the Notes purchased by us will be in the form of C-2 121 definitive physical certificates and that such certificates will bear a legend reflecting the substance of this paragraph. We further agree to provide to any person acquiring any of the Notes from us a notice advising such person that transfers of such Notes are restricted as stated herein and that certificates representing such Notes will bear a legend to that effect. We represent that you, the Company, the Trustee and others are entitled to rely upon the truth and accuracy of our acknowledgements, representations and agreements set forth herein, and we agree to notify you promptly in writing if any of our acknowledgements, representations or agreements herein cease to be accurate and complete. You are also irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. We represent to you that we have full power to make the foregoing acknowledgements, representations and agreements on our own behalf and on behalf of any investor account for which we are acting as fiduciary agent. As used herein, the terms "offshore transaction," "United States" and "U.S. person" have the respective meanings given to them in Regulation S under the Securities Act. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Very truly yours, (Name of Purchaser) By: --------------------------------- Date: ------------------------------- Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows: Name: ------------------------------- Address: ---------------------------- C-3 122 EXHIBIT D Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S ______________, ____ The First National Bank of Chicago One First National Plaza Suite 1025 Chicago, Illinois 60670-0126 Attention: Corporate Trustee Administration Re: Proffitt's, Inc. (the "Company") 8 1/8% Senior Notes due 2004 (the "Securities") Ladies and Gentlemen: In connection with our proposed sale of $ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Securities was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; (5) we have advised the transferee of the transfer restrictions applicable to the Securities; D-1 123 (6) if the circumstances set forth in Rule 904(c) under the Securities Act are applicable, we have complied with the additional conditions therein, including (if applicable) sending a confirmation or other notice stating that the Securities may be offered and sold during the restricted period specified in Rule 903(c)(2) or (3), as applicable, in accordance with the provisions of Regulation S; pursuant to registration of the Securities under the Securities Act; or pursuant to an available exemption from the registration requirements under the Securities Act; and (7) if the sale is made during a restricted period and the provisions of Rule 903(c)(3) are applicable thereto, we confirm that such sale has been made in accordance with such provisions. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: -------------------------- Authorized Signature D-2 124 EXHIBIT E FORM OF NOTE GUARANTEE For value received, the undersigned hereby fully and unconditionally guarantees to the Holder of this Note the cash payments in United States dollars of principal of, premium, if any, and interest on this Note in the amounts and at the time when due and interest on the overdue principal, premium, if any, and interest, if any, on this Note, if lawful, and the payment or performance of all other obligations of the Company under the Indenture or the Notes, to the Holder of this Note and the Trustee, all in accordance with and subject to the terms and limitations of this Note, Article Twelve of the Indenture and this Note Guarantee. This Note Guarantee will become effective in accordance with Article Twelve of the Indenture and its terms shall be evidenced therein. The validity and enforceability of any Note Guarantee shall not be affected by the fact that it is not affixed to any particular Note. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture dated as of May 21, 1997, by and among Proffitt's, Inc., the undersigned and The First National Bank of Chicago, as Trustee, as amended or supplemented (the "Indenture"). The obligations of the undersigned to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth in Article Twelve of the Indenture and reference is hereby made to the Indenture for the precise terms of the Note Guarantee and all of the other provisions of the Indenture to which this Note Guarantee relates. THIS NOTE GUARANTEE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE SUBSIDIARY GUARANTOR HEREUNDER AGREES TO SUBMIT TO THE NON- EXCLUSIVE JURISDICTION OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE INDENTURE, THE NOTES OR THIS NOTE GUARANTEE. This Note Guarantee is subject to release upon the terms set forth in the Indenture. E-1 125 IN WITNESS WHEREOF, the undersigned Guarantor has caused this Note Guarantee to be duly executed. Dated: [NAME OF GUARANTOR] By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: E-2 EX-4.5 4 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.5 ============================================================================== REGISTRATION RIGHTS AGREEMENT Dated as of May 21, 1997 by and among PROFFITT'S, INC. and THE SUBSIDIARY GUARANTORS listed herein and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, GOLDMAN, SACHS & CO. and SMITH BARNEY INC., as Initial Purchasers =============================================================================== 2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of May 21, 1997 by and among PROFFITT'S, INC., a Tennessee corporation (the "Company"), the SUBSIDIARY GUARANTORS (together with the Company, the "Issuers"), and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("Merrill Lynch"), GOLDMAN, SACHS & CO. ("Goldman") and SMITH BARNEY INC. ("Smith Barney" and, together with Merrill Lynch and Goldman, the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement dated as of May 15, 1997 by and among the Company, the Subsidiary Guarantors and the Initial Purchasers (the "Purchase Agreement"), which provides for, among other things, the sale by the Company to the Initial Purchasers of an aggregate of $125,000,000 principal amount of the Company's 8 1/8% Senior Notes due 2004 (the "Notes") and the Guarantees thereof by the Subsidiary Guarantors (the "Guarantees" and, together with the Notes, the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Additional Interest" shall have the meaning set forth in Section 2(e) hereof. "Advice" shall have the meaning set forth in the last paragraph of Section 3 hereof. "Applicable Period" shall have the meaning set forth in Section 3(t) hereof. "Business Day" shall mean a day that is not a Saturday, a Sunday, or a day on which banking institutions in Charlotte, North Carolina or New York, New York are required to be closed. "Closing Time" shall mean the Closing Time as defined in the Purchase Agreement. "Company" shall have the meaning set forth in the preamble to this Agreement and also includes the Company's successors and permitted assigns. "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Issuers; provided, however, that such depositary must have an address in the Borough of Manhattan, in The City of New York. "Effectiveness Period" shall have the meaning set forth in Section 2(b) hereof. 3 "Effectiveness Target Date" shall have the meaning set forth in Section 2(e) hereof. "Event Date" shall have the meaning set forth in Section 2(e) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Exchange Offer" shall mean the exchange offer by the Company of Exchange Securities for Securities pursuant to Section 2(a) hereof. "Exchange Offer Registration" shall mean a registration under the Securities Act effected pursuant to Section 2(a) hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-1, S-3 or S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2(a) hereof. "Exchange Securities" shall mean the 8 1/8% Senior Notes due 2004, issued by the Company and guaranteed by the Subsidiary Guarantors on a senior basis under the Indenture containing terms identical to the Securities (except that (i) interest thereon shall accrue from the last date on which interest was paid on the Securities or, if no such interest has been paid, from May 21, 1997 (ii) the transfer restrictions thereon and all registration rights in respect thereof shall be eliminated and (iii) the provisions relating to Additional Interest shall be eliminated) to be offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer. "Guarantees" shall have the meaning set forth in the preamble to this Agreement. "Holders" shall mean the Initial Purchasers, for so long as they own any Registrable Securities, each of their direct and indirect successors, assigns and transferees who become registered owners of Registrable Securities under the Indenture and each Participating Broker-Dealer that holds Exchange Securities for so long as such Participating Broker-Dealer is required to deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities. "Indenture" shall mean the Indenture relating to the Securities dated as of May 21, 1997 among the Issuers, the Subsidiary Guarantors and The First National Bank of Chicago, as trustee, as the same may be amended from time to time in accordance with the terms thereof. "Initial Purchasers" shall have the meaning set forth in the preamble to this Agreement. -2- 4 "Inspectors" shall have the meaning set forth in Section 3(n) hereof. "Issue Date" shall mean the date on which the Notes are originally issued. "Issuers" shall have the meaning set forth in the preamble to this Agreement. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of outstanding Registrable Securities. "Notes" shall have the meaning set forth in the preamble of this Agreement. "Participating Broker-Dealer" shall have the meaning set forth in Section 3(s) hereof. "Person" shall mean an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Private Exchange" shall have the meaning set forth in Section 2(a) hereof. "Private Exchange Securities" shall have the meaning set forth in Section 2(a) hereof. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble to this Agreement. "Records" shall have the meaning set forth in Section 3(n) hereof. "Registrable Securities" shall mean each Security and, if issued, each Private Exchange Security until (i) the date on which such Security has been exchanged by a person other than a Participating Broker-Dealer for an Exchange Security in the Exchange Offer, (ii) following the exchange by a Participating Broker-Dealer in the Exchange Offer of a Security for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, as amended or supplemented, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement, (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act (or any similar provision then in force, but not Rule 144A under the Securities Act), (v) such Security shall have been otherwise -3- 5 transferred by the holder thereof and a new Security not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such Security shall not require registration or qualification under the Securities Act or any similar state law then in force or (vi) such Security ceases to be outstanding. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Issuers with this Agreement, including without limitation: (i) all applicable SEC, stock exchange or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of one counsel for Holders that are Initial Purchasers in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities) and compliance with the rules of the NASD, (iii) all applicable expenses incurred by the Issuers in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, and in preparing or assisting in preparing any other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, if any, (v) the fees and disbursements of counsel for the Issuers, (vii) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, if the Issuer, in its discretion, elects to make any such listing; but excluding fees of counsel to the Holders and underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement) of the Issuers and the Subsidiary Guarantors which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the Securities and Exchange Commission. "Securities" shall have the meaning set forth in the preamble to this Agreement. "Securities Act" shall mean the Securities Act of 1933, as amended. "Shelf Registration" shall mean a registration effected pursuant to Section 2(b) hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Issuers pursuant to the provisions of Section 2(b) hereof which covers all of the Registrable Securities or all of the Private Exchange Securities, as the case may be, on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, -4- 6 including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Subsidiary Guarantors" shall mean each of the Company's subsidiaries listed on the signature pages hereto and each of the Company's future subsidiaries that has executed a supplemental indenture pursuant to the Indenture guaranteeing the Notes. "TIA" shall have the meaning set forth in Section 3(l) hereof. "Trustee" shall mean the trustee with respect to the Securities under the Indenture. 2. Registration Under the Securities Act. (A) Exchange Offer. To the extent not prohibited by any applicable law or applicable interpretation of the staff of the SEC, the Issuers shall, for the benefit of the Holders, at the Issuers' cost, use their best efforts to (i) cause to be filed with the SEC within 45 days after the Closing Time an Exchange Offer Registration Statement on an appropriate form under the Securities Act covering the offer by the Issuers to the Holders to exchange all of the Registrable Securities (other than Private Exchange Securities) for a like principal amount of Exchange Securities, (ii) have such Exchange Offer Registration Statement declared effective under the Securities Act by the SEC not later than the date which is 120 days after the Closing Time, (iii) have such Registration Statement remain effective until the closing of the Exchange Offer and (iv) cause the Exchange Offer to be consummated following the effectiveness of the Exchange Offer Registration Statement and use its best efforts to issue, on or prior to 30 Business Days after the date on which the Exchange Offer Registration Statement was declared effective by the SEC, Exchange Securities in exchange for all Securities properly tendered prior thereto in the Exchange Offer. Upon the effectiveness of the Exchange Offer Registration Statement, the Issuers shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Issuers within the meaning of Rule 405 under the Securities Act and is not a broker-dealer tendering Registrable Securities acquired directly from the Issuers for its own account, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing (within the meaning of the Securities Act) the Exchange Securities) and to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and under state securities or blue sky laws. In connection with the Exchange Offer, the Issuers shall: (I) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; -5- 7 (II) keep the Exchange Offer open for acceptance for a period of not less than 20 Business Days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period"); (III) utilize the services of the Depositary for the Exchange Offer; (IV) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last Business Day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for exchange, and a statement that such Holder is withdrawing his election to have such Securities exchanged; and (V) otherwise comply in all material respects with all applicable laws relating to the Exchange Offer. If, prior to consummation of the Exchange Offer the Initial Purchasers hold any Securities acquired by them and having the status of an unsold allotment in the initial distribution, the Issuers upon the request of any Initial Purchaser shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in exchange (the "Private Exchange") for the Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company, Guaranteed by the Subsidiary Guarantors on a senior basis, that are identical (except that such securities shall bear appropriate transfer restrictions) to the Exchange Securities (the "Private Exchange Securities"). The Exchange Securities and the Private Exchange Securities shall be issued under (i) the Indenture or (ii) an indenture identical to all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that the Exchange Securities shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Securities, the Private Exchange Securities and the Securities shall vote and consent together on all matters as one class and that none of the Exchange Securities, the Private Exchange Securities or the Securities will have the right to vote or consent as a separate class on any matter. The Private Exchange Securities shall be of the same series as and the Issuers shall use all commercially reasonable efforts to have the Private Exchange Securities bear the same CUSIP number as the Exchange Securities. Neither the Company nor any of its Subsidiaries shall have any liability under this Agreement solely as a result of such Private Exchange Securities not bearing the same CUSIP number as the Exchange Securities. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than that (i) the Exchange Offer or Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the SEC (ii) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair the ability of the Issuer to proceed with the Exchange Offer or the Private Exchange, and no material adverse development shall have occurred in any existing action or proceeding with respect to the Issuer and (iii) all governmental approvals shall have been -6- 8 obtained, which approvals the Issuer deems necessary for the consummation of the Exchange Offer or Private Exchange. As soon as practicable after the close of the Exchange Offer and/or the Private Exchange, as the case may be, the Issuers shall: (i) accept for exchange all Registrable Securities or portions thereof properly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which is an exhibit thereto; (ii) accept for exchange all Securities properly tendered pursuant to the Private Exchange; and (iii) deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Issuers, and issue, and cause the Trustee under the Indenture to promptly authenticate and deliver to each Holder, a new Exchange Security or Private Exchange Security, as the case may be, equal in principal amount to the principal amount of the Registrable Securities surrendered by such Holder and accepted for exchange. To the extent not prohibited by any law or applicable interpretation of the staff of the SEC, the Issuers shall use their best efforts to complete the Exchange Offer as provided above, and shall comply with the applicable requirements of the Securities Act, the Exchange Act and other applicable laws in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than those set forth in the immediately preceding paragraph. Each Holder of Registrable Securities who wishes to exchange such Registrable Securities for Exchange Securities in the Exchange Offer will be required to make certain customary representations in connection therewith, including representations that such Holder is not an affiliate of the Issuers within the meaning of Rule 405 under the Securities Act, that any Exchange Securities to be received by it will be acquired in the ordinary course of business and that at the time of the commencement of the Exchange Offer it has no arrangement with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities. The Issuers shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. Upon consummation of the Exchange Offer in accordance with this Section 2(a), the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Securities that are Private Exchange Securities and Exchange Securities held by Participating Broker-Dealers, and the Issuers shall have no further obligation to register Registrable Securities (other than Private Exchange Securities) pursuant to Section 2(b) hereof. (B) Shelf Registration. In the event that (i) the Company is not permitted to file the Exchange Offer Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy, (ii) the Exchange Offer is not for any other reason consummated within 150 days after the Issue Date, (iii) any holder of -7- 9 Securities notifies the Company within 20 Business Days after the commencement of the Exchange Offer that (a) due to a change in law or policy it is not entitled to participate in the Exchange Offer, (b) due to a change in law or policy it may not resell the Exchange Securities acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such holder or (c) it is a broker-dealer and owns Securities acquired directly from the Company or an affiliate of the Company or (iv) the holders of a majority of the Securities may not resell the Exchange Securities acquired by them in the Exchange Offer to the public without restriction under the Securities Act (other than the delivery of the prospectus included in the Exchange Offer Registration Statement, then the Issuers shall, at their cost, use their best efforts to cause to be filed as promptly as practicable after such determination or date, as the case may be, and, in any event, prior to the later of (A) 150 days after the Issue Date or (B) 30 days after such filing obligation arises and use its best efforts to cause the Shelf Registration Statement to be declared effective by the SEC on or prior to 90 days after such obligation arises; provided, however, that if the Company has not consummated the Exchange Offer within 150 days of the Issue Date, then the Issuers will file the Shelf Registration Statement with the SEC on or prior to the 165th day after the Issue Date, a Shelf Registration Statement providing for the sale by the Holders of all of the Registrable Securities, and shall use their best efforts to have such Shelf Registration Statement declared effective by the SEC as soon as practicable. No Holder of Registrable Securities may include any of its Registrable Securities in any Shelf Registration pursuant to this Agreement unless and until such Holder furnishes to the Issuers in writing, within 15 days after receipt of a request therefor, such information as the Issuers may, after conferring with counsel with regard to information relating to Holders that would be required by the SEC to be included in such Shelf Registration Statement or Prospectus included therein, reasonably request for inclusion in any Shelf Registration Statement or Prospectus included therein. Each Holder as to which any Shelf Registration is being effected agrees to furnish to the Issuers all information with respect to such Holder necessary to make any information previously furnished to the Issuers by such Holder not materially misleading. The Issuers agree to use their best efforts to keep the Shelf Registration Statement continuously effective for a period of two years from the Issue Date (subject to extension pursuant to the last paragraph of Section 3 hereof) (or such shorter period that will terminate when all of the Registrable Securities covered by such Shelf Registration Statement have been sold pursuant thereto) or cease to be outstanding (the "Effectiveness Period"); provided, however, that the Effectiveness Period in respect of the Shelf Registration Statement shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein; provided, further, however, that if such Shelf Registration Statement has been filed solely at the request of any Initial Purchaser pursuant to clause (iv) above, the Issuers shall only be required to use their best efforts to keep such Shelf Registration Statement continuously effective for a period of one year from the Issue Date (subject to extension pursuant to the last paragraph of Section 3 hereof) or for such shorter period which will terminate when all of the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be outstanding. The Issuers shall not permit any securities other than Registrable Securities to be included in the Shelf Registration. The Issuers further agree, if necessary, to -8- 10 supplement or amend the Shelf Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Issuers for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registrations, and the Issuers agree to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. (C) Expenses. The Issuers shall pay all Registration Expenses in connection with the registration pursuant to Section 2(a) or 2(b) hereof and the reasonable fees and expenses of one counsel, if any, designated in writing by the Majority Holders to act as counsel for the Holders of the Registrable Securities in connection with a Shelf Registration Statement. Except as provided in the preceding sentence, each Holder shall pay all expenses of its counsel, underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. (D) Effective Registration Statement. An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have been effective during the period of such interference, until the offering of Registrable Securities may legally resume. The Issuers will be deemed not to have used their best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if they voluntarily take any action that would result in any such Registration Statement not being declared effective or in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period, unless such action is required by applicable law and except as otherwise provided in the second paragraph of Section 2(e) below. (E) Additional Interest. In the event that (i) the applicable Registration Statement is not filed with the SEC on or prior to the date specified herein for such filing, (ii) the applicable Registration Statement is not declared effective on or prior to the date specified herein for such effectiveness after such obligation arises (the "Effectiveness Target Date"), (iii) if the Exchange Offer is required to be consummated hereunder, the Company fails to consummate the Exchange Offer within 30 Business Days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement or (iv) the applicable Registration Statement is filed and declared effective during the period effectiveness is required by Section 2(e) and 3(a) but shall thereafter cease to be effective or usable without being succeeded immediately by an additional Registration Statement covering the Registrable Securities which has been filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the interest rate on the Registrable Securities as to which such Registration Default relates will increase ("Additional Interest"), with respect to the first 90-day period (or portion thereof) while a Registration Default is continuing immediately following the occurrence of such Registration Default in an amount equal to 0.25% per annum of the principal amount of the Securities. The rate of additional Interest will increase by an additional 0.25% per annum of the principal amount -9- 11 of the Securities for each subsequent 90-day period (or portion thereof) while a Registration Default is continuing until all Registration Defaults have been cured, up to a maximum amount of 1.00% of the principal amount of the Securities. Additional Interest shall be computed based on the actual number of days elapsed during which any such Registration Defaults exist. Following the cure of a Registration Default, the accrual of Additional Interest with respect to such Registration Default will cease. If the Company issues a notice that the Shelf Registration Statement is unusable due to the pendency of an announcement of a material corporate transaction, or such notice is required under applicable securities laws to be issued by the Company, and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable due to all such notices issued or required to be issued exceeds 30 days in the aggregate, then the interest rate borne by the Securities will be increased by 0.25% per annum of the principal amount of the Securities for the first 90-day period (or portion thereof) beginning on the 31st such date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional 0.25% per annum of the principal amount of the Securities at the beginning of each subsequent 90-day period, up to a maximum amount of 1.00% of the principal amount of the Securities. Upon the Shelf Registration Statement once again becoming usable, the interest rate borne by the Securities will be reduced to the original interest rate if the Company is otherwise in compliance with this Agreement at such time. Additional Interest shall be computed based on the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. The Issuers shall notify the Trustee within three Business Days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Additional Interest shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders of Registrable Securities, on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. (F) Specific Enforcement. Without limiting the remedies available to the Initial Purchasers and the Holders, the Issuers acknowledge that any failure by the Issuers to comply with their obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Issuers' obligations under Section 2(a) and Section 2(b) hereof. 3. Registration Procedures. In connection with the obligations of the Issuers with respect to the Registration Statements pursuant to Sections 2(a) and 2(b) hereof, the Issuers shall: (A) prepare and file with the SEC a Registration Statement or Registration Statements as prescribed by Sections 2(a) and 2(b) hereof within the relevant time period -10- 12 specified in Section 2 hereof on the appropriate form under the Securities Act, which form (i) shall be selected by the Issuers, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof and (iii) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; and use their best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof. The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must provide information for inclusion therein without being afforded an opportunity to review such documentation a reasonable time prior to the filing of such document if the Majority Holders or such Participating Broker-Dealer, as the case may be, their counsel or the managing underwriters, if any, shall reasonably object; (B) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the Effectiveness Period or the Applicable Period, as the case may be; and cause each Prospectus to be supplemented by any required prospectus supplement and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the Securities Act, and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder applicable to it with respect to the disposition of all securities covered by each Registration Statement during the Effectiveness Period or the Applicable Period, as the case may be, in accordance with the intended method or methods of distribution by the selling Holders thereof described in this Agreement (including sales by any Participating Broker-Dealer); (C) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least three Business Days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holder that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders; and (ii) furnish to each Holder of Registrable Securities, without charge, as many copies of each Prospectus, and any amendment or supplement thereto and such other documents as such Holder may reasonably request, in order to facilitate the disposition of the Registrable Securities; and (iii) subject to the last paragraph of Section 3 hereof, hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto subject to the limitations on the use thereof provided in Sections 2(b) and 2(c); (D) in the case of a Shelf Registration, use their best efforts to register or qualify, as may be required by applicable law, the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions by the time the applicable Registration Statement is declared effective by the SEC as any Holder of Registrable Securities covered by a Registration Statement shall reasonably request in advance of such date of effectiveness, and do any and all other acts and things which may -11- 13 be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Issuers shall not be required to (i) qualify as a foreign corporation or as a broker or dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) file any general consent to service of process or (iii) subject itself to taxation in any such jurisdiction if it is not so subject; (E) in the case of (1) a Shelf Registration or (2) Participating Broker-Dealers who have notified the Issuers that they will be utilizing the Prospectus contained in the Exchange Offer Registration Statement as provided in Section 3(t) hereof, notify each Holder of Registrable Securities, or such Participating Broker-Dealers, as the case may be, their counsel, if any, promptly and confirm such notice in writing (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement or Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if the Issuers receive any notification with respect to the suspension of the qualification of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction or the initiation of any proceeding for such purpose, (v) of the happening of any event or the failure of any event to occur or the discovery of any facts or otherwise, during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which causes such Registration Statement or Prospectus to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (vi) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; (F) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement as soon as practicable; (G) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, without charge, at least one conformed copy of each Registration Statement relating to such Shelf Registration and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); (H) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing Securities covered by such Shelf Registration to be sold and relating to the subsequent transfer of such Securities; and cause such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders may reasonably request at least two Business Days prior to the closing of any sale of Registrable Securities; -12- 14 (I) in the case of a Shelf Registration or an Exchange Offer Registration, upon the occurrence of any circumstance contemplated by Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v) or 3(e)(vi) hereof, use their best efforts to prepare a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and to notify each Holder to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and each Holder hereby agrees to suspend use of the Prospectus until the Issuers have amended or supplemented the Prospectus to correct such misstatement or omission; (J) obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with certificates for the Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; (K) cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, (the "TIA") in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and execute, and use their best efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (L) in the case of a Shelf Registration, enter into such agreements and take all such other appropriate actions as are reasonably requested in order to expedite or facilitate the registration or the disposition of such Registrable Securities, and in such connection, (i) make such representations and warranties to Holders of such Registrable Securities with respect to the business of the Issuers and their subsidiaries as then conducted and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Issuers and updates thereof in form and substance reasonably satisfactory to the Holders of a majority in principal amount of the Registrable Securities being sold, addressed to each selling Holder covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders; (iii) obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of any subsidiary of the Issuers or of any business acquired by the Issuers for which financial statements and financial data are, or are required to be, included in the Registration Statement but excluding any statements of the Issuers audited by Deloitte & Touche LLP prior to the date hereof), addressed to the selling Holders of Registrable Securities (other than Participating Broker-Dealers, -13- 15 unless such Participating Broker-Dealers would be deemed to be "underwriters" as a result of the sale of Securities covered by such Shelf Registration Statement), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings and such other matters as reasonably requested by such selling Holders; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 4 hereof (or such other provisions and procedures acceptable to the Issuers and the Holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration with respect to all parties to be indemnified pursuant to said Section (including, without limitation, such selling Holders). The above shall be done at each closing in respect of the sale of Registrable Securities, or as and to the extent required thereunder; (M) if (1) a Shelf Registration is filed pursuant to Section 2(b) or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2(a) is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the applicable period, make available for inspection by each such person who would be an "underwriter" as a result of either (i) the sale by such person of Securities covered by such Shelf Registration Statement or (ii) the sale during the Applicable Period by a Participating Broker-Dealer of Exchange Securities (provided that a Participating Broker-Dealer shall not be deemed to be an underwriter solely as a result of it being required to deliver a prospectus in connection with any resale of Exchange Securities) and any attorney, accountant or other agent retained by any such person (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Issuers and their subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Issuers and their subsidiaries to supply all information in each case reasonably requested by any such Inspector in connection with such Registration Statement. Records which the Issuers determine, in good faith, to be confidential and any Records which they notify the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) the information in such Records has been made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Issuers unless and until such is made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Issuers and allow the Issuers at their expense to undertake appropriate action to prevent disclosure of the Records deemed confidential; -14- 16 (N) comply with all applicable rules and regulations of the SEC and make generally available to their securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Issuers after the effective date of a Registration Statement, which statements shall cover said 12-month periods; (O) upon consummation of an Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Issuers addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or the Private Exchange, as the case may be, and which includes an opinion that (i) the Issuers have duly authorized, executed and delivered the Exchange Securities and Private Exchange Securities, and (ii) each of the Exchange Securities or the Private Exchange Securities, as the case may be, constitute a legal, valid and binding obligation of the Issuers, enforceable against the Issuers in accordance with its respective terms (in each case, with customary exceptions); (P) if an Exchange Offer or a Private Exchange is to be consummated, upon proper delivery of the Registrable Securities by Holders to the Issuers (or to such other Person as directed by the Issuers) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Issuers shall mark, or cause to be marked, on such Registrable Securities and on the books of the Trustee, the Transfer Agent, the Registrar and the Depositary delivered by such Holders that such Registrable Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; but in no event shall such Registrable Securities be marked as paid or otherwise satisfied solely as a result of being exchanged for Exchange Securities or Private Exchange Securities in the Exchange Offer or the Private Exchange, as the case may be; (Q) cooperate with each seller of Registrable Securities covered by any Registration Statement participating in the disposition of such Registrable Securities and one counsel acting on behalf of all such sellers in connection with the filings, if any, required to be made with the NASD; (R) use their best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby; and (S) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," which section shall be reasonably acceptable to Merrill Lynch, as representative of the Initial Purchasers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any -15- 17 broker-dealer (a "Participating Broker-Dealer") that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of Merrill Lynch, as representative of the Initial Purchasers or such other representative, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has delivered to the Issuers the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request; (iii) hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any Person subject to the prospectus delivery requirements of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto, (iv) use their best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such Persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that such period shall not be required to exceed 90 days (or such longer period if extended pursuant to the last sentence of Section 3 hereof) (the "Applicable Period"), and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Securities received in respect of such Registrable Securities pursuant to the Exchange Offer"; and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, such broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act; and (B) in the case of any Exchange Offer Registration Statement, the Issuers agree to deliver, upon request, to the Trustee or to Participating Broker-Dealers upon consummation of the Exchange Offer (i) an opinion of counsel substantially in the form attached hereto as Exhibit A, and (ii) an officers' certificate containing certifications substantially similar to those set forth in Section 7(c) of the Purchase Agreement. -16- 18 The Issuers may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the proposed distribution of such Registrable Securities, as the Issuers may from time to time reasonably request in writing. The Issuers may exclude from such registration the Registrable Securities of any seller who fails to furnish such information within a reasonable time (not to exceed 10 Business Days) after receiving such request and shall be under no obligation to compensate any such seller for any lost income, interest or other opportunity forgone, or any liability incurred, as a result of the Issuers' decision to exclude such seller. In the case of (1) a Shelf Registration Statement or (2) Participating Broker-Dealers who have notified the Issuers that they will be utilizing the Prospectus contained in the Exchange Offer Registration Statement as provided in Section 3(t) hereof, that are seeking to sell Exchange Securities and are required to deliver Prospectuses, each Holder agrees that, upon receipt of any notice from the Issuers of the happening of any event of the kind described in Section 3(e)(ii), 3(e)(iii), 3(e)(v), 3(e)(vi) or 3(e)(vii) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(i) hereof or until it is advised in writing (the "Advice") by the Issuers that the use of the applicable Prospectus may be resumed, and, if so directed by the Issuers, such Holder will deliver to the Issuers (at the Issuers' expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities or Exchange Securities, as the case may be, current at the time of receipt of such notice. If the Issuers shall give any such notice to suspend the disposition of Registrable Securities or Exchange Securities, as the case may be, pursuant to a Registration Statement, the Issuers shall use their best efforts to file and have declared effective (if an amendment) as soon as practicable an amendment or supplement to the Registration Statement and, in the case of an amendment, have such amendment declared effective as soon as practicable and shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days in the period from and including the date of the giving of such notice to and including the date when the Issuers shall have made available to the Holders (x) copies of the supplemented or amended Prospectus necessary to resume such dispositions or (y) the Advice. 4. Indemnification and Contribution. (A) The Issuers shall, jointly and severally, indemnify and hold harmless each Initial Purchaser, each Holder, each Participating Broker-Dealer, each underwriter who participates in an offering of Registrable Securities, their respective affiliates, each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, as follows: (I) against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto), covering Registrable Securities or Exchange Securities, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue -17- 19 statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (II) against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Sections 4(c) and 4(d) below) any such settlement is effected with the prior written consent of the Company; and (III) against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of one counsel (in addition to any local counsel) chosen by Merrill Lynch, such Holder, such Participating Broker-Dealer or any underwriter (except to the extent otherwise expressly provided in Section 4(c) hereof)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 4(a); provided, however, that this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission (i) made in reliance upon and in conformity with written information furnished in writing to the Issuers by or on behalf of such Initial Purchaser, such Holder, such Participating Broker-Dealer or any underwriter with respect to such Initial Purchaser, Holder, Participating Broker-Dealer or underwriter, as the case may be, expressly for use in the Registration Statement (or any amendment or supplement thereto) or any Prospectus (or any amendment or supplement thereto) or (ii) contained in any preliminary prospectus if such Initial Purchaser, such Holder, such Participating Broker-Dealer or such underwriter failed to send or deliver a copy of the Prospectus (in the form it was first provided to such parties for confirmation of sales) to the Person asserting such losses, claims, damages or liabilities on or prior to the delivery of written confirmation of any sale of securities covered thereby to such Person in any case where the Issuers shall have previously furnished copies thereof to such Initial Purchaser, such Holder, such Participating Broker-Dealer or such underwriter, as the case may be, in accordance with this Agreement, at or prior to the written confirmation of the sale of such Securities to such Person and the untrue statement contained in or the omission from the preliminary prospectus was corrected in the Final Prospectus (or any amendment or supplement thereto). Any amounts advanced by the Issuers to an indemnified party pursuant to this Section 4 as a result of such losses shall be returned to the Issuers if it shall be finally determined by a court of competent jurisdiction in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by the Issuers. -18- 20 (B) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Issuers, each Initial Purchaser, each underwriter who participates in an offering of registrable Securities and the other selling Holders and each of their respective directors and each Person, if any, who controls any of the Issuers, any Initial Purchaser, any underwriter or any other selling Holder within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment or supplement thereto) or any Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Issuers by or on behalf of such selling Holder with respect to such Holder expressly for use in the Registration Statement (or any supplement thereto), or any such Prospectus (or any amendment thereto); provided, however, that, in the case of the Shelf Registration Statement, no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to the Shelf Registration Statement; provided, further, however, that for purposes of Section 4(a)(iii), such counsel shall (subject to Section 4(c) hereof) be chosen by the Company. (C) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 4(a) above, one counsel to all the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 4(b) above, counsel to all the indemnified parties shall be selected by the Issuers. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. Notwithstanding the foregoing, if it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action (which approval shall not be unreasonably withheld), unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under -19- 21 this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes a full and unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and the offer and sale of any Securities and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (D) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for reasonable fees and expenses of counsel pursuant to Section 4(a)(iii) above, then such indemnifying party agrees that it shall liable for any settlement of the nature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (E) In order to provide for just and equitable contribution in circumstances under which any of the indemnity provisions set forth in this Section 4 is for any reason held to be unavailable to the indemnified parties although applicable in accordance with its terms, the Issuers, the Initial Purchasers and the Holders, as applicable, shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Issuers, the Initial Purchasers and the Holders; provided, however, that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Issuers and the Initial Purchasers and the Holders, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect the relative fault of the Issuers on the one hand and of the Holder of Registrable Securities, the Participating Broker-Dealer or Initial Purchaser, as the case may be, on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of the Issuers on the one hand and the Holder of Registrable Securities, the Participating Broker-Dealer or the Initial Purchasers, as the case may be, on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers, or by the Holder of Registrable Securities, the Participating Broker-Dealer or the Initial Purchasers, as the case may be, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Issuers and the Holders of the Registrable Securities and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. -20- 22 For purposes of this Section 4, each affiliate of any Person, if any, who controls a Holder of Registrable Securities, a Initial Purchaser or a Participating Broker-Dealer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such other Person, and each director of the Issuers, each affiliate of the Issuers, each executive officer of the Issuers who signed the Registration Statement, and each Person, if any, who controls any Issuer within the meaning of Section 15 of the Securities act or Section 20 of the Exchange Act shall have the same rights to contribution as the Issuers. 5. [Intentionally Omitted] 6. [Intentionally Omitted] 7. Miscellaneous. (A) Rule 144 and Rule 144A. For so long as the Issuers are subject to the reporting requirements of Section 13 or 15 of the Exchange Act and any Registrable Securities remain outstanding, the Issuers covenant that they will file the reports required to be filed by them under the Securities Act and Section 13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the SEC thereunder, that if they cease to be so required to file such reports, they will upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the Securities Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the Securities Act and they will take such further action as any Holder of Registrable Securities may reasonably request, and (c) take such further action, if any, that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, (ii) Rule 144A under the Securities Act, as such rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the reasonable request of any Holder of Registrable Securities, the Issuers will deliver to such Holder a written statement as to whether they have complied with such requirements. (B) No Inconsistent Agreements. The rights granted to the Holders hereunder do not, and will not for the term of this Agreement in any way conflict with and are not, and will not during the term of this Agreement be inconsistent with the rights granted to the holders of the Issuers' other issued and outstanding securities under any other agreements entered into by any of the Issuers. (C) Amendments and Waivers. The provisions of this Agreement, including provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Issuers and the Majority Holders; provided, however, that no amendment, modification, or supplement or waiver or consent to the departure with respect to the provisions of Section 4 hereof shall be effective as against any Holder of Registrable Securities or any Issuer -21- 23 unless consented to in writing by such Holder of Registrable Securities or any Issuer, as the case may be. (D) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Issuers by means of a notice given in accordance with the provisions of this Section 7(d), which address initially is, with respect to the Initial Purchasers, the address set forth in the Purchase Agreement; and (ii) if to the Issuers, initially at the Issuers' address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 7(d). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. (E) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of the Initial Purchasers, including, without limitation and without the need for an express assignment, subsequent Holders; provided, however, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. (F) Third Party Beneficiary. Each of the Initial Purchasers and each Holder shall be a third party beneficiary of the agreements made hereunder between the Issuers, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (G) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto 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. -22- 24 (H) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (I) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. Specified times of day refer to New York City time. (J) 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. (K) Securities Held by the Issuers or any of their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Issuers or any of their affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. [Remainder of Page Intentionally Left Blank] -23- 25 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PROFFITT'S, INC. By: ---------------------------- Name: Title: G.R. HERBERGER'S, INC. By: ---------------------------- Name: Title: PARISIAN, INC. By: ---------------------------- Name: Title: MCRAE'S, INC. By: ---------------------------- Name: Title: MCRAE'S STORES PARTNERSHIP By:McRae's, Inc., as managing general partner By: ---------------------------- Name: Title: -24- 26 MCRAE'S OF ALABAMA, INC. By: ---------------------------- Name: Title: Confirmed and accepted as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ----------------------- Name: Title: GOLDMAN, SACHS & CO. By: ----------------------- (Goldman, Sachs & Co) SMITH BARNEY INC. By: ----------------------- Name: Title: -25- 27 Exhibit A Form of Opinion of Counsel 1. Each of the Exchange Offer Registration Statement and the Prospectus (other than the financial statements, notes or schedules thereto and other financial and statistical information and supplemental schedules included or referred to therein or omitted therefrom and the Form T-1, as to which such counsel need express no opinion), complies as to form in all material respects with the applicable requirements of the Securities Act and the applicable rules and regulations promulgated under the Securities Act. 2. In the course of such counsel's review and discussion of the contents of the Exchange Offer Registration Statement and the Prospectus with certain officers and other representatives of the Issuers and representatives of the independent certified public accountants of the Issuers, but without independent check or verification or responsibility for the accuracy, completeness or fairness of the statements contained therein, on the basis of the foregoing (relying as to materiality to a large extent upon representations and opinions of officers and other representatives of the Issuers), no facts have come to such counsel's attention which cause such counsel to believe that the Exchange Offer Registration Statement (other than the financial statements, notes and schedules thereto and other financial and statistical information contained or referred to therein and the Form T-1, as to which such counsel need express no belief), at the time the Exchange Offer Registration Statement became effective and at the time of the consummation of the Exchange Offer, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading, or that the Prospectus (other than the financial statements, notes and schedules thereto and other financial and statistical information contained or referred to therein, as to which such counsel need express no belief) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. EX-5.1 5 OPINION & CONSENT OF ALSTON & BIRD LLP 1 EXHIBIT 5.1 June 20, 1997 Proffitt's, Inc. 3455 Highway 80 West Jackson, Mississippi 39209 Re: Proffitt's, Inc. -- Registration Statement on Form S-1 with respect to $125,000,000 8 1/8% Series B Notes due 2004 Gentlemen: We have acted as counsel to Proffitt's, Inc., a Tennessee corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, of $125,000,000 aggregate principal amount of 8 1/8% Series B Notes due 2004 (the "Exchange Notes"), pursuant to a Registration Statement on Form S-1 (the "Registration Statement"). The Exchange Notes will be issued pursuant to the terms of the Indenture, dated May 21, 1997, between the Company, the Subsidiary Guarantors named therein, and The First National Bank of Chicago, as trustee (the "Indenture"), in exchange for the identical principal amount of any and all of the Company's outstanding 8 1/8% Series A Notes due 2004 (the "Series A Notes"). In connection with the foregoing, we have examined the Company's Articles of Incorporation and Bylaws, the Registration Statement, and the corporate proceedings taken by the Company to authorize the offering, sale, exchange and issuance of the Series A Notes and the Exchange Notes. We have also examined the Indenture (including the form of the Exchange Notes) and the executed and authenticated Notes (as such term is defined in the Indenture) containing the executed Guarantees of each Subsidiary Guarantor (such Indenture and Notes referred to collectively herein as the "Operative Documents"). We also have examined and relied upon such other records, documents and other instruments in our judgment are necessary or appropriate in order to express the opinions hereinafter set forth, including certificates of public officials and opinions of local counsel. In making the examinations described above and in rendering the opinions expressed below, we have assumed (a) the genuineness of all signatures, (b) the capacity of natural persons, (c) the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such documents, and (d) the due authorization, execution and delivery of the Operative Documents by all parties thereto (other than the Company). Based upon the foregoing, and subject to all of the qualifications and assumptions set forth herein, we are of the opinion that the Exchange Notes have been duly authorized and, when issued and exchanged for the Series A Notes in accordance with the terms of the Exchange Offer described in the Prospectus included in the Registration Statement, will be legally issued, fully paid, non-assessable and binding obligations of the Company. The Guarantees have been duly authorized by each Subsidiary Guarantor and are legally issued and binding obligations of each Subsidiary Guarantor. The opinions expressed above are subject to (a) applicable bankruptcy, receivership, conservatorship, fraudulent conveyance, insolvency, moratorium, reorganization and similar laws affecting the enforcement of creditors' rights and remedies generally, (b) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law), and (c) certain other limitations that exist relating to the rights of set-off, indemnity and contribution and by virtue of public policy. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Sincerely, ALSTON & BIRD By: /s/ RALPH F. MACDONALD, III ------------------------------------ A Partner EX-5.2 6 OPINION & CONSENT OF SOMMER & BARNARD 1 EXHIBIT 5.2 [SOMMER & BARNARD ATTORNEYS AT LAW -PC LETTERHEAD] June 11, 1997 Proffitt's, Inc. 3455 Highway 80 West Jackson, Mississippi 39209 Ladies and Gentlemen: You have requested our opinion in connection with the preparation and filing by Proffitt's Inc. (the "Company") and certain of its subsidiaries (collectively, the "Guarantors") with the Securities and Exchange Commission of a Registration Statement on Form S-1 (the "Registration Statement), pursuant to the Securities Act of 1933, as amended, with respect to up to $125,000,000 aggregate principal amount of the Company's 8-1/8% Senior Notes due 2004, Series B (the "Exchange Notes") to be issued in exchange for the Company's issued and outstanding 8-1/8% Senior Notes due 2004, and the guarantees of the Exchange Notes by the Guarantors (the "Guarantees"), all as described in the Registration Statement. In rendering this opinion, we have examined and relied upon originals or copies, certified or otherwise identified to our satisfaction of such records, documents, certificates and other instruments, and have made such investigation of law, as in our judgment is necessary or appropriate to enable us to render the opinion expressed below. Based on and subject to the foregoing, we are of the opinion that the Exchange Notes, when issued, authenticated and delivered, and the Guarantees, when issued and delivered, in accordance with the terms of the Indenture entered into by the Company, the Guarantors and The First National Bank of Chicago and dated as of May 21, 1997, and as contemplated by the Registration Statement, will be the legally valid and binding obligations of the Company and the Guarantors respectively, enforceable against the Company or the Guarantors as the case may be, in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability to general principles of equity including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforecement is sought in a proceeding at law or in equity), and expect to the extent that a waiver of rights under any usury law may be unenforceable, 2 Proffitt's, Inc. June 11, 1997 Page 2 We hereby consent to the filing of this opinion as Exhibit 5.2 to the Registration Statement and the reference to this firm under the caption "Legal Matters" in the Prospectus included therein. Very truly yours, /s/ Sommer & Barnard, PC -------------------------------- SOMMER & BARNARD, PC EX-11.1 7 HISTORICAL EARNINGS PER COMMON SHARE 1 EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF HISTORICAL EARNINGS PER COMMON SHARE PROFFITT'S, INC. AND SUBSIDIARIES (IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended ----------------------------------- 2/1/97 2/3/96 1/28/95 ------- ------- ------- PRIMARY: Average shares outstanding 24,741 22,780 22,699 Net effect of dilutive stock options - based on the treasury stock method using average market price 822 377 347 ------- ------- ------- Primary weighted average common shares 25,564 23,157 23,046 ======= ======= ======= Income before extraordinary loss $37,399 $ 641 $37,488 Less preferred dividends (796) (1,950) (1,694) Less payment for early conversion of preferred stock (3,032) ------- ------- ------- Income (loss) available to common shareholders before extraordinary loss 33,571 (1,309) 35,754 Extraordinary loss (2,060) ------- ------- ------- Net income (loss) available to common shareholders $ 33,571 $ (3,369) $(35,754) ======= ======= ======= Earnings (loss) per common share before extraordinary loss $ 1.31 $ (0.06) 1.55 Extraordinary Loss (0.09) ------- ------- ------- Primary earnings (loss) per share $ 1.31 $ (0.15) $ 1.55 ======= ======= =======
On June 28, 1996, the Company converted 600 shares of Series A Preferred Stock ("preferred stock") into 1,422 shares of Proffitt's, Inc. common stock. In order to complete this early conversion of the preferred stock, the Company paid $3,032 to the holder of the preferred stock. Primary earnings per share are based on earnings available to common shareholders (net income reduced by preferred stock dividends and payment for early conversion) and the weighted average number of common shares and equivalents (stock options) outstanding. Common stock issued on June 28, 1996 for the conversion of preferred stock has been included in the weighted average number of shares outstanding subsequent to that date. 2
Year Ended ---------------------------------- 2/1/97 2/3/96 1/28/95 ------ ------ ------- FULLY DILUTED: Average shares outstanding 24,741 22,780 22,699 Net effect of dilutive stock options - based on the treasury stock method using year-end market price if higher than average price 876 386 347 Assumed conversion of 4.75% subordinated debenture 2,020 2,020 Assumed conversion of preferred stock 567 1,235 -------- -------- -------- Fully diluted weighted average common shares 28,204 23,166 26,301 Income before interest adjustments and extraordinary loss $ 37,399 $ 641 37,448 Less preferred dividends (1,950) Add 4.75% convertible sub- ordinated debenture interest, net of federal income tax effect 2,500 2,500 -------- -------- -------- Adjusted net income (loss) before extraordinary loss and cumulative affect of changes in accounting methods 39,899 (1,309) 39,948 Extraordinary loss (2,060) -------- -------- -------- Adjusted net income (loss) $ 39,899 $ (3,369) $ 39,948 ======== ======== ======== Fully diluted earnings (loss) per common share before extraordinary loss $ 1.41 $ (0.06) $ 1.52 Extraordinary loss (0.09) -------- -------- -------- Fully diluted earnings (loss) per share $ 1.41 $ (0.15) $ 1.52 ======== ======== ========
As a result of the June 28, 1996 preferred stock conversion and as required by generally accepted accounting principles, fully diluted earnings per share have been presented for the periods shown based upon an "as if the 1,422 shares issued in the conversion were outstanding from the beginning of the period" basis. EX-23.3 8 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 of our report, dated March 20, 1997, on our audits of the consolidated financial statements of Proffitt's, Inc. as of February 1, 1997 and February 3, 1996, and for each of the three years in the period ended February 1, 1997. We also consent to the reference to our firm under the caption "Experts." COOPERS & LYBRAND L.L.P. Birmingham, Alabama June 20, 1997 EX-23.4 9 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 of our report, dated March 22, 1996, on our audits of the consolidated financial statements of Parisian, Inc. as of January 28, 1995 and February 3, 1996, and for the years ended January 29, 1994, January 28, 1995, and February 3, 1996. We also consent to the reference to our firm under the caption "Experts." COOPERS & LYBRAND L.L.P. Birmingham, Alabama June 20, 1997 EX-23.5 10 CONSENT OF DELIOTTE & TOUCHE 1 EXHIBIT 23.5 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Proffitt's, Inc. on Form S-1 of our report dated March 3, 1995, with respect to the consolidated financial statements of Younkers, Inc., and subsidiary for the year ended January 28, 1995 not separately presented, incorporated by reference in the Annual Report on Form 10-K of Proffitt's, Inc. for the year ended February 1, 1997 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. DELOITTE & TOUCHE LLP Des Moines, Iowa June 20, 1997 EX-25.1 11 FORMS T-1 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) THE FIRST NATIONAL BANK OF CHICAGO (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) A NATIONAL BANKING ASSOCIATION 36-0899825 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) THE FIRST NATIONAL BANK OF CHICAGO ONE FIRST NATIONAL PLAZA, SUITE 0286 CHICAGO, ILLINOIS 60670-0286 ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) -------------------------- PROFFITT'S, INC. (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) TENNESSEE 82-0331040 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 116 NORTH CALDERWOOD ALOOS, TENNESSEE 37701 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) DEBT SECURITIES (TITLE OF INDENTURE SECURITIES) 1 2 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of Currency, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C., The Board of Governors of the Federal Reserve System, Washington D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 2 3 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and the State of Illinois, on this 7th day of May, 1997. THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE By /s/ John R. Prendiville John R. Prendiville Vice President * EXHIBIT 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF SUNAMERICA, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 (REGISTRATION NO. 333-14201). 3 4 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT May 7, 1997 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of an indenture between Proffitt's, Inc. and The First National Bank of Chicago, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By /s/ John R. Prendiville John R. Prendiville Vice President 4 5 EXHIBIT 7 Legal Title of Bank: The First National Bank of Chicago Call Date: 12/31/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-1 City, State Zip: Chicago, IL 60670 FDIC Certificate No. 0/3/6/1/8
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
DOLLAR AMOUNTS IN C400 <- THOUSANDS RCFD BIL MIL THOU ----- ----------------- ---- ------------ ----- ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1)................... 0081 4,586,399 1.a. b. Interest-bearing balances(2)............................................ 0071 5,224,838 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A) 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)............ 1773 3,335,304 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold...................................................... 0276 4,157,626 3.a. b. Securities purchased under agreements to resell......................... 0277 96,125 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C)..................................................... RCFD 2122 23,448,929 4.a. b. LESS: Allowance for loan and lease losses.............. RCFD 3123 419,373 4.b. c. LESS: Allocated transfer risk reserve.................. RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)................... 2125 23,029,556 4.d. 5. Assets held in trading accounts........................... 3545 7,888,514 5. 6. Premises and fixed assets (including capitalized leases).. 2145 701,700 6. 7. Other real estate owned (from Schedule RC-M)..... 2150 11,061 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)............................ 2130 62,681 8. 9. Customers' liability to this bank on acceptances outstanding 2155 480,933 9. 10. Intangible assets (from Schedule RC-M).................... 2143 303,014 10. 11. Other assets (from Schedule RC-F)......................... 2160 1,745,155 11. 12. Total assets (sum of items 1 through 11).................. 2170 51,622,906 12.
- ------------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 5 6 Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-2 City, State Zip: Chicago, IL 60670 FDIC Certificate No.: 0/3/6/1/8
SCHEDULE RC-CONTINUED DOLLAR AMOUNTS IN Thousands BIL MIL THOU ------------------ ------------ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)................................. RCON 2200 22,032,796 13.a. (1) Noninterest-bearing(1).................................. RCON 6631 9,190,670 13.a.(1) (2) Interest-bearing........................................ RCON 6636 12,842,126 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II).......................... RCFN 2200 10,861,857 13.b. (1) Noninterest bearing..................................... RCFN 6631 285,745 13.b.(1) (2) Interest-bearing........................................ RCFN 6636 10,576,382 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased..................................... RCFD 0278 2,639,255 14.a. b. Securities sold under agreements to repurchase.............. RCFD 0279 66,564 14.b. 15. a. Demand notes issued to the U.S. Treasury.................... RCON 2840 121,352 15.a. b. Trading Liabilities......................................... RCFD 3548 5,793,742 15b. 16. Other borrowed money: a. With original maturity of one year or less.................. RCFD 2332 2,665,232 16.a. b. With original maturity of more than one year............... RCFD 2333 58,105 16b. 17. Mortgage indebtedness and obligations under capitalized leases......................................................... RCFD 2910 285,671 17. 18. Bank's liability on acceptance executed and outstanding........ RCFD 2920 480,933 18. 19. Subordinated notes and debentures.............................. RCFD 3200 1,400,000 19. 20. Other liabilities (from Schedule RC-G)......................... RCFD 2930 1,199,147 20. 21. Total liabilities (sum of items 13 through 20)................. RCFD 2948 47,604,654 21. 22. Limited-Life preferred stock and related surplus............... RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus.................. RCFD 3838 0 23. 24. Common stock................................................... RCFD 3230 200,858 24. 25. Surplus (exclude all surplus related to preferred stock)....... RCFD 3839 2,934,523 25. 26. a. Undivided profits and capital reserves...................... RCFD 3632 865,652 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities.................................................. RCFD 8434 18,441 26.b. 27. Cumulative foreign currency translation adjustments............ RCFD 3284 (1,222) 27. 28. Total equity capital (sum of items 23 through 27).............. RCFD 3210 4,018,252 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28).......................... RCFD 3300 51,622,906 29.
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work Number performed for the bank by independent external Number auditors as of any date during 1995................................................... RCFD 6724 N/A M.1.
1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by other external auditors (may be required by state 2 = Independent audit of the bank's parent holding company chartering authority) conducted in accordance with generally accepted auditing standards by a certified public accounting 5 = Review of the bank's financial statements by external firm which submits a report on the consolidated holding auditors company (but not on the bank separately) 6 = Compilation of the bank's financial statements by external auditors 3 = Directors' examination of the bank conducted in 7 = Other audit procedures (excluding tax preparation work) accordance with generally accepted auditting standards by a certified public accounting firm (may be required 8 = No external audit work by state chartering authority)
- ---------------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 6 7 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) THE FIRST NATIONAL BANK OF CHICAGO (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) A NATIONAL BANKING ASSOCIATION 36-0899825 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) THE FIRST NATIONAL BANK OF CHICAGO ONE FIRST NATIONAL PLAZA, SUITE 0286 CHICAGO, ILLINOIS 60670-0286 ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ------------------------------ G.R. HERBERGER'S, INC. (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) MINNESOTA 41-0635374 STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 600 MALL GERMAIN ST. CLOUD, MINNESOTA 56301 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) GUARANTEE OF DEBT SECURITIES OF PROFFITT'S, INC. (TITLE OF INDENTURE SECURITIES) 8 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of Currency, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C., The Board of Governors of the Federal Reserve System, Washington D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 2 9 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and the State of Illinois, on this 7th day of May, 1997. THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE By /s/ John R. Prendiville John R. Prendiville Vice President * EXHIBIT 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF SUNAMERICA, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 (REGISTRATION NO. 333-14201). 3 10 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT May 7, 1997 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of a guarantee agreement between G.R. Herberger's, Inc. and The First National Bank of Chicago, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By /s/ John R. Prendiville John R. Prendiville Vice President 4 11 EXHIBIT 7 Legal Title of Bank: The First National Bank of ChicCall Date: 12/31/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-1 City, State Zip: Chicago, IL 60670 FDIC Certificate No.0/3/6/1/8
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
C400 <- DOLLAR AMOUNTS IN ----- --------- THOUSANDS RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1)........... 0081 4,586,399 1.a. b. Interest-bearing balances(2).................................... 0071 5,224,838 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A)....... 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D).... 1773 3,335,304 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold.............................................. 0276 4,157,626 3.a. b. Securities purchased under agreements to resell................. 0277 96,125 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C).............................................................. RCFD 2122 23,448,929 4.a. b. LESS: Allowance for loan and lease losses....................... RCFD 3123 419,373 4.b. c. LESS: Allocated transfer risk reserve........................... RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)............................ 2125 23,029,556 4.d. 5. Assets held in trading accounts.................................... 3545 7,888,514 5. 6. Premises and fixed assets (including capitalized leases)........... 2145 701,700 6. 7. Other real estate owned (from Schedule RC-M)....................... 2150 11,061 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)..................................... 2130 62,681 8. 9. Customers' liability to this bank on acceptances outstanding 2155 480,933 9. 10. Intangible assets (from Schedule RC-M)............................. 2143 303,014 10. 11. Other assets (from Schedule RC-F).................................. 2160 1,745,155 11. 12. Total assets (sum of items 1 through 11)........................... 2170 51,622,906 12.
(1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 5 12 Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-2 City, State Zip: Chicago, IL 60670 FDIC Certificate No.: 0/3/6/1/8
SCHEDULE RC-CONTINUED
DOLLAR AMOUNTS IN Thousands BIL MIL THOU ------------------ ------------ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)................................. RCON 2200 22,032,796 13.a. (1) Noninterest-bearing(1).................................. RCON 6631 9,190,670 13.a.(1) (2) Interest-bearing........................................ RCON 6636 12,842,126 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II).......................... RCFN 2200 10,861,857 13.b. (1) Noninterest bearing..................................... RCFN 6631 285,745 13.b.(1) (2) Interest-bearing........................................ RCFN 6636 10,576,382 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased..................................... RCFD 0278 2,639,255 14.a. b. Securities sold under agreements to repurchase.............. RCFD 0279 66,564 14.b. 15. a. Demand notes issued to the U.S. Treasury RCON 2840 121,352 15.a. b. Trading Liabilities......................................... RCFD 3548 5,793,742 15b. 16. Other borrowed money: a. With original maturity of one year or less.................. RCFD 2332 2,665,232 16.a. b. With original maturity of more than one year............... RCFD 2333 58,105 16b. 17. Mortgage indebtedness and obligations under capitalized leases......................................................... RCFD 2910 285,671 17. 18. Bank's liability on acceptance executed and outstanding RCFD 2920 480,933 18. 19. Subordinated notes and debentures.............................. RCFD 3200 1,400,000 19. 20. Other liabilities (from Schedule RC-G)......................... RCFD 2930 1,199,147 20. 21. Total liabilities (sum of items 13 through 20)................. RCFD 2948 47,604,654 21. 22. Limited-Life preferred stock and related surplus............... RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus.................. RCFD 3838 0 23. 24. Common stock................................................... RCFD 3230 200,858 24. 25. Surplus (exclude all surplus related to preferred stock)....... RCFD 3839 2,934,523 25. 26. a. Undivided profits and capital reserves...................... RCFD 3632 865,652 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities.................................................. RCFD 8434 18,441 26.b. 27. Cumulative foreign currency translation adjustments............ RCFD 3284 (1,222) 27. 28. Total equity capital (sum of items 23 through 27).............. RCFD 3210 4,018,252 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28).......................... RCFD 3300 51,622,906 29.
Memorandum To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number auditors as of any date during 1995.........................................................RCFD 6724 N/A M.1.
1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by with generally accepted auditing standards by a certified other external auditors (may be required by state chartering public accounting firm which submits a authority) report on the bank 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external submits a report on the consolidated holding company auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
(1) Includes total demand deposits and noninterest-bearing time and savings deposits. 6 13 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)___ ---------------------------- THE FIRST NATIONAL BANK OF CHICAGO (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) A NATIONAL BANKING ASSOCIATION 36-0899825 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) THE FIRST NATIONAL BANK OF CHICAGO ONE FIRST NATIONAL PLAZA, SUITE 0286 CHICAGO, ILLINOIS 60670-0286 ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) -------------------------- MCCRAE'S, INC. (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) MISSISSIPPI 64-0202140 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 3455 HIGHWAY 80 WEST JACKSON, MISSISSIPPI 39209 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) GUARANTEE OF DEBT SECURITIES OF PROFFITT'S, INC. (TITLE OF INDENTURE SECURITIES) 14 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of Currency, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C., The Board of Governors of the Federal Reserve System, Washington D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 2 15 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and the State of Illinois, on this 7th day of May, 1997. THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE By /s/ John R. Prendiville John R. Prendiville Vice President * EXHIBIT 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF SUNAMERICA, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 (REGISTRATION NO. 333-14201). 3 16 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT May 7, 1997 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of a guarantee agreement between McCrae's, Inc. and The First National Bank of Chicago, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By /s/ John R. Prendiville John R. Prendiville Vice President 4 17 EXHIBIT 7 Legal Title of Bank: The First National Bank of ChicCall Date: 12/31/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-1 City, State Zip: Chicago, IL 60670 FDIC Certificate No.0/3/6/1/8
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
DOLLAR AMOUNTS IN C400 <- THOUSANDS RCFD BIL MIL THOU ----------------- ---- ------------ ------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1).. 0081 4,586,399 1.a. b. Interest-bearing balances(2).................................... 0071 5,224,838 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A) 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D).... 1773 3,335,304 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold.............................................. 0276 4,157,626 3.a. b. Securities purchased under agreements to resell................. 0277 96,125 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C).............................................................. RCFD 2122 23,448,929 4.a. b. LESS: Allowance for loan and lease losses....................... RCFD 3123 419,373 4.b. c. LESS: Allocated transfer risk reserve........................... RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)............................ 2125 23,029,556 4.d. 5. Assets held in trading accounts.................................... 3545 7,888,514 5. 6. Premises and fixed assets (including capitalized leases)........... 2145 701,700 6. 7. Other real estate owned (from Schedule RC-M)....................... 2150 11,061 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)..................................... 2130 62,681 8. 9. Customers' liability to this bank on acceptances outstanding 2155 480,933 9. 10. Intangible assets (from Schedule RC-M)............................. 2143 303,014 10. 11. Other assets (from Schedule RC-F).................................. 2160 1,745,155 11. 12. Total assets (sum of items 1 through 11)........................... 2170 51,622,906 12. - --------------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading.
5 18
Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-2 City, State Zip: Chicago, IL 60670 FDIC Certificate No.: 0/3/6/1/8
SCHEDULE RC-CONTINUED DOLLAR AMOUNTS IN Thousands BIL MIL THOU ----------------- ------------ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)..................................... RCON 2200 22,032,796 13.a. (1) Noninterest-bearing(1)...................................... RCON 6631 9,190,670 13.a.(1) (2) Interest-bearing............................................ RCON 6636 12,842,126 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)... RCFN 2200 10,861,857 13.b. (1) Noninterest bearing......................................... RCFN 6631 285,745 13.b.(1) (2) Interest-bearing............................................ RCFN 6636 10,576,382 13.b.(2) 14. Federal funds purchased and securities sold under agreements to purrchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased......................................... RCFD 0278 2,639,255 14.a. b. Securities sold under agreements to repurchase RCFD 0279 66,564 14.b. 15. a. Demand notes issued to the U.S. Treasury RCON 2840 121,352 15.a. b. Trading Liabilities............................................. RCFD 3548 5,793,742 15b. 16. Other borrowed money: a. With original maturity of one year or less...................... RCFD 2332 2,665,232 16.a. b. With original maturity of more than one year. RCFD 2333 58,105 16b. 17. Mortgage indebtedness and obligations under capitalized leases............................................................. RCFD 2910 285,671 17. 18. Bank's liability on acceptance executed and outstanding RCFD 2920 480,933 18. 19. Subordinated notes and debentures.................................. RCFD 3200 1,400,000 19. 20. Other liabilities (from Schedule RC-G)............................. RCFD 2930 1,199,147 20. 21. Total liabilities (sum of items 13 through 20)..................... RCFD 2948 47,604,654 21. 22. Limited-Life preferred stock and related surplus................... RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus...................... RCFD 3838 0 23. 24. Common stock....................................................... RCFD 3230 200,858 24. 25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 2,934,523 25. 26. a. Undivided profits and capital reserves.......................... RCFD 3632 865,652 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities...................................................... RCFD 8434 18,441 26.b. 27. Cumulative foreign currency translation adjustments RCFD 3284 (1,222) 27. 28. Total equity capital (sum of items 23 through 27) RCFD 3210 4,018,252 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28).............................. RCFD 3300 51,622,906 29. Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number auditors as of any date during 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . ....RCFM.1. .... N/A
1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by submits a report on the consolidated holding company external auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in accordance 8 = No external audit work with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) - -------------------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits.
6 19 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)____ ---------------------------------- THE FIRST NATIONAL BANK OF CHICAGO (EXACT NAME OF TRUSTEE AS SPECIFIED in ITS CHARTER) A NATIONAL BANKING ASSOCIATION 36-0899825 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) THE FIRST NATIONAL BANK OF CHICAGO ONE FIRST NATIONAL PLAZA, SUITE 0286 CHICAGO, ILLINOIS 60670-0286 ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ---------------------------------- MCCRAE'S STORES PARTNERSHIP (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) ALABAMA 72-1360263 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 3455 HIGHWAY 80 WEST JACKSON, MISSISSIPPI 39209 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) GUARANTEE OF DEBT SECURITIES OF PROFFITT'S, INC. (TITLE OF INDENTURE SECURITIES) 1 20 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of Currency, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C., The Board of Governors of the Federal Reserve System, Washington D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 2 21 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and the State of Illinois, on this 7th day of May, 1997. THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE By /s/ John R. Prendiville John R. Prendiville Vice President * EXHIBIT 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF SUNAMERICA, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 (REGISTRATION NO. 333-14201). 3 22 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT May 7, 1997 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of a guarantee agreement between McCrae's Stores Partnership and The First National Bank of Chicago, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By /s/ John R. Prendiville John R. Prendiville Vice President 4 23 EXHIBIT 7
Legal Title of Bank: The First National Bank of ChicCall Date: 12/31/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-1 City, State Zip: Chicago, IL 60670 FDIC Certificate No.0/3/6/1/8 CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter.
SCHEDULE RC--BALANCE SHEET
DOLLAR AMOUNTS IN C400 <- THOUSANDS RCFD BIL MIL THOU ----------------- ----- ------------ ------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1).............. 0081 4,586,399 1.a. b. Interest-bearing balances(2)....................................... 0071 5,224,838 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A) 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)....... 1773 3,335,304 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold................................................. 0276 4,157,626 3.a. b. Securities purchased under agreements to resell.................... 0277 96,125 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C)................................................................. RCFD 2122 23,448,929 4.a. b. LESS: Allowance for loan and lease losses.......................... RCFD 3123 419,373 4.b. c. LESS: Allocated transfer risk reserve.............................. RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)............................... 2125 23,029,556 4.d. 5. Assets held in trading accounts....................................... 3545 7,888,514 5. 6. Premises and fixed assets (including capitalized leases).............. 2145 701,700 6. 7. Other real estate owned (from Schedule RC-M).......................... 2150 11,061 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)........................................ 2130 62,681 8. 9. Customers' liability to this bank on acceptances outstanding 2155 480,933 9. 10. Intangible assets (from Schedule RC-M)................................ 2143 303,014 10. 11. Other assets (from Schedule RC-F)..................................... 2160 1,745,155 11. 12. Total assets (sum of items 1 through 11).............................. 2170 51,622,906 12. - -------------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading.
5 24
Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-2 City, State Zip: Chicago, IL 60670 FDIC Certificate No.: 0/3/6/1/8
SCHEDULE RC-CONTINUED
DOLLAR AMOUNTS IN Thousands BIL MIL THOU ----------------- ----------- LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)................................... RCON 2200 22,032,796 13.a. (1) Noninterest-bearing(1).................................... RCON 6631 9,190,670 13.a.(1) (2) Interest-bearing.......................................... RCON 6636 12,842,126 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)............................ RCFN 2200 10,861,857 13.b. (1) Noninterest bearing....................................... RCFN 6631 285,745 13.b.(1) (2) Interest-bearing.......................................... RCFN 6636 10,576,382 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchasein domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased....................................... RCFD 0278 2,639,255 14.a. b. Securities sold under agreements to repurchase RCFD 0279 66,564 14.b. 15. a. Demand notes issued to the U.S. Treasury RCON 2840 121,352 15.a. b. Trading Liabilities........................................... RCON 3548 5,793,742 15b. 16. Other borrowed money: a. With original maturity of one year or less.................... RCFD 2332 2,665,232 16.a. b. With original maturity of more than one year................. RCFD 2333 58,105 16b. 17. Mortgage indebtedness and obligations under capitalized leases........................................................... RCFD 2910 285,671 17. 18. Bank's liability on acceptance executed and outstanding RCFD 2920 480,933 18. 19. Subordinated notes and debentures................................ RCFD 3200 1,400,000 19. 20. Other liabilities (from Schedule RC-G)........................... RCFD 2930 1,199,147 20. 21. Total liabilities (sum of items 13 through 20)................... RCFD 2948 47,604,654 21. 22. Limited-Life preferred stock and related surplus................. RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus.................... RCFD 3838 0 23. 24. Common stock..................................................... RCFD 3230 200,858 24. 25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 2,934,523 25. 26. a. Undivided profits and capital reserves........................ RCFD 3632 865,652 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities.................................................... RCFD 8434 18,441 26.b. 27. Cumulative foreign currency translation adjustments RCFD 3284 (1,222) 27. 28. Total equity capital (sum of items 23 through 27) RCFD 3210 4,018,252 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28)............................ RCFD 3300 51,622,906 29.
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number auditors as of any date during 1995 . . . . . . . . . . . . . . . . . . . . . . . RCFM.1. .... N/A 1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external submits a report on the consolidated holding company auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) - ------------------ (1) Includes total demand deposits and noninterest-bearing time and savings deposits.
6 25 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) --------------------------- THE FIRST NATIONAL BANK OF CHICAGO (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) A NATIONAL BANKING ASSOCIATION 36-0899825 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) THE FIRST NATIONAL BANK OF CHICAGO ONE FIRST NATIONAL PLAZA, SUITE 0286 CHICAGO, ILLINOIS 60670-0286 ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) --------------------------- MCCRAE'S OF ALABAMA, INC. (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) ALABAMA 63-0165960 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 3455 HIGHWAY 80 WEST JACKSON, MISSISSIPPI 39209 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) GUARANTEE OF DEBT SECURITIES OF PROFFITT'S, INC. (TITLE OF INDENTURE SECURITIES) 1 26 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of Currency, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C., The Board of Governors of the Federal Reserve System, Washington D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 2 27 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and the State of Illinois, on this 7th day of May, 1997. THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE By /s/ John R. Prendiville John R. Prendiville Vice President * EXHIBIT 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF SUNAMERICA, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 (REGISTRATION NO. 333-14201). 3 28 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT May 7, 1997 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of a guarantee agreement between McCrae's of Alabama, Inc. and The First National Bank of Chicago, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By /s/ John R. Prendiville John R. Prendiville Vice President 4 29 EXHIBIT 7 Legal Title of Bank: The First National Bank of ChicCall Date: 12/31/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-1 City, State Zip: Chicago, IL 60670 FDIC Certificate No. 0/3/6/1/8
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
C400 <- DOLLAR AMOUNTS IN ---------- ------- THOUSANDS RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1).. 0081 4,586,399 1.a. b. Interest-bearing balances(2)............................... 0071 5,224,838 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A) 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)... 1773 3,335,304 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold.......................................... 0276 4,157,626 3.a. b. Securities purchased under agreements to resell............. 0277 96,125 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C).......................................................... RCFD 2122 23,448,929 4.a. b. LESS: Allowance for loan and lease losses................... RCFD 3123 419,373 4.b. c. LESS: Allocated transfer risk reserve....................... RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)........................ 2125 23,029,556 4.d. 5. Assets held in trading accounts................................ 3545 7,888,514 5 . 6. Premises and fixed assets (including capitalized leases)....... 2145 701,700 6. 7. Other real estate owned (from Schedule RC-M)................... 2150 11,061 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)................................. 2130 62,681 8. 9. Customers' liability to this bank on acceptances outstanding 2155 480,933 9. 10. Intangible assets (from Schedule RC-M)......................... 2143 303,014 10. 11. Other assets (from Schedule RC-F).............................. 2160 1,745,155 11. 12. Total assets (sum of items 1 through 11)....................... 2170 51,622,906 12.
- ----------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 5 30 Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-2 City, State Zip: Chicago, IL 60670 FDIC Certificate No.: 0/3/6/1/8
SCHEDULE RC-CONTINUED
DOLLAR AMOUNTS IN Thousands BIL MIL THOU ----------------- ----------- LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)................................ RCON 2200 22,032,796 13.a. (1) Noninterest-bearing(1)................................. RCON 6631 9,190,670 13.a.(1) (2) Interest-bearing....................................... RCON 6636 12,842,126 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)......................... RCFN 2200 10,861,857 13.b. (1) Noninterest bearing.................................... RCFN 6631 285,745 13.b.(1) (2) Interest-bearing....................................... RCFN 6636 10,576,382 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased.................................... RCFD 0278 2,639,255 14.a. b. Securities sold under agreements to repurchase RCFD 0279 66,564 14.b. 15. a. Demand notes issued to the U.S. Treasury RCON 2840 121,352 15.a. b. Trading Liabilities........................................ RCFD 3548 5,793,742 15b. 16. Other borrowed money: a. With original maturity of one year or less................. RCFD 2332 2,665,232 16.a. b. With original maturity of more than one year. RCFD 2333 58,105 16b. 17. Mortgage indebtedness and obligations under capitalized leases........................................................ RCFD 2910 285,671 17. 18. Bank's liability on acceptance executed and outstanding RCFD 2920 480,933 18. 19. Subordinated notes and debentures............................. RCFD 3200 1,400,000 19. 20. Other liabilities (from Schedule RC-G)........................ RCFD 2930 1,199,147 20. 21. Total liabilities (sum of items 13 through 20)................ RCFD 2948 47,604,654 21. 22. Limited-Life preferred stock and related surplus.............. RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus................. RCFD 3838 0 23. 24. Common stock.................................................. RCFD 3230 200,858 24. 25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 2,934,523 25. 26. a. Undivided profits and capital reserves..................... RCFD 3632 865,652 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities................................................. RCFD 8434 18,441 26.b. 27. Cumulative foreign currency translation adjustments RCFD 3284 (1,222) 27. 28. Total equity capital (sum of items 23 through 27) RCFD 3210 4,018,252 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28)......................... RCFD 3300 51,622,906 29.
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external auditors as of Number any date during 1995................................................ RCFD 6724 N/A M.1
1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by with generally accepted auditing standards by a certified other external auditors (may be required by public accounting firm which submits a report on the bank state chartering authority. G = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by conducted in accordance with generally accepted auditing external auditors standards by a certified public accounting firm which submits a report on the consolidated holding company 6 = Compilation of the bank's financial statements by (but not on the bank separately) external auditors 7 = Other audit procedures (excluding tax preparation work) 3= Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
- ----------------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 6 31 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) -------------------------- THE FIRST NATIONAL BANK OF CHICAGO (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) A NATIONAL BANKING ASSOCIATION 36-0899825 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) THE FIRST NATIONAL BANK OF CHICAGO ONE FIRST NATIONAL PLAZA, SUITE 0286 CHICAGO, ILLINOIS 60670-0286 ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ---------------------------- PARISIAN, INC. (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) ALABAMA 63-0880839 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 750 LAKESHORE PARKWAY BIRMINGHAM, ALABAMA 35211 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) GUARANTEE OF DEBT SECURITIES OF PROFFITT'S, INC. (TITLE OF INDENTURE SECURITIES) 32 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of Currency, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C., The Board of Governors of the Federal Reserve System, Washington D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 2 33 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and the State of Illinois, on this 7th day of May, 1997. THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE By /s/ John R. Prendiville John R. Prendiville Vice President * EXHIBIT 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF SUNAMERICA, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 (REGISTRATION NO. 333-14201). 3 34 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT May 7, 1997 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of a guarantee agreement between Parisian, Inc. and The First National Bank of Chicago, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By /s/ John R. Prendiville John R. Prendiville Vice President 4 35 EXHIBIT 7 Legal Title of Bank: The First National Bank of Chic Call Date: 12/31/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-1 City, State Zip: Chicago, IL 60670 FDIC Certificate No. 0/3/6/1/8
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
DOLLAR AMOUNTS IN C400 <- THOUSANDS RCFD BIL MIL THOU ----------------- ---- ------------ ------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1)........... 0081 4,586,399 1.a. b. Interest-bearing balances(2).................................... 0071 5,224,838 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A)....... 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D).... 1773 3,335,304 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold.............................................. 0276 4,157,626 3.a. b. Securities purchased under agreements to resell................. 0277 96,125 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C)............................................................. RCFD 2122 23,448,929 4.a. b. LESS: Allowance for loan and lease losses...................... RCFD 3123 419,373 4.b. c. LESS: Allocated transfer risk reserve.......................... RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)........................... 2125 23,029,556 4.d. 5. Assets held in trading accounts................................... 3545 7,888,514 5. 6. Premises and fixed assets (including capitalized leases).......... 2145 701,700 6. 7. Other real estate owned (from Schedule RC-M)...................... 2150 11,061 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M).................................... 2130 62,681 8. 9. Customers' liability to this bank on acceptances outstanding...... 2155 480,933 9. 10. Intangible assets (from Schedule RC-M)............................ 2143 303,014 10. 11. Other assets (from Schedule RC-F)................................. 2160 1,745,155 11. 12. Total assets (sum of items 1 through 11).......................... 2170 51,622,906 12.
- ------------------ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 5 36 Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-2 City, State Zip: Chicago, IL 60670 FDIC Certificate No.: 0/3/6/1/8
SCHEDULE RC-CONTINUED
DOLLAR AMOUNTS IN Thousands BIL MIL THOU ----------------- ------------ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1).................................. RCON 2200 22,032,796 13.a. (1) Noninterest-bearing(1)................................... RCON 6631 9,190,670 13.a.(1) (2) Interest-bearing......................................... RCON 6636 12,842,126 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)........................... RCFN 2200 10,861,857 13.b. (1) Noninterest bearing...................................... RCFN 6631 285,745 13.b.(1) (2) Interest-bearing......................................... RCFN 6636 10,576,382 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased...................................... RCFD 0278 2,639,255 14.a. b. Securities sold under agreements to repurchase............... RCFD 0279 66,564 14.b. 15. a. Demand notes issued to the U.S. Treasury..................... RCON 2840 121,352 15.a. b. Trading Liabilities.......................................... RCFD 3548 5,793,742 15b. 16. Other borrowed money: a. With original maturity of one year or less................... RCFD 2332 2,665,232 16.a. b. With original maturity of more than one year................ RCFD 2333 58,105 16b. 17. Mortgage indebtedness and obligations under capitalized leases.......................................................... RCFD 2910 285,671 17. 18. Bank's liability on acceptance executed and outstanding......... RCFD 2920 480,933 18. 19. Subordinated notes and debentures............................... RCFD 3200 1,400,000 19. 20. Other liabilities (from Schedule RC-G).......................... RCFD 2930 1,199,147 20. 21. Total liabilities (sum of items 13 through 20).................. RCFD 2948 47,604,654 21. 22. Limited-Life preferred stock and related surplus................ RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus................... RCFD 3838 0 23. 24. Common stock.................................................... RCFD 3230 200,858 24. 25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 2,934,523 25. 26. a. Undivided profits and capital reserves....................... RCFD 3632 865,652 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities................................................... RCFD 8434 18,441 26.b. 27. Cumulative foreign currency translation adjustments............. RCFD 3284 (1,222) 27. 28. Total equity capital (sum of items 23 through 27)............... RCFD 3210 4,018,252 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28)........................... RCFD 3300 51,622,906 29.
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number auditors as of any date during 1995........................................................ RCFM.1 N/A M.1.
1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by submits a report on the consolidated holding company external auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
- ------------------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 6 EX-27.1 12 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27.1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PROFFITT'S INC. FOR THE TWELVE MONTHS ENDED FEBRUARY 1, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000812900 PROFFITT'S INC 12-MOS FEB-01-1997 FEB-01-1997 3,382,000 0 85,400,000 0 447,164,000 595,963,000 510,502,000 0 1,403,796,000 251,553,000 612,345,000 0 0 2,802,000 537,096,000 1,403,796,000 1,889,779,000 1,924,750,000 1,230,454,000 1,230,454,000 158,053,000 0 26,756,000 68,985,000 31,586,000 37,399,000 0 0 0 37,399,000 1.31 1.41
EX-99.1 13 LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 PROFFITT'S, INC. FORM OF LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 8 1/8% SENIOR NOTES DUE 2004, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OUTSTANDING 8 1/8% SENIOR NOTES DUE 2004, SERIES A PURSUANT TO THE PROSPECTUS DATED JUNE __, 1997 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN TIME, __________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS If you desire to accept the Exchange Offer, this Letter of Transmittal should be completed, signed, and submitted timely to the Exchange Agent: TO: THE FIRST NATIONAL BANK OF CHICAGO, EXCHANGE AGENT By Hand, Overnight Delivery or Registered or Certified Mail: The First National Bank of Chicago c/o First Chicago Trust Company of New York 8th Floor, Window 2 New York, NY 10005 By Facsimile Transmission (Eligible Institutions Only) (212) 240-8938 To Confirm by Telephone or for Information Call: (312) 240-8801 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (312) 240-8801. The undersigned hereby acknowledges receipt of the Prospectus dated June 20, 1997 (the "Prospectus") of Proffitt's, Inc., a Tennessee corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of its 8-1/8% Senior Notes due 2004, Series B (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), 2 pursuant to an effective Registration Statement filed with the Securities and Exchange Commission ("SEC"), for each $1,000 in principal amount of its outstanding 8-1/8% Senior Notes due 2004, Series A (the "Series A Notes," and together with the Exchange Notes, the "Notes"), of which $125,000,000 aggregate principal amount is outstanding. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. The undersigned hereby tenders the Series A Notes described in Box 1 below (the "Tendered Notes") upon the terms, and subject to the conditions, described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all the Tendered Notes and the undersigned represents that it has received from each beneficial owner of the Tendered Notes ("Beneficial Owners") a duly completed and executed form of "Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. This Letter of Transmittal is to be completed either if (a) certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth under "The Exchange Offer -- Procedures for Tendering Series A Notes" in the Prospectus and an Agent's Message (as defined below) is not delivered. Certificates, or book-entry confirmation of a book-entry transfer of such Series A Notes into the Exchange Agent's account at The Depository Trust Company ("DTC"), as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein on or prior to the Expiration Date. Tenders by book-entry transfer may also be made by delivering an Agent's Message in lieu of this Letter of Transmittal. The term "book-entry confirmation" means a confirmation of a book-entry transfer of Old Capital Securities into the Exchange Agent's account at DTC. The term "Agent's Message" means a message, transmitted by DTC to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgement from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by this Letter of Transmittal and that the Company may enforce this Letter of Transmittal against such participant. Holders (as defined below) of Series A Notes whose certificates (the "Certificates") for such Series A Notes are not immediately available or who cannot deliver their Certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus) or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Series A Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Procedures for Tendering Old Capital Securities" in the Prospectus. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY OF THE EXCHANGE AGENT. Subject to, and effective upon, the acceptance for exchange by the Company of the Tendered Notes, the undersigned hereby exchanges, assigns, transfers and conveys to, or upon the order of, the Company, all right, title, and interest in, to and under the Tendered Notes. Please issue the Exchange Notes in exchange for Tendered Notes in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions" below (Box 3), please send or cause to be sent the certificate(s) for the Exchange Notes (and accompanying documents, as appropriate) to the undersigned at the address shown below in Box 1. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney in fact of the undersigned with respect to the Tendered Notes, with full power of substitution (such power of attorney being an irrevocable power coupled with an interest), to (i) deliver the Tendered Notes to the Company or cause ownership of the Tendered Notes to be transferred to, or upon the order of, the Company, on the books of the transfer agent and registrar for the Series A Notes and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon acceptance by the Company of the Tendered Notes pursuant to the Exchange Offer, and (ii) receive as agent of the Company all benefits and otherwise exercise all rights of beneficial ownership of the Tendered Notes, all in accordance with the terms of the Exchange Offer. The undersigned understands that tenders of Series A Notes pursuant to the procedures described under the caption "The Exchange Offer" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any Beneficial Owner(s), and every representation, warranty, covenant and obligation of the undersigned or any Beneficial Owner(s) hereunder shall be binding upon the heirs, representatives, successors and assigns of the undersigned and such Beneficial Owner(s). The undersigned hereby represents and warrants that the undersigned has full power, authority and capacity to tender, exchange, assign and transfer the Tendered Notes and that the Company will acquire good and unencumbered title to the Tendered Notes free and clear of all liens, pledges, restrictions, charges, encumbrances, and adverse claims of any kind whatsoever. The undersigned and each Beneficial Owner -2- 3 will, upon receipt, execute and deliver any additional documents or instruments reasonably requested by the Company or the Exchange Agent as necessary or desirable to complete and give effect to the transactions contemplated hereby. The undersigned hereby represents and warrants that the information set forth in Box 2 is true and correct. By accepting the Exchange Offer, the undersigned hereby further represents and warrants that (i) the Exchange Notes to be acquired by the undersigned and any Beneficial Owner(s) in connection with the Exchange Offer are being acquired by the undersigned and any Beneficial Owner(s) in the ordinary course of business of the undersigned and any Beneficial Owner(s), (ii) neither the undersigned nor any Beneficial Owner on behalf of which the undersigned is acting has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes, and/or any intention to participate in any distribution of the Exchange Notes (iii) neither the undersigned nor any Beneficial Owner is an "affiliate" (as defined in Rule 405 under the Securities Act), of the Company, and (iv) the undersigned and each such Beneficial Owner acknowledge and agree that any person with the intention of distributing the Exchange Notes is not eligible to participate in the Exchange Offer and, in the event any such person holds Exchange Notes, such person must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the SEC set forth in the no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer." In addition, by accepting the Exchange Offer, the undersigned hereby (i) represents and warrants that, if the undersigned or any Beneficial Owner of the Series A Notes is a broker-dealer, such broker-dealer holds the Series A Notes for its own account as a result of market-making activities or other trading activities and (ii) acknowledges that, by receiving Exchange Notes for its own account in exchange for Series A Notes, where such Series A Notes were acquired as a result of market-making activities or other trading activities, such broker-dealer may be a statutory underwriter and will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. ANY HOLDER WHO IS PROHIBITED BY APPLICABLE LAW OR SEC POLICY FROM PARTICIPATING IN THE EXCHANGE OFFER, INCLUDING ANY HOLDER WHO IS AN AFFILIATE OF THE COMPANY OR A BROKER-DEALER WHO HOLDS SERIES A NOTES ACQUIRED DIRECTLY FROM THE COMPANY OR ONE OF ITS AFFILIATES, AND ANY PERSON WHO INTENDS TO, OR IS PARTICIPATING IN, OR HAS ANY ARRANGEMENT OR UNDERSTANDING TO PARTICIPATE IN, A DISTRIBUTION OF THE EXCHANGE NOTES, SHOULD CONTACT THE COMPANY WITHIN 20 BUSINESS DAYS OF THE EXCHANGE OFFER IN ORDER TO PRESERVE ITS REGISTRATION RIGHTS THAT ARE DISCUSSED IN THE SECTION OF THE PROSPECTUS ENTITLED "THE EXCHANGE OFFER - - REGISTRATION RIGHTS AND EFFECT OF EXCHANGE OFFER." [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH. [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE "Use of Guaranteed Delivery" BELOW (Box 4). [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE "Use of Book-Entry Transfer" BELOW (Box 5). -3- 4
- -------------------------------------------------------------------------------------------------------------------- PAYOR'S NAME: PROFFITT'S, INC.* - -------------------------------------------------------------------------------------------------------------------- Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part 1 below. See instructions if your name has changed.) ----------------------------------------------------------------------------------- Address ----------------------------------------------------------------------------------- SUBSTITUTE City, State and ZIP Code ----------------------------------------------------------------------------------- Form W-9 List account number(s) here (optional) ----------------------------------------------------------------------------------- Department of the PART 1--PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION Social Security Number Treasury NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY or TIN Internal Revenue Service SIGNING AND DATING BELOW ----------------------------------------------------------------------------------- PART 2--Check the box if you are NOT subject to backup withholding under the provisions of section 3406(a)(I)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. [ ] - -------------------------------------------------------------------------------------------------------------------- CERTIFICATION--UNDER THE PENALTIES OR PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. Awaiting TIN [ ] SIGNATURE DATE , 1997 ------------------------------------------ ----------------------------------- - -------------------------------------------------------------------------------------------------------------------- *See Instruction 8. - --------------------------------------------------------------------------------------------------------------------
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE BOXES
- ------------------------------------------------------------------------------------------------------------------ BOX 1* DESCRIPTION OF NOTES TENDERED** (Attach additional signed pages, if necessary) - ------------------------------------------------------------------------------------------------------------------ Aggregate Principal Aggregate Name(s) and Address(es) of Registered Note Holder(s), Certificate Amount Principal exactly as name(s) appear(s) on Note Certificate(s) Number(s) Represented by Amount (Please fill in, if blank) of Notes Certificate(s) Tendered - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Total - ------------------------------------------------------------------------------------------------------------------ * Need not be completed by persons tendering by book-entry transfer. ** The minimum permitted tender is $1,000 in principal amount of Series A Notes. All other tenders must be in integral multiples of $1,000 of principal amount. Unless otherwise indicated in this column, the principal amount of all Note Certificates identified in this Box 1 or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction 4. - ------------------------------------------------------------------------------------------------------------------
-4- 5
- ------------------------------------------------------------------------------------------------------------------ BOX 2 BENEFICIAL OWNER(S) - ------------------------------------------------------------------------------------------------------------------ State of Principal Residence of Each Principal Amount of Tendered Notes Beneficial Owner of Tendered Notes Held for Account of Beneficial Owner - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------ BOX 3 SPECIAL DELIVERY INSTRUCTIONS (See Instructions 5, 6 and 7) TO BE COMPLETED ONLY IF EXCHANGE NOTES ARE TO BE EXCHANGED FOR SERIES A NOTES AND UNTENDERED SERIES A NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE. Mail Exchange Note(s) and any untendered Series A Notes to: Name(s): - ------------------------------------------------------------------------------------------------------------------ (please print) Address: - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ (Include Zip Code) Tax Identification or Social Security No.: - ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------ BOX 4 USE OF GUARANTEED DELIVERY (See Instruction 2) TO BE COMPLETED ONLY IF SERIES A NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Holder(s): - ------------------------------------------------------------------------------------------------------------------ Date of Execution of Notice of Guaranteed Delivery: --------------------------------------------------------------- Name of Institution which Guaranteed Delivery: -------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------
-5- 6
- ------------------------------------------------------------------------------------------------------------------ BOX 5 USE OF BOOK-ENTRY TRANSFER (See Instruction 1) TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY TRANSFER. Name of Tendering Institution: ------------------------------------------------------------------------------------ Account Number:: -------------------------------------------------------------------------------------------------- Transaction Code Number: ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------ BOX 6 TENDERING HOLDER SIGNATURE (See Instruction 1 and 5) IN ADDITION, SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED - ------------------------------------------------------------------------------------------------------------------ X Signature Guarantee ------------------------------------------------------ (If required by Instruction 5) X ------------------------------------------------------ (Signature of Registered Holder(s) or Authorized Signatory) Authorized Signature NOTE: The above lines must be signed by the registered holder(s)of Series A Notes as their name(s) appear(s) X on the Series A Notes or by person(s) authorized to ------------------------------------------------------- become registered holder(s)(evidence of such Name: Name: authorization must be transmitted with this Letter of --------------------------------------------------- Transmittal). If signature is by a trustee, executor, (please print) administrator, guardian, attorney-in-fact, officer, or Title: other person acting in a fiduciary or representative -------------------------------------------------- capacity, such person must set forth his or her full Name of Firm: title below. See Instruction 5. ------------------------------------------- (Must be an Eligible Institution as defined in Instruction 2) Name(s): Address: ----------------------------------------------- ------------------------------------------------ ----------------------------------------------- ------------------------------------------------ Capacity: ------------------------------------------------ ---------------------------------------------- ---------------------------------------------- Street Address: Area Code and Telephone Number: ---------------------------------------- ---------------------------------------- ------------------------------------------------ (include Zip Code) Area Code and Telephone Number: Dated: ------------------------------------------------ ---------------------------------------- Tax Identification or Social Security Number: ----------------------------------------- - ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------ BOX 7 BROKER-DEALER STATUS - ------------------------------------------------------------------------------------------------------------------ [ ] Check this box if the Beneficial Owner of the Series A Notes is a broker-dealer and such broker-dealer acquired the Series A Notes for its own account as a result of market-making activities or other trading activities. - ------------------------------------------------------------------------------------------------------------------
-6- 7 PROFFITT'S, INC. INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND SERIES A NOTES. A properly completed and duly executed copy of this Letter of Transmittal, including Substitute Form W-9, and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein, and either certificates for Tendered Notes must be received by the Exchange Agent at its address set forth herein or such Tendered Notes must be transferred pursuant to the procedures for book-entry transfer described in the Prospectus under the caption "Exchange Offer--Procedures for Tendering" (and a confirmation of such transfer received by the Exchange Agent), in each case prior to 5:00 P.M., Eastern Standard Time, on the Expiration Date. Tenders by book-entry may also be made by delivering an Agent's Message in liens of this letter of transmittal. The method of delivery of certificates for Tendered Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the tendering holder and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Series A Notes should be sent to the Company. Neither the Company nor the registrar or transfer agent is under any obligation to notify any tendering holder of the Company's acceptance of Tendered Notes prior to the closing of the Exchange Offer. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Series A Notes but whose Series A Notes are not immediately available, and who cannot deliver their Series A Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date must tender their Series A Notes according to the guaranteed delivery procedures set forth below, including completion of Box 4. Pursuant to such procedures: (i) such tender must be made by an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, and which is a member of a recognized signature guarantee program i.e. Securities Transfer Agents Medallion Program, Stock Exchange Medallion Program or New York Stock Exchange Medallion Signature Program (an "Eligible Institution") and the Notice of Guaranteed Delivery must be signed by the holder; (ii) prior to the Expiration Date, the Exchange Agent must have received from the holder and the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by mail, hand delivery or facsimile transmission) setting forth the name and address of the holder, the certificate number(s) of the Tendered Notes and the principal amount of Tendered Notes, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal together with the certificate(s) representing the Series A Notes and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal, as well as all other documents required by this Letter of Transmittal and the certificate(s) representing all Tendered Notes in proper form for transfer, must be received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Any holder who wishes to tender Series A Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery relating to such Series A Notes prior to 5:00 P.M.., Eastern Standard Time, on the Expiration Date. 8 3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in whose name Tendered Notes are registered on the books of the registrar (or the legal representative or attorney-in-fact of such registered holder or any participant in DTC whose name appears on a security position listing as the owner of the Series A Notes) may execute and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes who is not the registered holder must arrange promptly with the registered holder to execute and deliver this Letter of Transmittal on his or her behalf through the execution and delivery to the registered holder of the Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner form accompanying this Letter of Transmittal. The Company, the Exchange Agent, and the transfer agent and registrar for Series A Notes shall be entitled to rely upon all representations, warranties, covenants and instructions given by such registered holder as have been duly authorized and true with respect to, and binding upon, the Beneficial Owner. 4. PARTIAL TENDERS. Tenders of Series A Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of Series A Notes held by the holder is tendered, the tendering holder should fill in the principal amount tendered in the column labeled "Aggregate Principal Amount Tendered" of the box entitled "Description of Notes Tendered" (Box 1) above. The entire principal amount of Series A Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Series A Notes held by the holder is not tendered, then Series A Notes for the principal amount of Series A Notes not tendered and Exchange Notes issued in exchange for any Series A Notes tendered and accepted will be sent to the registered holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the Tendered Notes, the signature must correspond with the name(s) as written on the fact of the Tendered Notes without alteration, enlargement or any change whatsoever. If any of the Tendered Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Tendered Notes are held in different names, it will be necessary to complete, sign and submit as many separate copies of the Letter of Transmittal as there are different names in which Tendered Notes are held. If this Letter of Transmittal is signed by the registered holder(s) of Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued (and any untendered principal amount of Series A Notes is to be reissued) in the name of the registered holder(s), then such registered holder(s) need not and should not endorse any Tendered Notes, nor provide a separate bond power. In any other case, such registered holder(s) must either properly endorse the Tendered Notes or transmit a properly completed separate bond power with this Letter of Transmittal, with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed or accompanied by appropriate bond powers, in each case, signed as the name(s) of the registered holder(s) appear(s) on the Tendered Notes, with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal or any Tendered Notes or bond powers are signed by a trustee, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such person should so indicate when signing and, unless -2- 9 waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. Endorsements on Tendered Notes or signatures on bond powers required by this Instruction 5 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution unless the Tendered Notes are tendered (i) by a registered holder who has not completed the box set forth herein entitled "Special Delivery Instructions" (Box 3) or (ii) by an Eligible Institution. 6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box (Box 3), the name and address to which the Exchange Notes and/or substitute Series A Notes for principal amounts are tendered or not accepted for exchange, respectively are to be sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the exchange of Tendered Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the transfer and exchange of Tendered Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of Transmittal. 8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the holder(s) of any Tendered Notes which are accepted for exchange must provide the Company (as payor) with its correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Company is not provided with the correct, TIN, the holder may be subject to backup withholding and a $50 penalty imposed by the Internal Revenue Service. (If withholding results in an over-payment of taxes, a refund may be obtained.) Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each holder of Tendered Notes must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Tendered Notes are registered in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for information on which TIN to report. The Company reserves the right in its sole discretion to take whatever steps are necessary to comply with the Company's obligations regarding backup withholding. -3- 10 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of Tendered Notes will be determined by the Company in its sole discretion, and whose determination will be final and binding. The Company reserves the right to reject any and all Series A Notes not validly tendered or any Series A Notes the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Series A Notes as to any ineligibility of any holder who seeks to tender Series A Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Series A Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Series A Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Series A Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Series A Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holder, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive or modify any of the conditions in the Exchange Offer in the case of any Tendered Notes. 11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or contingent tender of Series A Notes or transmittal of this Letter of Transmittal will be accepted. 12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering holder whose Series A Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address indicated herein. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF NOTES. Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered Series A Notes as soon as practicable after the Expiration Date and will issue Exchange Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted tendered Series A Notes when, as and if the Company has given written or oral notice (immediately followed in writing) thereof to the Exchange Agent. If any Tendered Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Series A Notes will be returned, without expense, to the undersigned at the address shown in Box 1 or at a different address as may be indicated herein under "Special Delivery Instructions" (Box 3). 15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer." -4- 11 PROFFITT'S, INC. FORM OF NOTICE OF GUARANTEED DELIVERY WITH RESPECT TO 8 1/8% SENIOR NOTES DUE 2004, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 TO BE EXCHANGED FOR ANY AND ALL OUTSTANDING 8 1/8% SENIOR NOTES DUE 2004, SERIES A This form must be used by a holder of the 8-1/8% Senior Notes due 2004, Series A (the "Series A Notes") of Proffitt's, Inc. (the "Company") who wishes to tender Series A Notes to the Exchange Agent pursuant to the guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed Delivery Procedures" of the Prospectus dated June __, 1997 (the "Prospectus") and Instruction 2 to the Letter of Transmittal. Any holder who wishes to tender Series A Notes pursuant to such guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange Offer. Capitalized terms not defined herein have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. TO: THE FIRST NATIONAL BANK OF CHICAGO, EXCHANGE AGENT By Registered or Certified Mail: By Hand By Facsimile Transmission By Overnight Courier Telephone Number: ( ) - --- --- ---- Attention: ------------ DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. Ladies and Gentlemen: The undersigned hereby tenders to Proffitt's, Inc., upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Series A Notes specified below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned hereby tenders the Series A Notes listed below: 12
=========================================================================================================== Certificate Number(s) (if known) of Series A Notes Aggregate Principal Aggregate Principal or Account Number at the Book-Entry Facility Amount Represented Amount Tendered - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- ===========================================================================================================
SIGN HERE Name of Registered Holder: ------------------------------------------------------ Signature(s): ------------------------------------------------------------------- Name(s) Please print): ---------------------------------------------------------- Address: ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- Telephone number: --------------------------------------------------------------- Date: --------------------------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a savings institution, commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution: within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, and which is a member of a recognized signature guarantee program i.e., Securities Transfer Agents Medallion Program, Stock Exchange Medallion Program or New York Stock Exchange Medallion Signature Program, guarantees deposit with the Exchange Agent of the Letter of Transmittal (or facsimile thereof), together with the Series A Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Series A Notes into the Exchange Agent's account at the Book-Entry Transfer Facility described in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" and in the Letter of Transmittal) and any other required documents, all by 5:00 P.M., Eastern Standard Time, on the fifth New York Stock Exchange trading day following the Expiration Date. -2- 13 SIGN HERE Name of firm: ------------------------------------------------------------------- Authorized signature: ----------------------------------------------------------- Name (please print): ------------------------------------------------------------ Address: ------------------------------------------------------------------------ ------------------------------------------------------------------------ Telephone number: --------------------------------------------------------------- Date: --------------------------------------------------------------------------- DO NOT SEND SERIES A NOTES WITH THIS FORM. ACTUAL SURRENDER OF SERIES A NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. -3- 14 INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents or instruments to the Exchange Agent is at the election and risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see Instruction 2 of the Letter of Transmittal. 2. Signatures on this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Series A Notes referred to herein., the signature must correspond with the name(s) written on the face of the Series A Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Series A Notes, the signature must correspond with the name shown on the security position listing as the owner of the Series A Notes. If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of any Series A Notes listed or a participant of the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name of the registered holder(s) appears on the Series A Notes or signed as the name of the participant shown on the Book-Entry Transfer Facility's security position listing. If this Notice of Guaranteed Delivery is signed by a trustee, executors, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by the Company, submit with the Letter of Transmittal evidence satisfactory to the Company of such person's authority to so act. 3. Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional, copies of the Prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. -4- 15 PROFFITT'S, INC. INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER OF 8 1/8% SENIOR NOTES DUE 2004, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 TO BE EXCHANGED FOR ANY AND ALL OUTSTANDING 8 1/8% SENIOR NOTES DUE 2004, SERIES A To: Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus, dated June __, 1997 (the "Prospectus") of Proffitt's, Inc., a Tennessee corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used but nor defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the 8-1/8% Senior Notes due 2004, Series A (the "Series A Notes") held by you for the account of the undersigned. The aggregate face of the Series A Notes held by you for the account of the undersigned is (fill in amount): $_______________ of the 8-1/8% Senior Notes due 2004, Series A. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [ ] TO TENDER the following Series A Notes held by you for the account of the undersigned (insert principal amount of Series A Notes to be tendered, if any): $_________ of the 8-1/8% Senior Notes due 2004, Series A. [ ] NOT TO TENDER any Series A Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Series A Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you, the representations, warranties and covenants contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) the Exchange Notes to be acquired by the beneficial owner(s) of the Series A Notes ("Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by the Beneficial Owner(s) for its own account in the ordinary course of business of the Beneficial Owner(s); (ii) the Beneficial Owner(s) are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in a distribution of the Exchange Notes; (iii) the 16 Beneficial Owner(s) acknowledge and agree that any person with the intent to distribute the Exchange Notes is not eligible to participate in the Exchange Offer and, in the event any such person holds Exchange Notes, such person must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction with respect to the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Securities and Exchange Commission set forth in no action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer -- Resale of the Exchange Notes"; (iv) the Beneficial Owner(s) are not an "affiliate," as defined under Rule 405 of the Securities Act, of the Company; (v) the Beneficial Owner(s) understand that secondary resale transactions described in clause (iii) above should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K of the Commission; (vi) that, if the Beneficial Owner(s) of the Series A Notes is a broker-dealer, (x) such broker-dealer holds the Series A Notes for its own account as a result of market-making activities or other trading activities; and (y) acknowledges that, by receiving Exchange Notes for its own account in exchange for Series A Notes, where such Series A Notes were acquired as a result of market-making activities or other trading activities, such broker-dealer may be a statutory underwriter and will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; (b) to agree, on behalf of the undersigned as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Series A Notes consistent with the Offer.
- -------------------------------------------------------------------------------- SIGN HERE Name of beneficial owner(s): ---------------------------------------------------- Signature(s): ------------------------------------------------------------------- Name (please print); ------------------------------------------------------------ Address: ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- Telephone number: --------------------------------------------------------------- Taxpayer Identification or Social Security Number: ------------------------------ Date: --------------------------------------------------------------------------- - --------------------------------------------------------------------------------
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