0000950112-95-002240.txt : 19950825
0000950112-95-002240.hdr.sgml : 19950825
ACCESSION NUMBER: 0000950112-95-002240
CONFORMED SUBMISSION TYPE: S-4
PUBLIC DOCUMENT COUNT: 6
FILED AS OF DATE: 19950824
SROS: NYSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FEDERATED DEPARTMENT STORES INC /DE/
CENTRAL INDEX KEY: 0000794367
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311]
IRS NUMBER: 133324058
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0131
FILING VALUES:
FORM TYPE: S-4
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-62077
FILM NUMBER: 95566466
BUSINESS ADDRESS:
STREET 1: 7 W SEVENTH ST
CITY: CINCINNATI
STATE: OH
ZIP: 45202
BUSINESS PHONE: 513-579-70
MAIL ADDRESS:
STREET 1: 7 W SEVENTH ST
CITY: CINCINNATI
STATE: OH
ZIP: 45202
FORMER COMPANY:
FORMER CONFORMED NAME: R H MACY & CO INC
DATE OF NAME CHANGE: 19950307
S-4
1
FEDERATED DEPARTMENT STORES, INC.
As filed with the Securities and Exchange Commission on August 24, 1995
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FEDERATED DEPARTMENT STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 5311 13-3324058
(State or (Primary Standard (I.R.S.
other jurisdiction Industrial Classification Employer
of incorporation Code Number) Identification
or organization) Number)
151 West 34th Street
New York, New York 10001
(212) 494-3956
and
7 West Seventh Street
Cincinnati, Ohio 45202
(513) 579-7000
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
Dennis J. Broderick, Esq.
Senior Vice President, General Counsel and Secretary
Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, Ohio 45202
(513) 579-7000
(Name, address, including ZIP Code, and telephone number, including area code,
of agent for service)
__________________
Copies to:
Robert A. Profusek, William A. Groll, Esq.
Esq. James E. Millstein, Esq.
Mark E. Betzen, Esq. Cleary, Gottlieb, Steen
Jones, Day, Reavis & & Hamilton
Pogue One Liberty Plaza
599 Lexington Avenue New York, New York
New York, New York 10006
10022 (212) 225-2000
(212) 326-3939
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement is declared effective and all
other conditions to the merger of a wholly owned subsidiary of Federated
Department Stores, Inc. ("Federated") with and into Broadway Stores, Inc.
("Broadway") pursuant to the Agreement and Plan of Merger filed as Exhibit 2.1
hereto (the "Merger Agreement") have been satisfied or waived.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of each Class of Offering Aggregate Amount of
Securities to be Amount to be Price Offering Registration
Registered Registered Per Share Price Fee
Common Stock, par value 18,166,082 $26.74(3) $485,761,033(3) $167,503.81(4)
$.01 per share (1) . . shares (2)
(1)Includes associated share purchase rights to be issued pursuant to the
Rights Agreement filed as Exhibit 4.1 hereto.
(2)The number of shares of Common Stock, par value $.01 per share, of Federated
("Federated Common Stock") to be registered has been determined based on the
estimated maximum number of shares of Federated Common Stock to be issued in
exchange for shares of Common Stock, par value $.01 per share, of Broadway
("Broadway Common Stock"), in the merger of a wholly owned subsidiary of
Federated with and into Broadway (the "Merger"), upon exercise or conversion
of certain options, warrants, and convertible debt securities of Broadway
following the Merger, and pursuant to Broadway's plan of reorganization
following the Merger, all as contemplated by the Merger Agreement.
(3)Estimated pursuant to 457(f) under the Securities Act of 1933, as amended
(the "Securities Act"), based on the market value of shares of Broadway Common
Stock ($7.21875, which is the average of the high and low sale prices of
shares of Broadway Common Stock on the Composite Tape of the New York Stock
Exchange, Inc. on August 23, 1995) and the conversion ratio of 0.27 shares of
Federated Common Stock for each share of Broadway Common Stock provided for in
the Merger Agreement.
(4)The registration fee for all securities registered hereby, $167,503.81 has
been calculated pursuant to Section 6(b) of the Securities Act and Rule 457
thereunder as follows: 1/29th of one percent of the product of $26.74 (the
proposed maximum offering price per share estimated pursuant to Section 457(f)
under the Securities Act as described in Note 3 above) multiplied by
18,166,082 (the estimated maximum number of shares of Federated Common Stock
to be issued as contemplated by the Merger Agreement).
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 will thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
================================================================================
CROSS-REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K
Item Number and Caption Location in Prospectus
----------------------- ----------------------
A. Information About the Transaction
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.................... Outside Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus . . Inside Front Cover Page of Proxy
Statement/Prospectus; Table of Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges, and Other
Information. . . . . . . . .. "Summary"; "Risk Factors"
4. Terms of the Transaction . . "Summary"; "The Merger"; "Capital Stock of
Federated"; "Certain Federal Income Tax
Consequences"
5. Pro Forma Financial Information "Summary"; "Unaudited Pro Forma Financial
Information of Federated"
6. Material Contacts with the
Company Being Acquired. . . . "The Merger -- Negotiations Relating to the
Merger"
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to Be
Underwriters . . . . . . . . Not Applicable
8. Interests of Named Experts and
Counsel . . . . . . . . . . . Not Applicable
9. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities . . Not Applicable
B. Information About the Registrant
10.Information with Respect to
S-3 Registrants . . . . . "Available Information"; "Incorporation
of Certain Documents by Reference"
11.Incorporation of Certain
Information by Reference . . . "Available Information"; "Incorporation of
Certain Documents by Reference"
12.Information with Respect to
S-2 or S-3 Registrants. . . . Not Applicable
13.Incorporation of Certain
Information by Reference . . . Not Applicable
14.Information With Respect to
Registrants Other Than S-3 or
S-2 Registrants. . . . . . . Not Applicable
C. Information About the Company Being Acquired
15.Information with Respect to S-3
Companies. . . . . . . . . "Available Information"; "Incorporation of
Certain Documents by Reference"
16. Information with Respect to S-2
or S-3 Companies . . . . . . Not Applicable
CROSS-REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K
Item Number and Caption Location in Prospectus
----------------------- ----------------------
17.Information with Respect to
Companies Other Than S-3 or
S-2 Companies. . . . . . . Not Applicable
D. Voting and Management Information
18.Information if Proxies,
Consents, or
Authorizations are
to be Solicited . . . . . . . . "Summary"; "The Special Meeting"; "The
Merger -- Appraisal Rights"
19.Information if Proxies, Consents,
or Authorizations are not to be
Solicited, or in an Exchange
Offer. . . . . . . . . . . . . Not Applicable
Preliminary Copy -- For the Information of the Securities and Exchange
Commission Only
BROADWAY STORES, INC.
3880 North Mission Road
Los Angeles, California 90031
__________ __, 1995
To the Stockholders:
You are invited to attend the Special Meeting of the Stockholders of
Broadway Stores, Inc. ("Broadway") to be held on __________, ____________ __,
1995, at 9:00 a.m., Eastern Time, at ______________________, New York, New York
(including any postponement or adjournment thereof, the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to adopt an Agreement and Plan of Merger, dated as of August 14, 1995
(the "Merger Agreement"), by and among Broadway, Federated Department Stores,
Inc. ("Federated"), and a wholly owned subsidiary of Federated. Subject to the
provisions of the Merger Agreement, the Federated subsidiary will be merged with
and into Broadway (the "Merger"), with Broadway being the surviving corporation
in the Merger (as such, the "Surviving Company"). Following the Merger, the
Surviving Company will be a subsidiary of Federated. At the effective time of
the Merger (the "Effective Time"), among other things, (i) each then-outstanding
share of Common Stock of Broadway ("Broadway Common Stock") not owned directly
or indirectly by Federated will be converted into the right to receive 0.27
shares (the "Conversion Rate") of Common Stock of Federated ("Federated Common
Stock") and (ii) each then-outstanding share of Series A Preferred Stock of
Broadway ("Broadway Preferred Stock") will be converted into the right to
receive Series A Preferred Stock of the Surviving Company ("Surviving Company
Preferred Stock") having rights and preferences substantially identical to the
rights and preferences of the Broadway Preferred Stock (except that the warrants
for which the Surviving Company Preferred Stock will be exchangeable will be
exercisable to purchase Federated Common Stock rather than Broadway Common
Stock).
Each warrant or option to purchase shares of Broadway Common Stock that is
outstanding immediately prior to the Effective Time will become a warrant or an
option, as the case may be, to purchase, at an aggregate purchase price equal to
the aggregate price that would have been payable upon the exercise thereof
immediately prior to the Effective Time, a number of shares of Federated Common
Stock equal to the product of (i) the number of shares subject to such warrant
or option immediately prior to the Effective Time and (ii) the Conversion Rate.
For example, a warrant that is exercisable immediately prior to the Effective
Time to purchase 100 shares of Broadway Common Stock at a purchase price of
$17.00 per share will be exercisable immediately after the Effective Time to
purchase 27 shares of Federated Common Stock at an aggregate purchase price of
$1,700.00 (or $62.96 per share). The conversion rights under Broadway's 6-1/4%
Convertible Senior Subordinated Notes due 2000 will be similarly adjusted.
Please read carefully the accompanying Notice of Special Meeting of
Stockholders and Proxy Statement/Prospectus for additional information regarding
the Merger and related matters.
The affirmative vote of the holders representing a majority of the combined
voting power of the outstanding shares of Broadway Common Stock and Broadway
Preferred Stock entitled to vote thereon, voting together as a single class, is
required to adopt the Merger Agreement. BROADWAY'S BOARD OF DIRECTORS BELIEVES
THAT THE MERGER IS IN THE BEST INTERESTS OF BROADWAY AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT.
Pursuant to the Stock Agreement described in the accompanying Proxy
Statement/Prospectus, Zell/Chilmark Fund, L.P., which owns beneficially shares
of Broadway Common Stock having a majority of the combined voting power of the
outstanding Broadway Common Stock and Broadway Preferred Stock, has agreed to
vote such shares in favor of the adoption of the Merger Agreement and has
granted to Federated an option to purchase such shares. Accordingly, the
adoption of the Merger Agreement by the requisite vote of the Broadway
stockholders is expected to occur irrespective of whether or the manner in which
other Broadway stockholders vote their shares.
Whether or not you plan to attend the Special Meeting, please complete,
sign, and date the enclosed proxy card and return it promptly in the enclosed
postage prepaid envelope. If you attend the Special Meeting, you may vote in
person if you wish, even though you have previously returned your proxy card.
Your prompt cooperation will be greatly appreciated.
Please do not send your stock certificates with your proxy card. Following
the adoption of the Merger Agreement by Broadway stockholders and the
satisfaction or waiver of all other conditions to the Merger, you will receive a
transmittal form and instructions for the surrender and exchange of your shares.
Sincerely,
David L. Dworkin
President and Chief Executive Officer
Preliminary Copy -- For the Information of the Securities and Exchange
Commission Only
BROADWAY STORES, INC.
3880 North Mission Road
Los Angeles, California 90031
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1995
----------
To the Stockholders:
Notice is hereby given that a Special Meeting of the
Stockholders of Broadway Stores, Inc. ("Broadway") is to be held
on ____________, __________ __, 1995, at 9:00 a.m., Eastern Time,
at ___________________, New York, New York (including any
postponement or adjournment thereof, the "Special Meeting") for
the following purposes:
1. To consider and vote upon the adoption of an
Agreement and Plan of Merger, dated as of August 14, 1995
(the "Merger Agreement"), among Broadway, Federated
Department Stores, Inc. ("Federated"), and a wholly owned
subsidiary of Federated. The Merger Agreement and the terms
of the merger of the Federated subsidiary with and into
Broadway provided for therein are described in detail in the
accompanying materials. (See "The Merger" in the
accompanying Proxy Statement/Prospectus.)
2. To act upon such other matters as may properly
come before the Special Meeting.
Please read carefully the accompanying Proxy Statement/
Prospectus. A copy of the Merger Agreement is attached as
Appendix A thereto. The Proxy Statement/Prospectus and the
Appendices thereto form a part of this Notice.
Only stockholders of record at the close of business on
__________ __, 1995 (the "Record Date") are entitled to notice of
and to vote at the Special Meeting.
Under Delaware law, appraisal rights are unavailable to
holders of common stock of Broadway. See "The Merger--Appraisal
Rights--Absence of Appraisal Rights for Broadway Common Stock" in
the accompanying Proxy Statement/Prospectus. Under Delaware law,
appraisal rights will be available to holders of preferred stock
of Broadway. In order for holders of preferred stock of Broadway
to exercise such appraisal rights, they must follow the
procedures prescribed by Delaware law, which are summarized in
"The Merger--Appraisal Rights--Appraisal Rights for Broadway
Preferred Stock" in the accompanying Proxy Statement/Prospectus.
By Order of the Board of Directors
George C. Touras
Secretary
Los Angeles, California
__________ __, 1995
Preliminary Copy -- For the Information of the Securities and Exchange
Commission Only
Subject to Completion, Dated August 24, 1995
PROXY STATEMENT
of
BROADWAY STORES, INC.
and
PROSPECTUS
of
FEDERATED DEPARTMENT STORES, INC.
This Proxy Statement/Prospectus is furnished in connection with the
solicitation, by and on behalf of the Board of Directors of Broadway
Stores, Inc. ("Broadway") of proxies for use at the Special Meeting of
Stockholders of Broadway to be held at __________________, New York, New
York, at 9:00 a.m., Eastern Time, on _________, ___________ __, 1995
(including any postponements or adjournments thereof, the "Special
Meeting"). This Proxy Statement/Prospectus, the Notice of Special
Meeting of Stockholders, and the accompanying proxy card are first being
sent to holders of shares of Common Stock, par value $.01 per share
("Broadway Common Stock"), and shares of Series A Preferred Stock, par
value $.01 per share ("Broadway Preferred Stock"), of Broadway on or
about ___________ __, 1995.
At the Special Meeting, holders of record of shares of Broadway
Common Stock and Broadway Preferred Stock as of the close of business on
___________ __, 1995 (the "Record Date") will consider and vote upon the
adoption of an Agreement and Plan of Merger, dated as of August 14, 1995
(the "Merger Agreement"), by and among Broadway, Federated Department
Stores, Inc. ("Federated"), and a wholly owned subsidiary of Federated
("Newco"). See "The Merger" for a description of the Merger Agreement
and the merger of Newco with and into Broadway provided for therein (the
"Merger").
This Proxy Statement/Prospectus also constitutes the Prospectus of
Federated included in a Registration Statement on Form S-4 (together with
any amendments thereto, the "Registration Statement") filed with the
Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the issuance
of shares of Common Stock, par value $.01 per share, of Federated
("Federated Common Stock") in connection with the Merger. All
information concerning Broadway contained in this Proxy Statement/
Prospectus has been furnished by Broadway and all information concerning
Federated contained in this Proxy Statement/Prospectus has been furnished
by Federated.
See "Risk Factors" for a discussion of certain risks of ownership of
Federated Common Stock or Surviving Company Preferred Stock (as
hereinafter defined) that you should consider in determining whether to
vote to adopt the Merger Agreement.
THE SHARES OF FEDERATED COMMON STOCK HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is ___________ __, 1995.
No persons have been authorized to give any information or
to make any representations other than those contained in this
Proxy Statement/Prospectus in connection with the solicitation of
proxies or the offering of securities made hereby and, if given
or made, such information or representations must not be relied
upon as having been authorized by Federated, Broadway, or any
other person. This Proxy Statement/Prospectus does not
constitute an offer to sell, or a solicitation of an offer to
buy, any securities, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom it is not lawful to
make such offer or solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement/Prospectus nor any
distribution of securities made hereunder shall, under any
circumstances, create an implication that there has been no
change in the affairs of Federated or Broadway since the date
hereof or that the information herein is correct as of any time
subsequent to the date hereof.
AVAILABLE INFORMATION
Each of Federated and Broadway is subject to the information
and reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements, and other
information with the SEC. Such reports, proxy statements, and
other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center,
Suite 1300, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such reports, proxy statements, and other information also can
be obtained by mail from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy statements, and other information
relating to Federated and Broadway may also be inspected at the
offices of the New York Stock Exchange, Inc. (the "NYSE") at 20
Broad Street, New York, New York 10005 and, with respect to
Broadway only, at the offices of the Pacific Stock Exchange (the
"PSE"), 301 Pine Street, San Francisco, California 94104.
As permitted under the Securities Act and the Exchange Act,
this Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement. Such
additional information can be inspected and copied or obtained
from the SEC in the manner described above. Statements contained
in this Proxy Statement/Prospectus as to the contents of any
other document referred to herein are not necessarily complete,
and each such statement is qualified in all respects by reference
to the copy of such other document filed as an exhibit to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by Federated
with the SEC are hereby incorporated by reference in this Proxy
Statement/Prospectus: (i) Annual Report on Form 10-K for the
year ended January 28, 1995, (ii) Quarterly Report on Form 10-Q
for the quarter ended April 29, 1995, and (iii) the description
of the Federated Common Stock contained in Federated's
Registration Statement on Form 8-A, dated December 9, 1994 (SEC
File No. 1-13536) (collectively, together with all other
documents and reports of Federated incorporated herein by
reference, the "Federated Reports"). The following documents
which have been filed by Broadway with the SEC are hereby
incorporated by reference in this Proxy Statement/Prospectus:
(i) Annual Report on Form 10-K for the year ended January 28,
1995, (ii) Quarterly Report on Form 10-Q for the quarter ended
April 29, 1995, and (iii) Current Reports on Form 8-K, dated
March 6, 1995 and June 29, 1995 (collectively, together with all
other documents and reports of Broadway incorporated herein by
reference, the "Broadway Reports").
All documents and reports filed by either Federated or
Broadway pursuant to Section 13(a), 13(c), 14, or 15(d) of the
Exchange Act after the date of this Proxy Statement/Prospectus
and prior to the date of the Special Meeting are deemed to be
incorporated by reference in this Proxy Statement/Prospectus and
to be a part hereof from the dates of filing of such documents or
reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein is deemed to be
modified or superseded for purposes of this Proxy Statement/
Prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded
will not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference
documents which are not presented herein or delivered herewith.
These documents, other than exhibits to such documents, are
available, without charge, to any person, including any
beneficial owner of Broadway Common Stock or Broadway Preferred
Stock, to whom this Proxy Statement/Prospectus is delivered, on
written or oral request, to: in the case of documents relating to
Federated, Federated Department Stores, Inc., 7 West Seventh
Street, Cincinnati, Ohio 45202: Attention: Susan Robinson
(telephone number (513) 579-7780); and, in the case of documents
relating to Broadway, Broadway Stores, Inc., 3880 North Mission
Road, Los Angeles, California 90031: Attention: George C. Touras
(telephone number (213) 227-2000). In order to ensure timely
delivery of the documents, any request should be made by
_________________ __, 1995.
ii
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . ii
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . 16
General . . . . . . . . . . . . . . . . . . . . . . . . . 16
Voting at the Special Meeting . . . . . . . . . . . . . . 16
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 17
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . 17
Business Factors and Competitive Conditions . . . . . . . 17
Seasonal Nature of the Department Store Business . . . . . 18
Leverage; Restrictive Covenants . . . . . . . . . . . . . 18
Security Interests . . . . . . . . . . . . . . . . . . . . 18
Dividend Policies; Restrictions on Payment of Dividends . 18
Noncomparability of Historical Financial Information;
Consolidation of Businesses . . . . . . . . . . . . . . 18
Assumptions Regarding Value of Broadway's Assets . . . . . 19
Market Risk; Certain Investment Limitations . . . . . . . 19
Certain Taxation Matters . . . . . . . . . . . . . . . . . 19
Certain Provisions of Federated's Certificate of
Incorporation, By-Laws, and other Agreements . . . . . . 20
THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . 20
Broadway . . . . . . . . . . . . . . . . . . . . . . . . . 20
Federated . . . . . . . . . . . . . . . . . . . . . . . . 20
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . 20
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 21
Negotiations Relating to the Merger . . . . . . . . . . . 21
Broadway's Reasons for the Merger . . . . . . . . . . . . 23
Federated's Reasons for the Merger . . . . . . . . . . . . 24
Opinions of Broadway's Financial Advisors . . . . . . . . 25
The Merger Agreement . . . . . . . . . . . . . . . . . . . 32
Conditions . . . . . . . . . . . . . . . . . . . . . . . . 40
Termination . . . . . . . . . . . . . . . . . . . . . . . 41
Registration Rights Agreement . . . . . . . . . . . . . . 44
Certain Federal Income Tax Consequences . . . . . . . . . 47
Interests of Certain Persons in the Merger . . . . . . . . 48
Regulatory Approvals . . . . . . . . . . . . . . . . . . . 50
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . 50
OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 52
The Stock Agreement . . . . . . . . . . . . . . . . . . . 52
The Prudential Agreement . . . . . . . . . . . . . . . . . 54
The Broadway Working Capital Amendment . . . . . . . . . . 55
PRO FORMA CAPITALIZATION OF FEDERATED . . . . . . . . . . . . 56
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF FEDERATED . . . 59
DESCRIPTION OF BROADWAY CAPITAL STOCK . . . . . . . . . . . . 69
Authorized Capital Stock . . . . . . . . . . . . . . . . . 69
Common Stock . . . . . . . . . . . . . . . . . . . . . . . 69
Preferred Stock . . . . . . . . . . . . . . . . . . . . . 69
Broadway Preferred Stock . . . . . . . . . . . . . . . . . 69
iii
TABLE OF CONTENTS (CONT'D)
Page
----
DESCRIPTION OF FEDERATED CAPITAL STOCK . . . . . . . . . . . 71
Authorized Capital Stock . . . . . . . . . . . . . . . . . 71
Common Stock . . . . . . . . . . . . . . . . . . . . . . . 71
Preferred Stock . . . . . . . . . . . . . . . . . . . . . 71
Preferred Share Purchase Rights . . . . . . . . . . . . . 72
Certain Corporate Governance Matters . . . . . . . . . . . 76
DESCRIPTION OF SURVIVING COMPANY CAPITAL STOCK . . . . . . . 79
Authorized Capital Stock . . . . . . . . . . . . . . . . . 79
Common Stock . . . . . . . . . . . . . . . . . . . . . . . 79
Preferred Stock . . . . . . . . . . . . . . . . . . . . . 79
COMPARISON OF STOCKHOLDERS' RIGHTS . . . . . . . . . . . . . 81
Certain Differences in Rights of Holders of Broadway Common
Stock and Federated Common Stock . . . . . . . . . . . . 81
Certain Differences in Rights of Holders of Broadway
Preferred Stock and Surviving Company Preferred Stock . 84
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 85
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
PROPOSALS BY BROADWAY STOCKHOLDERS . . . . . . . . . . . . . 85
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 85
APPENDIX A -- Merger Agreement . . . . . . . . . . . . . . . . A-1
APPENDIX B -- Merrill Lynch Opinion . . . . . . . . . . . . . B-1
APPENDIX C -- Salomon Brothers Opinion . . . . . . . . . . . . C-1
APPENDIX D -- Form of Surviving Company Certificate of
Incorporation . . . . . . . . . . . . . . . . . . . . . . . . D-1
APPENDIX E -- Form of Surviving Company By-Laws . . . . . . . E-1
APPENDIX F -- Text of Delaware General Corporation Law Section
262 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
iv
SUMMARY
The following is a summary of certain information contained
in this Proxy Statement/Prospectus. This summary is not intended
to be complete and is qualified in its entirety by the more
detailed information contained elsewhere in this Proxy Statement/
Prospectus and the attached Appendices, all of which should be
reviewed carefully. As required by the context, references in
this Proxy Statement/Prospectus to "Federated," "Broadway," or
the "Surviving Company" should be construed as references to
Federated, Broadway, or the Surviving Company, as the case may
be, together with their respective predecessors and subsidiaries,
and references to "fiscal" years are references to fiscal years
of Broadway or Federated, as the case may be, which (except as
otherwise indicated) end on the Saturday nearest January 31 of
the next following calendar year.
The Parties
Broadway. Broadway is an operator of department stores in a
competitive retail market, with consolidated net sales (including
licensed department sales) of $2.1 billion for fiscal year 1994.
As of April 29, 1995, Broadway operated 83 stores in five states
under the names The Broadway, Emporium, and Weinstocks. See "The
Parties--Broadway." The mailing address of Broadway's principal
executive offices is 3880 North Mission Road, Los Angeles,
California 90031, and its telephone number is (213) 227-2000.
Federated. Federated is an operator of department stores in
a competitive retail market, with consolidated net sales
(including leased department sales) of $8.3 billion for fiscal
year 1994 ($13.9 billion, giving pro forma effect for all of
fiscal year 1994 to Federated's acquisition on December 19, 1994
of R.H. Macy & Co., Inc. ("Macy's")). As of April 29, 1995,
Federated operated 354 department stores in 31 states under the
names Bloomingdale's, The Bon Marche, Bullock's, Burdines,
Goldsmith's, Jordan Marsh, Lazarus, Macy's, Rich's, and Stern's,
and also conducted certain other operations. See "The Parties--
Federated." The mailing addresses of Federated's principal
executive offices are 151 West 34th Street, New York, New York
10001, telephone number (212) 494-4356, and 7 West Seventh
Street, Cincinnati, Ohio 45202, telephone number (513) 579-7000.
Newco is a wholly owned subsidiary of Federated formed by
Federated solely for the purpose of effecting the Merger.
The Special Meeting
Time, Date, and Place. The Special Meeting will be held on
__________, __________ __, 1995, at 9:00 a.m., Eastern Time, at
____________________, New York, New York.
Purpose. The purpose of the Special Meeting is for
Broadway's stockholders to consider and vote upon the adoption of
the Merger Agreement and such other matters as may properly come
before the Special Meeting. See "The Special Meeting --
General."
Record Date; Shares Entitled to Vote. At the Special
Meeting, Broadway's stockholders will be entitled to one vote for
each outstanding share of Broadway Common Stock or Broadway
Preferred Stock held of record as of the close of business on the
Record Date. As of the Record Date, there were ___________
shares of Broadway Common Stock and ___________ shares of
Broadway Preferred Stock outstanding and entitled to vote at the
Special Meeting, and there were approximately ______ holders of
record of Broadway Common Stock and approximately ______ holders
of record of Broadway Preferred Stock. See "The Special
Meeting -- Voting at the Special Meeting."
Required Vote. The affirmative vote of the holders of a
majority of the combined voting power of the outstanding shares
of Broadway Common Stock and Broadway Preferred Stock entitled to
vote thereon, voting together as a single class, is required for
the adoption of the Merger Agreement. As of the Record Date,
directors and executive officers of Broadway and their affiliates
owned beneficially, in the aggregate, approximately _____% of the
combined voting power of the outstanding shares of Broadway
Common Stock and Broadway Preferred Stock. Zell/Chilmark Fund,
L.P. ("Zell/Chilmark"), the beneficial owner of approximately
53._% of the combined voting power of the shares entitled to vote
at the Special Meeting, has entered into an agreement with
Federated pursuant to which Zell/Chilmark agreed to vote such
shares for the adoption of the Merger Agreement and granted to
Federated the right to purchase those shares at the Conversion
Rate provided in the Merger Agreement. See "Other Agreements --
The Stock Agreement." Accordingly, the adoption of the Merger
Agreement by the requisite vote of Broadway stockholders is
expected to occur irrespective of whether or the manner in which
other Broadway stockholders vote their shares.
Proxies. Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before the proxy
is voted at the Special Meeting. A proxy may be revoked by
filing with the Secretary of Broadway prior to the voting of the
proxy either a written instrument revoking the proxy or an
executed later dated proxy, or by voting in person at the Special
Meeting. Attendance at the Special Meeting will not, in itself,
constitute the revocation of a proxy. See "The Special Meeting -
- Proxies."
The Merger
General. On the terms and subject to the conditions set
forth in the Merger Agreement, Newco will be merged with and into
Broadway, with Broadway being the surviving corporation in the
Merger (as such, the "Surviving Company"). At the effective time
of the Merger (the "Effective Time"): (i) each then-outstanding
share of Broadway Common Stock (other than any shares held in the
treasury of Broadway, by any of its subsidiaries, or directly or
indirectly by Federated, which shares will be cancelled) will be
converted into the right to receive 0.27 shares of Federated
Common Stock (the "Conversion Rate"), (ii) each then-outstanding
share of Broadway Preferred Stock (other than any shares held in
the treasury of Broadway, by any of its subsidiaries, or directly
or indirectly by Federated, which shares will be cancelled) will
be converted into the right to receive one one-thousandth of a
share of Series A Preferred Stock of the Surviving Company
("Surviving Company Preferred Stock"), which fractional share
will have rights and preferences designed to be substantially
identical to the rights and preferences of one full share of
Broadway Preferred Stock (except that each of the 1,000 warrants
for which each share of Surviving Company Preferred Stock will be
exchangeable will be exercisable to purchase 0.27 shares of
Federated Common Stock rather than one share of Broadway Common
Stock), and (iii) each then-outstanding share of Common Stock of
Newco will be converted into 370.44 shares of Common Stock of the
Surviving Company ("Surviving Company Common Stock"). For a
description of the principal differences between the rights of
holders of Broadway Common Stock and Broadway Preferred Stock, on
the one hand, and Federated Common Stock and Surviving Company
Preferred Stock, respectively, on the other, see "Comparison of
Stockholders' Rights." Following the Merger, Federated will own
all of the outstanding shares of Surviving Company Common Stock.
Each warrant or option to purchase shares of Broadway Common
Stock that is outstanding immediately prior to the Effective Time
will become a warrant or an option, as the case may be, to
purchase, at an aggregate purchase price equal to the aggregate
2
price that would have been payable upon the exercise thereof
immediately prior to the Effective Time, a number of shares of
Federated Common Stock equal to the product of (i) the number of
shares of Broadway Common Stock subject to such warrant or option
immediately prior to the Effective Time and (ii) the Conversion
Rate. The conversion rights under Broadway's 6-1/4% Convertible
Senior Subordinated Notes due 2000 will be similarly adjusted.
Each share of Federated Common Stock issued in connection
with the Merger (including, unless the rights are earlier
redeemed, shares issued upon any subsequent exercise of options
or warrants or conversion of convertible notes) will be
accompanied by one right to purchase additional shares of capital
stock of Federated in certain circumstances involving an effort
by a third party to acquire Federated or a substantial equity
interest therein. See "Description of Federated Capital Stock --
Preferred Share Purchase Rights."
Fractional Shares. No fractional shares of Federated Common
Stock will be issued in the Merger. In lieu of any such
fractional shares, each holder of Broadway Common Stock who
otherwise would be entitled to receive a fractional share of
Federated Common Stock pursuant to the Merger will be paid an
amount in cash (without interest), rounded to the nearest cent,
equal to the product of (i) the fraction of a share of Federated
Common Stock to which such holder would otherwise be entitled and
(ii) the closing price of shares of Federated Common Stock on the
NYSE on the date on which the Merger is consummated (the "Closing
Date"). No fractional shares of Federated Common Stock will be
issued upon the exercise of any warrants or options or upon the
conversion of any convertible notes. In lieu of fractional
shares otherwise issuable upon the exercise of warrants or the
conversion of convertible notes, each holder thereof who would
otherwise be entitled to receive a fractional share of Federated
Common Stock will be paid an amount in cash based upon the
current market price of Federated Common Stock on the trading day
prior to the date of such exercise or conversion. No
consideration will be paid on account of fractional shares
otherwise issuable upon the exercise of options.
Recommendation of Broadway's Board of Directors. Broadway's
Board of Directors unanimously approved the Merger Agreement at a
meeting held on August 14, 1995. Broadway's Board of Directors
believes that the Merger is in the best interests of Broadway and
its stockholders and unanimously recommends that stockholders
vote FOR the adoption of the Merger Agreement.
Opinions of Broadway's Financial Advisors. Each of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
Salomon Brothers Inc ("Salomon Brothers") has delivered an
opinion to the Board of Directors of Broadway stating that, as of
the date of the Merger Agreement, the Conversion Rate was fair,
from a financial point of view, to the holders of Broadway Common
Stock (other than Federated and its affiliates). Copies of these
opinions, which set forth certain assumptions, qualifications,
and limitations, are attached as Appendices B and C,
respectively, hereto and should be read in their entirety. See
"The Merger -- Opinions of Broadway's Financial Advisors."
Effective Time of the Merger. The Merger will become
effective at the time that a certificate of merger (the
"Certificate of Merger") is filed with the Secretary of State of
the State of Delaware. Subject to the provisions of the Merger
Agreement, the parties will file the Certificate of Merger as
soon as practicable after the requisite vote of the stockholders
of Broadway is obtained and the various conditions to the Merger
are satisfied or waived.
3
Conditions to the Merger. The obligations of Federated and
Broadway to consummate the Merger are conditioned upon, among
other things, (i) adoption of the Merger Agreement by Broadway's
stockholders; (ii) the waiting period pursuant to the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), having expired or been terminated; (iii) the absence of
any order or injunction that prohibits the consummation of the
transactions contemplated by the Merger Agreement; (iv) the
Registration Statement having been declared effective by the SEC
and not being subject to any stop order or proceeding seeking the
same; (v) all consents, authorizations, orders, and approvals of
any governmental authority required in connection with the Merger
Agreement having been obtained, other than any such consents,
authorizations, orders, or approvals which, if not obtained,
would not have a material adverse effect on the business,
financial condition, or results of operations of the Surviving
Company; and (vi) the shares of Federated Common Stock to be
issued in connection with the Merger having been authorized for
listing on the NYSE upon official notice of issuance. See "The
Merger -- Conditions."
Governmental and Regulatory Matters. In connection with the
transactions contemplated by the Merger Agreement and the Stock
Agreement, Broadway and Federated have made filings or
applications with the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Department of Justice (the
"Antitrust Division") pursuant to the HSR Act. Consummation of
the Merger is conditioned upon, among other things, the
expiration or termination of the waiting periods under the HSR
Act. See "The Merger -- Regulatory Approvals" and
"-- Conditions."
Appraisal Rights. Under the Delaware General Corporation
Law (the "DGCL"), appraisal rights are unavailable to holders of
Broadway Common Stock. See "The Merger -- Appraisal Rights --
Absence of Appraisal Rights for Broadway Common Stock." Under
the DGCL, appraisal rights are available to holders of Broadway
Preferred Stock. In order for holders of Broadway Preferred
Stock to exercise their appraisal rights, they must carefully
follow the procedures prescribed by the DGCL, which procedures
are summarized in "The Merger -- Appraisal Rights -- Appraisal
Rights for Broadway Preferred Stock."
Certain Federal Income Tax Consequences. For U.S. federal
income tax purposes, it is anticipated that the Merger will
qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). If the Merger so qualifies, no gain or loss would be
recognized by holders of Broadway Common Stock upon the
conversion of their shares of Broadway Common Stock into shares
of Federated Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares of
Federated Common Stock. If the Merger does not so qualify,
holders of Broadway Common Stock generally would recognize gain
or loss in connection with the Merger. Whether or not the Merger
qualifies as a reorganization under the Code, holders of Broadway
Preferred Stock may recognize gain or loss upon the conversion of
their Broadway Preferred Stock into Surviving Company Preferred
Stock pursuant to the Merger. Special rules may apply to
stockholders who are dealers in securities, who are subject to
the alternative minimum tax provisions of the Code, who are tax
exempt, who are foreign persons, who do not hold their Broadway
stock as capital assets, or who acquired Broadway stock or
options in connection with stock option or stock purchase plans
or in other compensatory transactions. No ruling from the
Internal Revenue Service (the "IRS") or opinion of tax counsel
has been or will be sought concerning any of the federal income
tax consequences of the Merger. For a discussion of these and
other federal income tax considerations in connection with the
4
Merger, see "The Merger -- Certain Federal Income Tax
Consequences." Each holder of Broadway Common Stock or Broadway
Preferred Stock should consult his or her own tax advisor
regarding the tax consequences of the Merger in light of such
holder's own situation, including the application and effect of
any state, local, or foreign income and other tax laws.
Accounting Treatment. It is expected that the Merger will
be accounted for as an acquisition of Broadway by Federated,
using the purchase method of accounting.
Other Agreements
The Stock Agreement. As a condition to its willingness to
enter into the Merger Agreement, Federated required that,
simultaneously with the execution thereof, Zell/Chilmark enter
into an agreement (the "Stock Agreement") pursuant to which,
among other things, Zell/Chilmark agreed to vote all of the
shares of Broadway Common Stock owned by Zell/Chilmark (the "Z/C
Shares") in favor of the adoption of the Merger Agreement and
granted to Federated the right to purchase the Z/C Shares at the
Conversion Rate provided in the Merger Agreement (the "Option").
See "Other Agreements -- The Stock Agreement."
The Prudential Agreement. Federated, Federated Noteholding
Corporation II ("FNC"), a wholly owned subsidiary of Federated,
and The Prudential Insurance Company of America ("Prudential")
have entered into an agreement (the "Prudential Agreement")
providing for the purchase by FNC from Prudential of certain
mortgage indebtedness of Broadway for consideration consisting of
a promissory note of FNC in the principal amount of $221.1
million (subject to adjustment) and, at FNC's option, either
$200.0 million in cash or a number of shares of Federated Common
Stock determined in accordance with the Prudential Agreement.
See "Other Agreements -- The Prudential Agreement."
The Broadway Working Capital Amendment. Broadway and
General Electric Capital Corporation ("GE Capital") entered into
an amendment (the "Broadway Working Capital Amendment") to
Broadway's working capital credit facility (the "Broadway Working
Capital Facility") providing for, among other things, GE
Capital's consent to the consummation of the Merger, an increase
in Broadway's borrowing capacity under the Broadway Working
Capital Facility, and the elimination or modification of certain
financial covenants contained in the Broadway Working Capital
Facility. In connection with the Broadway Working Capital
Amendment, Federated and GE Capital entered into certain
agreements pursuant to which Federated would be required in
certain circumstances to purchase from GE Capital a last-out
participation in the Broadway Working Capital Facility. See
"Other Agreements -- The Broadway Working Capital Amendment."
The Bank of America Agreement. Broadway, Federated, and
Bank of America National Trust and Savings Association ("Bank of
America") entered into a letter agreement (the "Bank of America
Agreement") relating to certain mortgage indebtedness of Broadway
(the "Bank of America Loan"), pursuant to which Bank of America
consented, subject to certain conditions, to the consummation of
the Merger. See "Other Agreements -- The Bank of America
Agreement."
5
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information of
Federated and Broadway has been derived from the historical
consolidated financial statements of Federated and Broadway
incorporated by reference herein, and should be read in
conjunction with such financial statements and the notes thereto.
See "Available Information" and "Incorporation of Certain
Documents by Reference." The historical financial data at and
for each fiscal year in the five-year period ended January 28,
1995 with respect to Federated and Broadway have been extracted
from audited financial statements filed with the SEC. Historical
financial data at and for the 13-week periods ended April 29,
1995 and April 30, 1994 with respect to Federated and Broadway
have been extracted from unaudited financial statements filed
with the SEC and, in the opinion of Federated's and Broadway's
respective managements, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair
presentation, in all material respects, of the results of
operations and financial position at and for each of the interim
periods presented.
6
SUMMARY HISTORICAL FINANCIAL INFORMATION OF FEDERATED
13 Weeks 13 Weeks Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended Ended
April 29, April 30, January 28, January 29, January 30, February 1, February 2,
1995 1994 1995 1994 1993 1992 1991
--------- --------- ----------- ----------- ----------- ----------- -----------
(thousands, except per share data)
Statement of Operations Data (a):
Net sales, including leased
department sales.............. $2,988,006 $1,653,631 $8,315,877 $7,229,406 $7,079,941 $6,932,323 $7,141,983
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cost of Sales ...................... 1,823,921 1,008,136 5,131,363 4,373,941 4,229,396 4,202,223 4,394,976
Selling, general and
administrative expenses....... 1,069,959 542,088 2,549,122 2,323,546 2,420,684 2,463,128 2,611,834
Business integration and consultation
expenses...................... 83,322 -- 85,867 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income.................... 10,804 103,407 549,525 531,919 429,861 266,972 135,173
lnterest expense (b)................ (109,501) (56,363) (262,115) (213,544) (258,211) (504,257) (639,527)
Interest income..................... 11,949 11,024 43,874 49,405 60,357 67,260 83,585
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before reorganization
items, income taxes, extraordinary
items and cumulative effect of
change in accounting principle. (86,748) 58,068 331,284 367,780 232,007 (170,025) (420,769)
Reorganization items (c)............ -- -- -- -- -- (1,679,936) (127,032)
Federal, state and local income tax
(expense) benefit............. 29,749 (25,846) (143,668) (170,987) (99,299) 613,989 276,355
Extraordinary items (d)............. -- -- -- (3,545) (19,699) 2,165,515 --
Cumulative effect of change in
accounting principle (e)...... -- -- -- -- -- (93,151) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income(loss).................... $ (56,999) $ 32,222 $ 187,616 $ 193,248 $ 113,009 $ 836,392 $ (271,446)
========== ========== ========== ========== ========== ========== ==========
Earnings (loss) per Share of
Common Stock (f):
Income (loss) before extraordinary
items.......................... $ (.31) $ .25 $ 1.41 $ 1.56 $ 1.19 $ -- $ --
Net income (loss).................. (.31) .25 1.41 1.53 1.01 -- --
Average number of shares
outstanding (f).................... 182,682 126,464 132,862 126,293 111,350 -- --
Balance Sheet Data (at period end)(a):
Cash............................... $ 150,242 $ 102,907 $ 206,490 $ 222,428 $ 566,984 $1,002,482 $ 453,560
Working capital.................... 2,521,597 1,935,626 2,478,376 1,967,569 2,227,336 1,923,812 1,957,037
Total assets....................... 12,365,431 7,371,369 12,379,712 7,419,427 7,019,770 7,501,145 9,150,056
Short-term debt.................... 671,741 125,847 463,042 10,099 12,944 771,605 309,168
Liabilities subject to settlement
under reorganization proceedings. -- -- -- -- -- -- 6,475,129
Long-term debt (including
preferred shares).......... 4,526,191 2,683,233 4,529,220 2,786,724 2,809,757 3,176,687 1,361,778
Shareholders' equity (deficit)..... 3,584,869 2,313,693 3,639,610 2,278,244 2,074,980 1,454,132 (1,398,528)
-----------------------
(a) As a result of Federated's emergence from bankruptcy and its adoption of fresh-start reporting as of February 1,
1992, Federated's Consolidated Balance Sheets at and after February 1, 1992 and its Consolidated Statements
of Operations for periods ended after February 1, 1992 are not comparable to the Consolidated Financial Statements
for prior periods and therefore are separated by a black line.
(b) Excludes interest on unsecured prepetition indebtedness of $301,576,000 and $290,979,000, respectively, for fiscal
years 1991 and 1990.
7
(c) Reflects the net expense incurred in connection with the chapter 11
reorganization of Federated and affiliated companies.
(d) The extraordinary items for fiscal years 1993 and 1992 were costs
associated with the prepayment of certain Federated debt. The
extraordinary item for fiscal year 1991 was a gain resulting from the
discharge of prepetition claims pursuant to Federated's plan of
reorganization.
(e) Reflects the cumulative effect of the adoption of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions,"
as of February 1, 1992.
(f) Per share and share data are not presented for periods during which
there were no publicly held shares of Federated Common Stock.
8
SUMMARY HISTORICAL FINANCIAL INFORMATION OF BROADWAY
13 Weeks 13 Weeks Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended Ended
April 29, April 30, January 28, January 29, January 30, February 1, February 2,
1995 1994 1995 1994 1993 1992 1991 (1)
--------- --------- ----------- ----------- ----------- ----------- -----------
(thousands, except per share data)
Statement of Operations Data:
Sales.............................. $ 423,911 $ 431,077 $2,086,804 $2,092,681 $2,137,847 $2,127,917 $1,318,565
Finance charge revenue............. 24,594 22,537 91,330 81,438 82,642 93,992 49,262
Cost of goods sold, including
occupancy & buying costs.......... 324,753 319,366 1,560,035 1,589,077 1,587,979 1,591,770 991,140
Selling, general and
administrative expenses........... 135,915 129,695 554,405 551,098 561,610 559,886 335,381
Charge for non-recurring costs..... -- -- -- 45,000 -- -- --
Provision for consolidation
program........................... -- __ -- -- -- -- 47,000
Gain on sale of Thalhimers......... -- -- -- -- -- -- (30,000)
Other expenses (2)................. -- -- -- -- -- -- --
Interest expense, net.............. 31,135 22,513 100,904 84,864 89,808 102,288 71,046
---------- ---------- ----------- ----------- ----------- ----------- -----------
Loss from continuing operations
before reorganization costs
and income taxes.................. (43,298) (17,960) (37,210) (95,920) (18,908) (32,035) (46,740)
Reorganization income (costs)...... -- -- -- -- 884,131 (138,057) (40,000)
---------- ---------- ----------- ----------- ----------- ----------- -----------
Pretax earnings (loss) from
continuing operations............. (43,298) (17,960) (37,210) (95,920) 865,223 (170,092) (86,740)
Income tax benefit (expenses)...... -- -- (150) -- (9,800) -- 13,200
---------- ---------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) from
continuing operations............. (43,298) (17,960) (37,360) (95,920) 855,423 (170,092) (73,540)
Extraordinary income (costs)
and changes in accounting (3)..... -- -- -- -- 323,220 (46,894) (14,070)
---------- ---------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss)................ $ (43,298) $ (17,960) $ (37,360) $ (95,920) $1,178,643 $ (216,986) $ (87,610)
---------- ---------- ----------- ----------- ----------- ----------- -----------
---------- ---------- ----------- ----------- ----------- ----------- -----------
Loss per common share (4).......... $ (.92) $ (.38) $ (.80) $ (2.30) -- -- --
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Balance Sheet Data
(at period end):
Working capital................... 763,271 732,463 863,137 739,810 701,478 628,270 978,082
Total assets...................... 1,991,993 1,865,461 2,127,076 1,934,147 1,912,902 1,667,662 1,755,421
Liabilities subject to settlement
under reorganization proceedings. -- -- -- -- -- 598,321 598,650
Receivables based financing....... 515,443 339,561 573,138 332,182 467,577 489,254 633,798
Other secured long-term debt
and capital lease obligations.... 562,845 564,299 564,041 561,954 563,216 508,429 515,290
Convertible subordinated notes.... 143,750 143,750 143,750 143,750 -- -- --
Common stock and other
shareholders' equity (deficit)... 342,354 395,972 385,652 413,717 374,761 (508,476) (272,627)
Common shares outstanding......... 46,941 (5) 46,836 (5) 46,941 (5) 46,814 (5) 35,200 (5) 30,349 30,369
(Table continued on following page.)
9
Fiscal Year
Ended
August 4,
1990
------------
Statement of Operations Data:
Sales............................... $ 2,857,819
Finance charge revenue.............. 125,036
Cost of goods sold, including
occupancy & buying costs........... 2,098,382
Selling, general and
administrative expenses............ 729,578
Charge for non-recurring costs...... --
Provision for consolidation
program............................ --
Gain on sale of Thalhimers.......... --
Other expenses (2).................. 4,831
Interest expense, net............... 161,534
------------
Loss from continuing operations
before reorganization costs
and income taxes................... (11,470)
Reorganization income (costs)....... --
------------
Pretax earnings (loss) from
continuing operations.............. (11,4700)
Income tax benefit (expenses)....... 2,000
------------
Earnings (loss) from
continuing operations.............. (9,470)
Extraordinary income (costs)
and changes in accounting (3)...... (16,500)
------------
Net earnings (loss)................. $ (25,970)
------------
------------
Loss per common share (4)........... --
Balance Sheet Data
(at period end):
Working capital..................... 843,414
Total assets........................ 2,045,194
Liabilities subject to settlement
under reorganization proceedings... --
Receivables based financing......... 678,646
Other secured long-term debt
and capital lease obligations...... 939,797
Convertible subordinated notes
Common stock and other
shareholders' equity (deficit)..... (193,820)
Common shares outstanding........... 29,848
10
___________
(1) Effective as of February 2, 1991, Broadway changed its
fiscal year end from the Saturday closest to July 31 of
each year to the Saturday closest to January 31 of each
year.
(2) Includes gains on asset sales of $7.3 million and costs of
the buying office closure of $12.1 million.
(3) Fiscal year 1992 includes a $304.4 million gain on debt
discharge and $18.8 million of income from a change in
accounting for income taxes. Fiscal year 1991 includes a
$30.0 million charge for a change in accounting for post-
retirement medical benefits and $16.9 million of costs
relating to early retirements of debt. The 26-week
transition period ended February 2, 1991 includes $14.1
million of costs relating to the early retirement of debt.
Fiscal year 1990 includes a $16.5 million extraordinary
charge for the uninsured loss associated with the October
1989 San Francisco earthquake.
(4) Earnings per common share were $.65 for the 17 weeks ended
January 30, 1993. Per share data for periods prior to the
date Broadway emerged from bankruptcy (October 8, 1992)
have been omitted as these amounts do not reflect
Broadway's current capital structure.
(5) Includes 35.0 million shares of Broadway Common Stock
expected to be issued in accordance with Broadway's plan of
reorganization. As of April 29, 1995, 34.0 million of
these shares of Broadway Common Stock had been issued and
1.0 million of these shares remained reserved for issuance.
11
SUMMARY PRO FORMA FINANCIAL INFORMATION OF FEDERATED
The following pro forma financial information of Federated
gives effect to (i) the consummation of the Merger and (ii) the
purchase by FNC from Prudential of certain mortgage indebtedness
of Broadway for consideration assumed to consist of a
$221,149,531 promissory note of FNC, 6,751,055 shares of
Federated Common Stock, and $843,877 in cash, in each case as if
the foregoing transactions had been consummated on April 29,
1995, in case of the Unaudited Pro Forma Condensed Balance Sheet
of Federated, and on January 30, 1994, in the case of the
Unaudited Pro Forma Condensed Statements of Operations of
Federated. As discussed in "Other Agreements--The Prudential
Agreement," if FNC elects to pay a portion of the purchase price
under the Prudential Agreement in the form of Federated Common
Stock, such purchase price will be determined with reference to
actual market prices for shares of Federated Common Stock (which
prices may be higher or lower than the $29.50 per share price
assumed for purposes of the following pro forma financial
information). Because Federated's acquisition of Macy's on
December 19, 1994 was accounted for under the purchase method of
accounting, Federated's historical statements of operations give
effect to the results of operations of the Macy's business only
from and after such date. The Unaudited Condensed Pro Forma
Statement of Operations of Federated for the 52 weeks ended
January 28, 1995 also gives effect to Federated's acquisition of
Macy's as if such acquisition had been consummated on January 30,
1994 rather than December 19, 1994. The pro forma financial
information is presented for illustrative purposes only and is
not necessarily indicative of what Federated's actual financial
position or results of operations would have been had the above-
referenced transactions been consummated as of the above-
referenced dates or of the financial position or results of
operations that may be reported by Federated in the future. The
pro forma financial information should be read in conjunction
with the historical financial statements of Federated, the
related notes, and the other information contained elsewhere in
this Proxy Statement/Prospectus or incorporated by reference
herein. See "Available Information," "Incorporation of Certain
Documents by Reference," and "Unaudited Pro Forma Financial
Information of Federated." Certain items derived from Broadway's
historical financial statements have been reclassified to conform
to the pro forma combined presentation.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET OF FEDERATED
April 29, 1995
(in thousands)
Pro Forma
---------
Total current assets $ 6,306,616
Property and equipment - net 6,132,699
Intangible assets - net 1,142,654
Notes receivable 407,293
Other assets 400,216
-----------
Total assets $14,389,478
===========
Total current liabilities $ 3,070,702
Long-term debt 5,548,229
Deferred income taxes 1,004,078
Other liabilities 608,560
Shareholders' equity 4,157,909
-----------
Total liabilities and $14,389,478
shareholders' equity ===========
12
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS OF FEDERATED
(in thousands)
Pro Forma
-------------------------------------
For the For the
13 Weeks 52 Weeks
Ended Ended
April 29, 1995 January 28, 1995
-------------- ----------------
Net sales, including leased department sales $ 3,411,917 $16,033,858
---------- ----------
Cost of Sales 2,105,320 9,896,275
Selling, general and administrative expenses 1,233,829 5,244,908
Unusual items 83,322 281,586
---------- ----------
Operating income (10,554) 611,089
Interest expense (130,607) (527,494)
Interest income 11,949 44,129
Earthquake loss -- (15,000)
Reorganization items -- 50,914
---------- ----------
Income (loss) before income taxes (129,212) 163,638
Federal, state, and local income tax benefit (expense) 46,622 (86,771)
----------- -----------
Income (loss) from continuing operations $ (82,590) $ 76,867
=========== ===========
Selected Per Share Financial Information
The following table sets forth selected historical per share
financial information for each of Federated and Broadway and
unaudited pro forma per share financial information for Federated
giving effect to (i) the Merger and (ii) the purchase by FNC from
Prudential of certain mortgage indebtedness of Broadway for
consideration assumed to consist of a $221,149,531 promissory
note of FNC, 6,751,055 shares of Federated Common Stock, and
$843,877 in cash, in each case as if the foregoing transactions
had been consummated as of April 29, 1995, in the case of book
value information, and January 30, 1994, in the case of earnings
and loss information. As discussed in "Other Agreements--The
Prudential Agreement," if FNC elects to pay a portion of the
purchase price under the Prudential Agreement in the form of
Federated Common Stock, such purchase price will be determined
with reference to actual market prices for shares of Federated
Common Stock (which prices may be higher or lower than the $29.50
per share price assumed for purposes of the following pro forma
financial information). The pro forma earnings and loss
information also gives effect to Federated's acquisition of
Macy's as if such acquisition had been consummated as of January
30, 1994. The information presented below is derived from (i)
the consolidated historical financial statements of Federated and
Broadway, including the related notes thereto, incorporated by
reference into this Proxy Statement/Prospectus and (ii) the pro
forma financial information, including the notes thereto,
appearing elsewhere herein, and should be read in conjunction
therewith. See "Available Information," "Incorporation of Certain
Documents by Reference," and "Unaudited Pro Forma Financial
Information of Federated." The pro forma information set forth
below is not necessarily indicative of what Federated's actual
financial position or results of operations would have been had
the above-referenced transactions been consummated as of the
above-referenced dates or of the financial position or results of
operations that may be reported by Federated in the future.
13
13 Weeks Fiscal
Ended Year
April 29, Ended
1995 January 28, 1995
----- ----------------
FEDERATED -- HISTORICAL
Earnings (loss) from continuing
operations per common share . . . $(0.31) $ 1.41
Book value per common share . . . 19.62 19.93
BROADWAY -- HISTORICAL
Earnings (loss) from continuing
operations per common share . . . (0.92) (0.80)
Book value per common share . . . 7.29 8.22
FEDERATED PRO FORMA
Earnings (loss) from continuing
operations per common share . . . (0.41) 0.38
Book value per common share . . . 20.57 20.99
BROADWAY PRO FORMA EQUIVALENTS
Earnings (loss) from continuing
operations per common share . . . (0.11) 0.10
Book value per common share . . . 5.55 5.67
Neither Federated nor Broadway has declared any dividend on
its respective capital stock during the periods indicated above.
See "Risk Factors--Dividend Policies; Restrictions on Payments of
Dividends."
Market Price Information
Shares of Federated Common Stock and Broadway Common Stock are
listed and primarily traded on the NYSE. Shares of Broadway
Common Stock are also listed and traded on the PSE. On August
14, 1995, the last full trading day prior to the announcement by
Federated and Broadway of the execution of the Merger Agreement,
the closing price per share of Federated Common Stock as reported
on the NYSE Composite Tape was $29.50 and the closing price per
share of Broadway Common Stock as so reported was $2.875. Based
upon that information, the Equivalent Per Share Price (as defined
below) of the Broadway Common Stock was $7.965 on August 14,
1995. The "Equivalent Per Share Price" of the Broadway Common
Stock as of a particular date equals the closing price per share
of the Federated Common Stock on such date multiplied by 0.27,
which is the number of shares of Federated Common Stock into
which each share of Broadway Common Stock will be converted in
the Merger.
On _______, 1995, the last full trading day prior to the date
of this Proxy Statement/Prospectus, the closing price per share
of Federated Common Stock as reported on the NYSE Composite Tape
was $_____, and the closing price per share of Broadway Common
Stock as so reported was $_____. Based upon those prices, the
Equivalent Per Share Price of the Broadway Common Stock was
$______ on __________, 1995. Broadway stockholders are
encouraged to obtain current market quotations.
There is no established market for shares of Broadway
Preferred Stock and price quotations therefor are not available.
14
Risk Factors
See "Risk Factors" for a discussion of certain risks of
ownership of Federated Common Stock and Surviving Company
Preferred Stock that should be considered in determining whether
to vote to adopt the Merger Agreement.
15
THE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished by Broadway
to its stockholders in connection with the solicitation of
proxies, by and on behalf of Broadway's Board of Directors, for
use at the Special Meeting. The Special Meeting will be held on
________, _________ __, 1995 at 9:00 a.m., Eastern Time, at
________________, New York, New York. The purpose of the Special
Meeting is for Broadway stockholders to consider and vote upon
the adoption of the Merger Agreement and such other matters as
may properly come before the Special Meeting.
BROADWAY'S BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN
THE BEST INTERESTS OF BROADWAY AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF
THE MERGER AGREEMENT.
Voting at the Special Meeting
The holders of record of shares of Broadway Common Stock and
Broadway Preferred Stock as of the close of business on
___________ __, 1995 (the Record Date) are entitled to vote such
shares, voting together as a single class, at the Special
Meeting. As of the Record Date, there were outstanding
__________ shares of Broadway Common Stock and __________ shares
of Broadway Preferred Stock, and there were approximately ____
holders of record of Broadway Common Stock and approximately
_____ holders of record of Broadway Preferred Stock. Each
outstanding share of Broadway Common Stock or Broadway Preferred
Stock is entitled to one vote at the Special Meeting. Shares of
Broadway Common Stock or Broadway Preferred Stock held in the
treasury of Broadway or by any of its subsidiaries are not
considered to be outstanding.
The holders of shares representing a majority of the combined
voting power of the shares of Broadway Common Stock and Broadway
Preferred Stock outstanding as of the Record Date will constitute
a quorum for the transaction of business at the Special Meeting.
If the persons present or represented by proxy at the Special
Meeting constitute the holders of shares representing less than a
majority of such combined voting power, the Special Meeting may
be adjourned to a subsequent date for the purpose of obtaining a
quorum.
Abstentions and broker non-votes will be included in
determining the number of shares held by persons present or
represented by proxy at the Special Meeting for purposes of
determining whether a quorum exists. However, because approval
of the proposal to adopt the Merger Agreement will require the
affirmative vote of shares representing a majority of the
combined voting power of the outstanding shares of Broadway
Common Stock and Broadway Preferred Stock entitled to vote
thereon, abstentions and broker non-votes will have the effect of
negative votes thereon. With respect to the vote on any other
matters brought before the Special Meeting, which will require
the affirmative vote of the holders of a majority of the combined
voting power of the shares represented at the Special Meeting and
entitled to vote thereon, abstentions and broker non-votes will
also have the effect of negative votes thereon.
Pursuant to the Merger Agreement, the consummation of the
Merger is conditioned upon, among other things, the adoption of
the Merger Agreement by the affirmative vote of the holders of
shares representing a majority of the combined voting power of
the outstanding shares of Broadway Common Stock and Broadway
Preferred Stock entitled to vote thereon. Pursuant to the Stock
Agreement described in "Other Agreements-- The Stock Agreement,"
Zell/Chilmark, which owns beneficially shares of Broadway Common
Stock having approximately 53._% of the combined voting power of
the Broadway Common Stock and Broadway Preferred Stock as of the
Record Date, has agreed to vote such shares in favor of the
adoption of the Merger Agreement and has granted to Federated an
16
option to purchase such shares. Accordingly, adoption of the
Merger Agreement by the requisite vote of the Broadway
stockholders is expected to occur irrespective of whether or the
manner in which other Broadway stockholders vote their shares.
Proxies
All shares of Broadway Common Stock and Broadway Preferred
Stock represented at the Special Meeting by properly executed
proxies received prior to or at the Special Meeting, unless such
proxies shall have been revoked, will be voted at the Special
Meeting in accordance with the instructions on the proxies. If
no instructions are indicated, such proxies will be voted for the
adoption of the Merger Agreement.
A proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before the proxy is voted at the
Special Meeting. A proxy may be revoked by filing with the
Secretary of Broadway prior to the voting of the proxy either a
written instrument revoking the proxy or an executed later dated
proxy, or by voting in person at the Special Meeting. Attendance
at the Special Meeting will not, in itself, constitute the
revocation of a proxy.
Broadway and Federated will share the cost of the preparation
of this Proxy Statement/Prospectus and the solicitation of
proxies for voting at the Special Meeting. Broadway may solicit
proxies otherwise than by the use of the mails, in that certain
officers and regular employees of Broadway, without additional
compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies. Broadway will also request persons
and entities holding shares in their names, or in the name of
their nominees, that are beneficially owned by others, to send
proxy materials to and obtain proxies from such beneficial owners
and will reimburse such holders for their reasonable expenses in
so doing.
RISK FACTORS
Set forth below is a discussion of certain material risks
relating to ownership of the Federated Common Stock and Surviving
Company Preferred Stock to be issued in connection with the
Merger. Certain of such risks (such as those discussed below
under the captions "-- Business Factors and Competitive
Conditions" and "-- Seasonal Nature of the Department Store
Business") are common to ownership of either Federated Common
Stock or Surviving Company Preferred Stock (as well as to
ownership of Broadway Common Stock and Broadway Preferred Stock).
However, because shares of Federated Common Stock and shares of
Surviving Company Preferred Stock represent equity interests in
separate legal entities and have different market
characteristics, certain of such risks are unique to, or apply in
differing ways to, ownership of Federated Common Stock, on the
one hand, and Surviving Company Preferred Stock, on the other
(e.g., Federated will have no obligation to make its resources
available to the Surviving Company and matters directly affecting
the financial condition or results of operations of the Surviving
Company will indirectly affect the financial condition and
results of operations of Federated). Prior to voting on the
proposed adoption of the Merger Agreement, Broadway stockholders
should carefully consider the risk factors discussed below as
well as all of the information contained elsewhere in this Proxy
Statement/Prospectus, including the Appendices hereto.
Business Factors and Competitive Conditions
The retailing industry is and will continue to be intensely
competitive. Federated's and Broadway's stores will face
increasing competition not only with other department stores in
the geographic areas in which they operate, but also with
numerous other types of retail outlets, including specialty
stores, general merchandise stores, off-price and discount
stores, new and established forms of home shopping (including
17
mail order catalogs, television, and computer services), and
manufacturer outlets.
Seasonal Nature of the Department Store Business
The department store business is seasonal in nature, with a
high proportion of sales and operating income generated in
November and December. Working capital requirements fluctuate
during the year, increasing somewhat in mid-Summer in
anticipation of the Fall merchandising season and increasing
substantially prior to the Christmas season as significantly
higher inventory levels are necessary.
Leverage; Restrictive Covenants
Federated's consolidated indebtedness is and following the
Merger will be greater than its shareholders' equity. See "Pro
Forma Capitalization of Federated." Certain of the debt
instruments to which Federated is a party contain a number of
restrictive covenants and events of default, including covenants
limiting capital expenditures, incurrence of debt, and sales of
assets. In addition, under certain of its debt instruments,
Federated is required to achieve certain financial ratios, some
of which become more restrictive over time, and a substantial
portion of Federated's indebtedness is secured by the capital
stock or assets of various subsidiaries of Federated or has been
incurred by Federated's subsidiaries. Among other consequences,
the leverage of Federated and such restrictive covenants and
other terms of Federated's debt instruments could impair the
company's ability to obtain additional financing in the future,
to make acquisitions, and to take advantage of significant
business opportunities that may arise. In addition, Federated's
leverage may increase its vulnerability to adverse general
economic and retailing industry conditions and to increased
competitive pressures.
Security Interests
The capital stock of Federated's principal subsidiaries
(including, after the Effective Time, the Surviving Company) and
substantially all of the receivables and certain real estate of
Federated and its subsidiaries are subject to various liens and
security interests. If a holder of a security interest becomes
entitled to exercise its rights as a secured party, it would have
the right to foreclose upon and sell or otherwise transfer the
collateral subject to its security interest, and the collateral
would be correspondingly unavailable to Federated or the
subsidiary owning such collateral and to other creditors of
Federated or such subsidiary, except to the extent, if any, that
the value of the affected collateral exceeds the amount of the
indebtedness in respect of which such foreclosure rights are
exercised.
Dividend Policies; Restrictions on Payment of Dividends
Federated does not anticipate that it will pay any dividends
on the Federated Common Stock in the foreseeable future.
Federated's bank credit agreement includes covenants restricting
Federated's ability to pay dividends or make other distributions
to stockholders.
Noncomparability of Historical Financial Information;
Consolidation of Businesses
Federated acquired Macy's on December 19, 1994 and effected
other acquisitions (and dispositions) during fiscal year 1994.
Under the purchase method of accounting, the assets, liabilities,
and results of operations associated with such acquisitions have
been included in Federated's financial position and results of
operations since the respective dates thereof. Accordingly, the
financial position and results of operations of Federated as of
the end of and for fiscal year 1994 and subsequent dates and
periods are not directly comparable to the financial position and
results of operations of Federated as of and for prior dates and
18
periods. Similar effects will result from the acquisition of
Broadway pursuant to the Merger. Accordingly, the financial
position and results of operations of Federated following the
Merger will not be directly comparable to the financial position
and results of operations of Federated prior thereto.
For the 26 weeks ended July 29, 1995, Federated incurred
$172.3 million of non-recurring charges in connection with the
consolidation of the Macy's business with Federated's other
businesses and other divisional consolidations. Federated
anticipates that it will incur additional non-recurring charges
in connection with the Merger and the consolidation of Broadway's
business with Federated's other businesses, as well as the
ongoing consolidations of the Macy's business and Federated's
other businesses. In addition, Federated anticipates that a
number of Broadway's stores will be sold or otherwise disposed of
following the Merger. See "The Merger--Federated's Reasons for
the Merger." However, as of the date of this Proxy
Statement/Prospectus, Federated had not entered into an agreement
providing for such dispositions and there can be no assurance
that Federated will do so or as to the timing or terms thereof.
Assumptions Regarding Value of Broadway's Assets
It has been generally assumed in the preparation of the
unaudited pro forma consolidated financial statements included
elsewhere in this Proxy Statement/Prospectus that the historical
book value of Broadway's assets approximates the fair value
thereof, except for specific adjustments discussed in the Notes
to Unaudited Pro Forma Consolidated Financial Information, as an
independent valuation has not been completed. See "Unaudited Pro
Forma Consolidated Financial Information of Federated."
Federated will be required to determine the fair value of the
assets of Broadway (including intangible assets) as of the
Effective Time. As a result of such determination, Federated may
record adjustments which will, under generally accepted
accounting principles, increase or decrease the amount of excess
of cost over net assets acquired reflected on Federated's balance
sheet and the related amortization thereof in periods following
the consummation of the Merger.
Market Risk; Certain Investment Limitations
Federated Common Stock is listed for trading on the NYSE.
However, there is no existing market for the Surviving Company
Preferred Stock and it is not anticipated that the Surviving
Company Preferred Stock will be listed for trading on any
exchange or admitted for quotation on the NASDAQ. Accordingly,
no assurance can be given as to the liquidity of the secondary
market for the Surviving Company Preferred Stock. The prices at
which shares of Federated Common Stock and Surviving Company
Preferred Stock trade may depend upon many factors, including
prevailing interest rates, markets for similar securities,
industry conditions, and the performance of, and investor
expectations for, Federated or Broadway. No assurance can be
given that a holder of Federated Common Stock or Surviving
Company Preferred Stock will be able to sell such securities at
any particular price.
Certain institutional investors may invest only in dividend-
paying equity securities or may operate under other restrictions
that may prohibit or limit their ability to invest in Federated
Common Stock or Surviving Company Preferred Stock.
Certain Taxation Matters
As of the date of this Proxy Statement/Prospectus, Federated
was a party to certain disputes with the IRS pursuant to which
the IRS was seeking to disallow certain deductions claimed by,
and certain loss carryforwards utilized by, Federated and its
predecessors. Although there can be no assurance with respect
thereto, Federated does not expect the ultimate resolution of
such disputes to have a material adverse effect on Federated's
financial position or results of operations.
19
Certain Provisions of Federated's Certificate of Incorporation,
By-Laws, and other Agreements
Federated's certificate of incorporation and by-laws and
certain other agreements to which Federated is a party contain
provisions that may have the effect of delaying, deferring, or
preventing a change in control of the company. In addition,
Federated's certificate of incorporation authorizes the issuance
of up to 500.0 million shares of Federated Common Stock and 125.0
million shares of preferred stock of Federated ("Federated
Preferred Stock"). The Board will have the power to determine
the price and terms under which any additional capital stock may
be issued and to fix the terms of such Federated Preferred Stock,
and existing Federated stockholders will not have preemptive
rights with respect thereto.
THE PARTIES
Broadway
Broadway is one of the leading operators of department stores
in California and the Southwestern United States, with 83
department stores in five states as of April 29, 1995.
Broadway's stores operate under the names The Broadway, Emporium
and Weinstocks, and are generally situated in prime locations in
popular malls and retail shopping centers.
Additional information concerning Broadway is included in the
Broadway Reports incorporated by reference in this Proxy
Statement/Prospectus. See "Incorporation of Certain Documents By
Reference" and "Available Information."
Federated
Federated is one of the leading operators of full-line
department stores in the United States, with 354 department
stores in 31 states as of April 29, 1995. Federated stores
operate under the names Bloomingdale's, The Bon Marche,
Bullock's, Burdines, Goldsmith's, Jordan Marsh, Lazarus, Macy's,
Rich's and Stern's. As of April 29, 1995, Federated also
operated 138 specialty and clearance stores and a mail order
catalog business. Federated's department stores sell a wide
range of merchandise, including men's, women's and children's
apparel and accessories, cosmetics, home furnishings, and other
consumer goods, and are diversified by size of store,
merchandising character, and character of community served.
Federated's department stores are located at urban or suburban
sites, principally in densely populated areas across the United
States. Federated has announced that it intends to close all 14
of its Macy's clearance stores by the end of fiscal year 1995,
and that it intends to explore the possibility of selling the
specialty store operations that were acquired in the Macy's
acquisition. Newco is a wholly owned subsidiary of Federated,
formed by Federated solely for the purpose of effecting the
Merger.
Additional information concerning Federated is included in the
Federated Reports incorporated by reference in the Proxy
Statement/Prospectus. See "Incorporation of Certain Documents By
Reference" and "Available Information."
RECENT DEVELOPMENTS
Federated has reported that sales for the second quarter of
fiscal year 1995 were $3.0 billion, up from $1.6 billion for the
second quarter of fiscal year 1994. Federated's net loss for the
same period of the current fiscal year was $66.9 million, or
$0.37 per share, compared with net earnings for the same period
of the prior fiscal year of $3.8 million, or $0.03 per share.
For the first 26 weeks of fiscal year 1995, Federated had a net
loss of $123.9 million, or $0.68 per share, on revenues of $6.0
billion, compared to earnings of $36.0 million, or $0.28 per
20
share, on revenues of $3.2 billion for the first 26 weeks of
fiscal year 1994. Federated's results of operations for fiscal
year 1995 periods included a $172.3 million charge relating to
the integration of the Macy's business and divisional
consolidations and a $25.6 million charitable contribution to the
Federated Department Stores Foundation. Federated's results of
operations for the first and second quarters of fiscal year 1995
are not comparable to the corresponding periods in fiscal year
1994 because the prior periods do not include the results of
operations of the Macy's business (which was acquired by
Federated on December 19, 1994). See "Risk Factors--
Noncomparability of Historical Financial Information;
Consolidation of Businesses" and "Unaudited Pro Forma Financial
Information of Federated."
Broadway has reported that sales for the second quarter of
fiscal year 1995 were $460.6 million, up from $457.0 million for
the second quarter of fiscal year 1994. Broadway's net loss for
the same period of the current fiscal year was $37.4 million, or
$0.80 per share, compared with a net loss for the same period of
the prior fiscal year of $12.9 million, or $0.28 per share. For
the first 26 weeks of fiscal year 1995, Broadway had a net loss
of $80.7 million, or $1.72 per share, on sales of $884.6
million, compared to a net loss of $30.9 million, or $0.66 per
share, on sales of $888.1 million for the first 26 weeks of
fiscal year 1994.
THE MERGER
Negotiations Relating to the Merger
On April 20, 1995, Broadway announced that it was exploring
the possible sale of its Southwest Division ("Broadway-
Southwest"), comprising 12 department stores located outside
California. Federated, along with a number of other companies,
subsequently entered into a confidentiality agreement with
Broadway and reviewed certain information provided by Broadway
relating to the possible sale of Broadway-Southwest. In May
1995, representatives of Federated informed representatives of
Broadway that Federated had determined not to pursue the possible
purchase of Broadway-Southwest. At that time, representatives of
Federated also informed representatives of Broadway that
Federated might be interested in exploring the possibility of a
larger transaction involving Broadway. During June and July of
1995, Broadway furnished Federated additional information
regarding Broadway's business and assets, and representatives of
Broadway and Broadway's financial advisors solicited interest
from a limited number of potential acquirors. Another
substantial company that operates department stores and has the
resources to complete such a transaction submitted a bid for
Broadway-Southwest, but its bid was rejected by Broadway as
inadequate. That company indicated an interest in pursuing a
larger transaction involving Broadway and proceeded to commence
due diligence. However, after completing a limited due diligence
review, that company communicated to Broadway's financial
advisors that it was unwilling to proceed with a larger
transaction and resubmitted a bid, subject to numerous
conditions, to explore negotiations relating to an acquisition of
Broadway-Southwest for approximately $157.0 million, which
represented approximately 61% of the annual revenues of Broadway-
Southwest (as compared to the Merger, in which the consideration
payable represents approximately 80% of Broadway's annual
revenues). Broadway continued to view this bid as inadequate.
Other potential bidders either were unwilling to sign
confidentiality agreements or, having done so, declined to make a
proposal for a larger transaction.
At the request of Broadway, on August 9, 1995, representatives
of Broadway, Zell/Chilmark, and Federated met to discuss a
possible business combination of Broadway and Federated. At that
meeting, representatives of Federated indicated that Federated
had not concluded its due diligence analysis of Broadway, but
based upon its review to date it would be willing to consider a
21
possible transaction in which Federated would acquire Broadway in
a stock-for-stock merger having a value within a specified range
of possible values. Federated indicated that it would not
proceed to complete its due diligence or negotiate the terms of
an acquisition in that value range unless Federated were given
assurances by both Broadway and Zell/Chilmark that neither of
them would simultaneously pursue alternative transactions or
disclose Federated's indicated range of possible values to third
parties. Representatives of Federated also indicated that the
terms of any transaction would have to be supported by
Zell/Chilmark and otherwise be structured so that the transaction
had a high likelihood of consummation, and that in any such
transaction Federated would have to be able to negotiate
acceptable terms for the purchase of Broadway's mortgage
indebtedness held by Prudential and be satisfied with amendments
to the Broadway Working Capital Facility and the terms of Bank
of America's consent under the Bank of America Loan.
Representatives of Broadway and Zell/Chilmark indicated that
they were willing to provide Federated with the protections that
Federated requested only in connection with a transaction at the
higher end of Federated's indicated range of possible values.
Although no agreements were then reached with respect to the
terms of a possible transaction, at the conclusion of the meeting
on August 9, 1995 representatives of Broadway and Zell/Chilmark
informed representatives of Federated that Broadway and
Zell/Chilmark would negotiate exclusively with Federated for a
limited period of time through Noon, Eastern Time, on August 14,
1995 (which time was thereafter extended by Broadway and
Zell/Chilmark at Federated's request to the end of the day on
August 14, 1995) so as to permit Federated to conclude its due
diligence and the parties to negotiate the terms of a possible
transaction.
During the period from August 10, 1995 through August 14,
1995, Federated completed its due diligence review and the
various parties engaged in intensive negotiations of the terms of
the Merger Agreement, the Prudential Agreement, the Broadway
Working Capital Amendment and the Bank of America Agreement.
The negotiations between Federated and Broadway culminated in the
approval on August 14, 1995 of the Merger Agreement by each of
Federated's and Broadway's Board of Directors. In the course of
those negotiations, Federated insisted on certain contractual
protections to ensure that the Merger would be consummated. In
particular, Federated requested that (i) Broadway pay Federated a
termination fee of $100.0 million in the event that the Merger
were not consummated, (ii) Broadway not be permitted to solicit
alternative transactions, and (iii) Broadway not be permitted to
terminate the Merger Agreement in the event that it received a
proposal for an alternative transaction. Representatives of
Broadway indicated that Broadway was unwilling to agree to any
termination fee, but that, in consideration of Federated's
willingness to agree to pricing at the higher end of Federated's
indicated range of possible values, Broadway would be willing to
provide Federated with the other contractual protections
Federated had requested to enhance the likelihood that the Merger
would be consummated. Federated indicated that it would be
willing to agree to such a conversion rate and to proceed without
a termination fee only on the condition that Zell/Chilmark grant
Federated an option on Zell/Chilmark's shares of Broadway Common
Stock and agree to vote those shares in favor of the Merger.
Federated offered to split with Zell/Chilmark any profit it made
reselling shares it acquired pursuant to such option if Broadway
were acquired by a third party other than Federated.
Zell/Chilmark, instead of accepting Federated's offer to split
any such profits, insisted that Federated waive substantially all
of the conditions to its obligation under the Merger Agreement to
consummate the Merger in the event the Option was exercised. On
those terms, subject to the approval by Broadway's Board of
Directors of the Merger Agreement and the Stock Agreement,
Zell/Chilmark indicated its willingness to enter into the Stock
Agreement.
Representatives of Federated also engaged in negotiations with
representatives of Prudential relating to the Prudential
Agreement and representatives of Federated and Broadway engaged
22
in negotiations with representatives of GE Capital relating to
the Broadway Working Capital Amendment and with representatives
of Bank of America relating to the Bank of America Agreement.
All of these negotiations were concluded on August 14, 1995,
following which the relevant parties executed the Merger
Agreement, the Stock Agreement, the Prudential Agreement, a
commitment letter relating to the Broadway Working Capital
Amendment (which Amendment was executed on August 17, 1995), and
the Bank of America Agreement. See "-- The Merger Agreement" and
"Other Agreements -- The Stock Agreement," "-- The Prudential
Agreement," "-- The Broadway Working Capital Amendment," and
"-- The Bank of America Agreement."
Broadway's Reasons for the Merger
Broadway's Board of Directors has determined that the Merger
is in the best interests of Broadway and its stockholders.
Accordingly, Broadway's Board of Directors has unanimously
approved the Merger Agreement and the Merger and recommends that
the Broadway stockholders vote "FOR" adoption of the Merger
Agreement.
As described above under the "The Merger -- Negotiations
Relating to the Merger," the decision of Broadway's Board of
Directors to approve the Merger Agreement and the Merger on
August 14, 1995 followed intensive negotiations between Broadway
and Federated over the terms of the Merger. Prior to reaching
its conclusions, Broadway's Board of Directors received
presentations from, and reviewed the transactions contemplated by
the Merger Agreement with, Broadway's management and its
financial and legal advisors. The following are the material
factors, among others, considered by Broadway's Board of
Directors in reaching its conclusions:
(i) The terms and conditions of the Merger Agreement,
including the amount and form of the consideration, the
limited conditions to Federated's obligation to close, the
fact that the Merger was not conditioned on Federated's
obtaining financing, and the fact that all holders of Broadway
Common Stock will receive the same consideration;
(ii) The historical and prospective business of Broadway,
including, among other things, its current financial condition
and results of operations. In particular, Broadway's Board of
Directors considered the significant risk that, in light of
limitations on Broadway's working capital financing and the
general weakness in its operating results, significant vendors
might refuse to ship merchandise for the Fall and Christmas
seasons and that Broadway might have no recourse to obtain
additional working capital financing other than in the context
of reorganization proceedings under the United States
Bankruptcy Code ("Chapter 11 Proceedings"). In addition,
Broadway's Board of Directors considered the significant
additional amounts of capital that will be required to upgrade
and remodel the Broadway stores so as to maintain their
position in an increasingly competitive retail environment and
the significant constraints that Broadway's high leverage
imposes on Broadway's ability to raise such funds as an
independent concern or in Chapter 11 Proceedings;
(iii) The oral opinions of Merrill Lynch and Salomon
Brothers delivered at the meeting on August 14, 1995 and
subsequently delivered to Broadway's Board of Directors in
writing, to the effect that, as of such date, the Conversion
Rate was fair to the holders of Broadway Common Stock (other
than Federated and its affiliates) from a financial point of
view. Copies of the opinions of Merrill Lynch and Salomon
Brothers, respectively, setting forth the assumptions made,
general procedures followed, matters considered, and the
limitations on the reviews undertaken, are attached as
Appendices B and C, respectively, hereto and are incorporated
herein by reference. Broadway's Board of Directors was aware
that Merrill Lynch and Salomon Brothers would each become
entitled to the fees described in "The Merger -- Opinions of
23
Broadway's Financial Advisors" upon consummation of the
Merger;
(iv) Broadway's Board of Directors recognized that
Federated had required as a condition to its participation in
the discussions and negotiations with Broadway that led to the
Merger Agreement that Broadway and its representatives not
solicit from third parties indications of interest in an
acquisition of Broadway and that no such solicitation had been
undertaken since those discussions and negotiations had
commenced on August 9, 1995 through the time at which the
Merger Agreement was approved by Broadway's Board of Directors
on August 14, 1995. In determining that this was the
appropriate course, Broadway's Board of Directors considered
(a) the lack of interest in an acquisition of Broadway by any
of the potential qualified acquirors that previously had been
solicited by Broadway in June and July of 1995, (b) the
likelihood that Broadway would need to commence Chapter 11
Proceedings before the end of August in order to obtain
working capital financing for the purchase of additional
inventory for the Fall and Christmas seasons, and (c) the fact
that Federated had indicated that it would withdraw as a
potential acquiror of Broadway if Broadway continued to
solicit other potential bids while discussions were underway
with Federated. Broadway's Board of Directors also took into
account the view of Broadway's management and Merrill Lynch
and Salomon Brothers that, based on, among other things,
Broadway's high leverage, and disappointing operating results
and the lack of interest expressed by other qualified
potential acquirors in a possible acquisition of Broadway, it
was unlikely that a third party bidder would be prepared to
pay a higher price for the Broadway Common Stock than the
consideration offered in the Merger;
(v) The fact that holders of Broadway Common Stock would
have an opportunity to continue to participate in the equity
value of Broadway after the Merger and the fact that the
potential for synergies from the combination of Federated's
and Broadway's assets and businesses could have a favorable
impact on such long-term equity value;
(vi) Alternatives to the Merger, including, among others,
Broadway remaining an independent entity and seeking to reduce
its high leverage through Chapter 11 Proceedings or through
selected asset sales and the risks associated with such
alternatives and the likelihood that no other alternative
would provide greater value for Broadway stockholders than the
Merger, and that Chapter 11 Proceedings, in particular, might
result in considerably less value for Broadway stockholders;
and
(vii) The willingness of Zell/Chilmark to vote for the
adoption of the Merger Agreement, the terms and conditions of
the Stock Agreement, and the fact that, if Federated exercises
the Option, Federated will waive substantially all of the
conditions to its obligation to consummate the Merger (other
than legal conditions) and that, as a result, so long as the
Merger Agreement has not been terminated, the holders of
Broadway Common Stock are assured of receiving the same
consideration in the Merger as Zell/Chilmark.
In its deliberations, Broadway's Board of Directors did not
attempt to rank or to assign relative weights to the foregoing
factors.
Federated's Reasons for the Merger
Federated believes that the Merger is in the best interests of
it and its stockholders. The Merger will permit Federated to
broaden its base of department store operations in the areas in
which Broadway's department stores are operated. Federated
anticipates that a number of Broadway's stores will be disposed
of following the Merger. As of the date of this Proxy
Statement/Prospectus, however, Federated had not entered into any
24
agreements providing for such dispositions and there can be no
assurance that Federated will do so or as to the timing or terms
thereof. If the Merger is completed, Federated anticipates that
Broadway's retained department stores will be converted into
Macy's, Bullock's, or Bloomingdale's stores commencing early in
1996.
Opinions of Broadway's Financial Advisors
Broadway retained Merrill Lynch as financial advisor in
connection with the Merger. Broadway also retained Salomon
Brothers to render a fairness opinion in connection with the
Merger. Each of Merrill Lynch and Salomon Brothers rendered an
oral opinion to Broadway's Board of Directors on August 14, 1995,
which opinions were subsequently confirmed in writing (the
"Merrill Lynch Opinion" and the "Salomon Brothers Opinion,"
respectively), to the effect in each case that, as of such date,
the Conversion Rate was fair to the holders of Broadway Common
Stock (other than Federated and its affiliates) from a financial
point of view.
Copies of the Merrill Lynch Opinion and the Salomon Brothers
Opinion, which set forth the assumptions made, general procedures
followed, matters considered, and limitations on the reviews
undertaken, are attached as Appendices B and C, respectively,
hereto and incorporated herein by reference. The Merrill Lynch
Opinion and the Salomon Brothers Opinion are directed only to the
fairness, from a financial point of view, to the holders of
Broadway Common Stock of the Conversion Rate and do not address
Broadway's underlying business decision to effect the Merger or
constitute a recommendation to any Broadway stockholder as to how
such stockholder should vote with respect to the Merger. The
summary of the Merrill Lynch Opinion and the Salomon Brothers
Opinion set forth below is qualified in its entirety by reference
to the full text of such opinions attached as Appendices B and C,
respectively, hereto. Stockholders are urged to read the
opinions in their entirety.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among
other things, (i) reviewed Broadway's Annual Reports, Forms 10-K,
and related financial information for the three fiscal years
ended January 28, 1995 and Broadway's Form 10-Q and the related
unaudited financial information for the quarterly period ending
April 29, 1995; (ii) reviewed Federated's Annual Reports, Forms
10-K, and related financial information for the three fiscal
years ended January 28, 1995 and Federated's Form 10-Q and the
related unaudited financial information for the quarterly period
ending April 29, 1995; (iii) reviewed certain information,
including financial forecasts, relating to the business,
earnings, cash flow, assets, and prospects of Broadway, furnished
to Merrill Lynch by Broadway for the fiscal years ending January
28, 1996 and January 28, 1997; (iv) reviewed certain information,
including financial forecasts, relating to the business,
earnings, cash flow, assets, and prospects of Federated furnished
to Merrill Lynch by Federated; (v) reviewed certain information,
including financial forecasts, relating to the combined business,
earnings, cash flow, assets, and prospects of the combined
operations of Federated and Broadway furnished to Merrill Lynch
by Federated; (vi) conducted discussions with members of senior
management of Broadway and Federated concerning their
aforementioned financial forecasts; (vii) conducted discussions
with certain members of Broadway's management and its
representatives concerning Broadway's views as to: the
anticipated adverse effects on Broadway's business, assets,
liabilities, operations, and prospects which Broadway believed
would occur if Broadway were not to enter into the Merger as a
result of, among other things, Broadway's liquidity shortfall at
the time of the Merrill Lynch Opinion, Broadway's then
anticipated inability to remedy this liquidity shortfall and the
substantial risk of Broadway becoming insolvent and seeking
protection from its creditors through Chapter 11 Proceedings; the
anticipated substantial adverse effects on the holders of
Broadway Common Stock and Broadway's then present and potential
employees, business partners, and lenders that would result from
25
such insolvency or concerns about the potential for it; and the
benefits which would arise from entering into the Merger,
including the substantial lessening of such liquidity or solvency
concerns; (viii) reviewed the historical market prices and
trading activity for Broadway Common Stock and Federated Common
Stock and compared them with those of certain publicly traded
companies which Merrill Lynch deemed to be reasonably similar to
Broadway and Federated, respectively; (ix) compared the results
of operations of Broadway and Federated with those of certain
companies which Merrill Lynch deemed to be reasonably similar to
Broadway and Federated, respectively; (x) compared the proposed
financial terms of the transaction contemplated by the Merger
Agreement with the financial terms of certain other mergers and
acquisitions which Merrill Lynch deemed to be relevant; (xi)
considered the pro forma effect of the Merger on Federated's
projected capitalization, coverage ratios, and earnings per
share; (xii) assumed that the maximum amount of certain claims
against Macy's and its subsidiaries pursuant to their plan of
reorganization was approximately $336.7 million and that a
maximum of 825,000 shares of Broadway Common Stock would be
issuable by Broadway for general unsecured claims pursuant to
Broadway's plan of reorganization; (xiii) reviewed a draft of the
Merger Agreement dated August 14, 1995; (xiv) reviewed a draft of
the Stock Agreement dated August 14, 1995; (xv) reviewed a draft
of the Prudential Agreement dated August 14, 1995; (xvi) reviewed
the term sheet for the proposed Broadway Working Capital
Amendment; and (xvii) reviewed such other financial studies and
analyses and performed such other investigations and took into
account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market,
and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied
on the accuracy and completeness of all information supplied or
otherwise made available to Merrill Lynch by Broadway and
Federated and Merrill Lynch did not independently verify such
information or undertake an independent appraisal of the assets
of Broadway or Federated. With respect to the financial
forecasts furnished by Broadway and Federated, Merrill Lynch
assumed, with the consent of the Board of Directors of Broadway,
that such forecasts had been reasonably prepared and reflect the
best currently available estimates and judgment of Broadway's or
Federated's management as to the expected future financial
performance of Broadway, Federated, or their combined operations,
as the case may be. The Merrill Lynch Opinion was necessarily
based upon market, economic, and other conditions as they existed
on August 14, 1995. In connection with the preparation of the
Merrill Lynch Opinion, while Merrill Lynch had conversations with
a limited number of potential purchasers, Merrill Lynch was not
authorized by Broadway or its Board of Directors to solicit, nor
did Merrill Lynch solicit, third-party indications of interest in
an acquisition of Broadway.
In connection with rendering the Salomon Brothers Opinion,
Salomon Brothers: (i) reviewed certain publicly available
information concerning Broadway and Federated, including the
Annual Report on Form 10-K, of each of Broadway and Federated for
each of the years in the three-year period ended January 28, 1995
and the Quarterly Report on Form 10-Q of each of Broadway and
Federated for the quarter ended April 29, 1995; (ii) reviewed
financial projections of each of Broadway and Federated furnished
to Salomon Brothers by the respective managements of Broadway and
Federated and conducted discussions with such managements
regarding such projections; (iii) reviewed certain publicly
available information with respect to certain other companies
that Salomon Brothers believed to be comparable in certain
respects to Broadway and Federated and the trading markets for
such other companies' securities; (iv) reviewed certain publicly
available information concerning the nature and terms of certain
other transactions that Salomon Brothers considered relevant to
its inquiry; and (v) reviewed documents relating to the Broadway
Working Capital Facility and Broadway's mortgage indebtedness to
Prudential, and drafts of the Prudential Agreement and of the
terms of the Broadway Working Capital Amendment. Salomon
26
Brothers also considered such other information, financial
studies, analyses, investigations, and financial, economic, and
market criteria which it deemed relevant. Salomon Brothers also
discussed with certain members of Broadway's management and its
representatives Broadway's views as to: the anticipated adverse
effects on Broadway's business, assets, liabilities, operations,
and prospects which Broadway believes would occur if Broadway had
not entered into the Merger as a result of, among other things,
Broadway's current liquidity shortfall, Broadway's anticipated
inability to remedy this liquidity shortfall, and the substantial
risk of Broadway becoming insolvent and seeking protection from
its creditors through Chapter 11 Proceedings; the anticipated
substantial adverse effects on Broadway's stockholders and
present and potential employees, business partners, and lenders
that would result from such insolvency or concerns about the
potential for it; the benefits which would arise from entering
into the Merger, including the substantial lessening of such
liquidity or solvency concerns; and the financial and other
information described above and other matters Salomon Brothers
believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion,
Salomon Brothers assumed and relied upon the accuracy and
completeness of all the financial and other information provided
to it or publicly available and neither attempted independently
to verify nor assumed responsibility for verifying any of such
information. Salomon Brothers did not make or obtain or assume
any responsibility for making or obtaining any independent
evaluations or appraisals of any of the assets (including
properties and facilities) or liabilities of Broadway or
Federated. With respect to Broadway's and Federated's financial
projections, Salomon Brothers assumed that they had been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of Broadway's and Federated's
respective managements. Salomon Brothers expressed no opinion
with respect to such projections or the assumptions on which they
were based.
The Salomon Brothers Opinion was based on conditions as they
existed and could be evaluated on the date of the opinion.
Salomon Brothers assumed no responsibility to update or revise
its opinion based upon circumstances or events occurring after
the date of the Salomon Brothers Opinion.
The following is a summary of the analyses performed by
Merrill Lynch in connection with the Merrill Lynch Opinion which
were described by Merrill Lynch in connection with a presentation
to Broadway's Board on August 14, 1995.
Historical Stock Price and Exchange Ratio Analyses. Merrill
Lynch reviewed the performance of the per share daily closing
market price of Broadway Common Stock over the period from
October 8, 1992 to August 11, 1995 and compared such daily
closing prices with the performance of the Standard & Poor's 500
Index. Merrill Lynch also reviewed the performance of the per
share daily closing market price of Federated Common Stock over
the same period and compared such daily closing prices with the
Standard & Poor's 500 Index. In addition, Merrill Lynch compared
the historical market price per share of Broadway Common Stock to
the historical Federated Exchange Ratio Value (defined as the
market price per share of Federated Common Stock multiplied by
the Conversion Rate) for the period October 9, 1992 to August 11,
1995. Such analyses showed, at August 11, 1995, the Federated
Exchange Ratio Value at $8.00 per share (based on the closing
market price at August 11, 1995 of $29.625 per share of Federated
Common Stock) as compared to the closing market price on such
date of $2.875 per share of Broadway Common Stock (a premium of
178.2%). Merrill Lynch also compared the historical ratio of the
market price per share of Federated Common Stock to the market
price per share of Broadway Common Stock over the period from
January 1, 1995 through August 11, 1995. Such analysis indicated
that the exchange ratio at market prices of the number of shares
of Federated Common Stock necessary to equal one share of
Broadway Common Stock over such period ranged from 0.39 on
27
January 1, 1995 to 0.10 at the close of trading on August 11,
1995, with a low exchange ratio during such period of 0.06 and an
average exchange ratio of 0.25, as compared to the Conversion
Rate of 0.27 pursuant to the Merger Agreement.
Comparable Public Company Analysis. Merrill Lynch compared
certain publicly available financial and operating data and
projected financial performance of selected national and regional
department store companies with similar financial and operating
data and projected financial performance of each of Broadway
(based on estimates provided by Broadway management which assumed
Broadway would file for bankruptcy in August 1995) and Federated
(based on estimates provided by Federated management). Merrill
Lynch compared Broadway to seven regional department store
companies deemed by Merrill Lynch to be reasonably similar to
Broadway: Bon-Ton Stores, Inc., Carson Pirie Scott & Co.,
Goody's Family Clothing Inc., Gottschalks Inc., Kohl's
Corporation, Proffitts Inc., and Younkers Inc. (the "Regional
Comparable Companies"), and to eight national department stores
deemed by Merrill Lynch to be reasonably similar to Broadway:
Dayton Hudson Corp., Dillard Department Stores, Inc., Federated,
J.C. Penney Company, Inc., Mercantile Stores Company, Inc.,
Nordstrom, Inc., The May Department Stores Co. ("May"), and The
Neiman Marcus Group, Inc. (the "National Comparable Companies"
and, together with the Regional Comparable Companies, the
"Comparable Companies"). Merrill Lynch also compared Federated
to the National Comparable Companies.
Merrill Lynch determined multiples for the Comparable
Companies of market capitalization (defined as the product of
primary shares outstanding and market price plus net debt) to
latest 12 months' revenues, earnings before interest, taxes,
depreciation, and amortization ("EBITDA"), and earnings before
interest and taxes ("EBIT"), and multiples for the Comparable
Companies of market value (defined as the product of primary
shares outstanding and market price) to 1996 estimated net income
and latest 12 months' cash flow and book value. An analysis of
the multiples for the Comparable Companies, as adjusted to
exclude certain multiples which were negative, not available, or
which Merrill Lynch determined were not meaningful, produced the
following results: (a) market capitalization to revenues yielded
a range of 0.39x to 0.76x; (b) market capitalization to EBITDA
yielded a range of 6.5x to 7.3x; (c) market capitalization to
EBIT yielded a range of 9.0x to 9.3x; (d) market value to net
income yielded a range of 10.0x to 12.8x; (e) market value to
cash flow yielded a range of 6.2x to 8.0x; and (f) market value
to book value yielded a range of 1.06x to 1.80x. Merrill Lynch
then compared the results of such analyses for the Comparable
Companies to the corresponding results for Broadway. Due to the
poor financial performance of Broadway, many of the results of
this analysis were considered not meaningful. Applying the range
of multiples for revenue, Merrill Lynch calculated an implied
value range of between NM (not meaningful) and $6.41 per share of
Broadway Common Stock and, applying the range of multiples for
book value, Merrill Lynch calculated an implied value range of
between $4.75 and $8.07 per share of Broadway Common Stock. The
application of the remainder of the multiples to Broadway yielded
results that were not meaningful.
In addition, Merrill Lynch calculated multiples for the
National Comparable Companies of market value to the latest
twelve months revenue, latest twelve months EBITDA, latest twelve
months EBIT, latest twelve months cash flow, 1995 and 1996
estimated net income (based on First Call estimates), 1995 and
1996 estimated net income plus goodwill amortization, and IBES
(Institutional Brokerage Earnings Summary) growth rate estimates.
Merrill Lynch then compared the trading multiples of the National
Comparable Companies to the corresponding results for Federated
(based on estimates provided by management of Federated which had
been adjusted to reflect, on a pro forma basis, a full year of
results for Macy's) and for May (to provide a standalone
comparison to a comparable company of similar size to Federated).
28
Merrill Lynch considered the companies utilized in the above
analysis to be reasonably similar to Broadway and Federated,
respectively, because each participates in the department store
industry, but none of these companies is identical to Broadway or
Federated. Accordingly, an analysis of the results of the
foregoing is not purely mathematical. Rather, it involves
complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics
of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company
to which they are being compared.
Analysis of Selected Comparable Acquisition Transactions.
Merrill Lynch reviewed certain publicly available information
regarding 32 selected business combinations involving department
store and other retail companies announced since December 15,
1985 (collectively, the "Comparable Transactions"). The
Comparable Transactions, in reverse chronological order of public
announcement were the following: a previously proposed
acquisition of Broadway-Southwest (rejected); the acquisition of
Woodward and Lothrop Inc. by an investor group (May and J.C.
Penney); the acquisition of Carson Pirie Scott & Co. - Minnesota
Stores by Dayton Hudson Corporation; the acquisition of
Younkers, Inc. by Carson Pirie Scott & Co. (rejected); the
acquisition of Macy's by Federated; the acquisition of Adam
Meldrum & Anderson, Inc. by Bon-Ton Stores Inc.; the acquisition
of Joseph Horne Co., Inc. by Federated; the acquisition of
McRae's, Inc. by Proffitts, Inc.; the acquisition of Lechmere
Inc. by Montgomery Ward Holding Corp.; the acquisition of H.C.
Prange Co. - Department Store Division by Younkers Inc.; the
acquisition of Maison Blanche, Inc. by Mercantile Stores Co.,
Inc.; the acquisition of Alexander's - 6 New York stores by
Caldor Corp.; the acquisition of Gee Bee Department Stores by
Value City Department Stores; the acquisition of Allied Stores -
8 Jordan Marsh stores by Mervyn's; the acquisition of Maison
Blanche, Inc. - 8 Florida stores by Dillard Department Stores;
the acquisition of General Cinema Corporation by Neiman Marcus
Group; the acquisition of Thalhimer Brothers, Inc. by May; the
acquisition of J.B. Ivey & Co. by Dillard Department Stores; the
acquisition of Saks Fifth Avenue by Investcorp; the acquisition
of Saks Fifth Avenue by Cover Bid; the acquisition of Marshall
Field & Company by Dayton Hudson Corporation; the acquisition of
Carson Pirie Scott & Company by P.A. Bergner & Co.; the
acquisition of AnnTaylor Inc. by Merrill Lynch Capital Partners;
the acquisition of Eddie Bauer by Spiegel Inc.; the acquisition
of The Talbots, Inc. by Jusco Co., Ltd.; the acquisition of
Bullock's/I. Magnin by R.H. Macy & Co., Inc.; the acquisition of
Filene's/Foley's by May; the acquisition of Federated Department
Stores by Campeau Corporation; the acquisition of The Elder-
Beerman Stores in a management buyout; the acquisition of Allied
Stores Corporation by Campeau Corporation; the acquisition of
Associated Dry Goods Corp. by May; and the acquisition of R.H.
Macy & Co., Inc. in a management buyout.
Merrill Lynch then selected the four most recent Comparable
Transactions (the "Selected Comparable Transactions") and
compared them to the Merger. The Selected Comparable
Transactions were: the previously proposed acquisition of
Broadway's-Southwest (rejected); the acquisition of Woodward and
Lothrop Inc. by an investor group (May and J.C. Penney); the
acquisition of Macy's by Federated; and the acquisition of
Younkers, Inc. by Carson Pirie Scott & Co. Merrill Lynch
compared the prices paid in the Selected Comparable Transactions
in terms of, among other things, the transaction value (defined
as offer price per share multiplied by fully diluted shares
outstanding plus net debt) as a multiple of revenues and EBITDA.
An analysis of the multiples for the Selected Comparable
Transactions produced the following results: (i) transaction
value to revenues yielded a range of 0.70x to 0.39x; and
(ii) transaction value to EBITDA yielded a range of 29.6x to
3.7x. Merrill Lynch then calculated the implied value per share
of Broadway Common Stock by applying Broadway's revenues to the
range of multiples derived from Merrill Lynch's analysis of the
Selected Comparable Transactions. Based on its analysis, Merrill
29
Lynch calculated that the Selected Comparable Transactions
indicated a value range per share of Broadway Common Stock that
was less than the implied value per share of Broadway Common
Stock of $8.00 pursuant to the Merger. Based on Broadway's poor
financial performance, the results of the analysis of the
transaction value as a multiple of EBITDA were not meaningful.
Merrill Lynch then calculated the median for all of the
Comparable Transactions which resulted in a multiple of 0.70x
revenues and an implied value per share of Broadway Common Stock
that was less than the implied value of $8.00 per share of
Broadway Common Stock pursuant to the Merger.
Discounted Cash Flow Analysis. Merrill Lynch performed a
discounted cash flow analysis of Federated, based upon estimates
of projected financial performance prepared by Federated
(excluding Broadway), for fiscal years 1995, 1996, 1997, 1998,
and 1999. Utilizing these projections, Merrill Lynch calculated
a range of values based upon the discounted net present value of
Federated's five-year stream of projected unlevered after-tax
free cash flow and its projected calendar year 2000 terminal
value based on a range of multiples of its projected calendar
year 2000 EBITDA and revenue. In performing this analysis,
Merrill Lynch utilized discount rates reflecting a weighted
average cost of capital ranging from 10.0% to 13.0% and terminal
value multiples of calendar year 2000 EBITDA, ranging from 7.0x
to 9.0x, and revenue, ranging from 0.7x to 0.9x. Based on this
analysis, Merrill Lynch calculated a range of values per share of
Federated Common Stock based on the projected EBITDA multiple,
and a range of values per share of Federated Common Stock based
on the projected revenue multiple. The closing market price at
August 11, 1995 of $29.625 per share of Federated Common Stock
was within such range of values.
Merrill Lynch did not perform a discounted cash flow analysis
of Broadway due to its limited utility in light of Broadway's
financial condition and the imminent likelihood that, as assumed
in Broadway's management's forecasts, Broadway would commence
Chapter 11 Proceedings absent the Merger or another similar
transaction and the limitations of forecasting Broadway's future
performance based upon its financial condition.
Pro Forma Merger Analysis. Utilizing the Conversion Rate,
Merrill Lynch analyzed certain pro forma effects resulting from
the Merger, including the effect on Federated's projected
capitalization, interest coverage ratio, and earnings per share.
Contribution Analysis. Merrill Lynch analyzed and compared
the respective contributions of, among other things, revenues,
EBITDA, and net income of Broadway on a standalone basis (based
on Broadway management forecasts which assumed a bankruptcy
filing in August 1995) to Federated following the consummation of
the Merger on a projected basis for the years 1995 and 1996 and
on a pro forma basis (based on Federated management forecasts
which reflect Federated's ownership of Broadway) to Federated
following the consummation of the Merger on a projected basis for
the years 1996 and 1997.
Although Salomon Brothers was not requested to deliver a
presentation to Broadway's Board of Directors detailing the
financial analyses performed by Salomon Brothers, Salomon
Brothers did advise Broadway's Board of Directors that, in
connection with rendering its opinion, Salomon Brothers performed
financial analyses similar to those performed by Merrill Lynch
and described above. Salomon Brothers stated that those
financial analyses confirmed its opinion as described above.
The foregoing summary does not purport to be a complete
description of the analyses performed by Merrill Lynch or Salomon
Brothers or of their presentations to Broadway's Board of
Directors. The preparation of financial analyses and fairness
opinions is a complex process and is not necessarily susceptible
to partial analysis or summary description. Merrill Lynch and
Salomon Brothers believe that their analyses (and the summary set
forth above) must be considered as a whole, and that selecting
30
portions of such analyses and of the factors considered by them,
without considering all such analyses and factors, could create
an incomplete and misleading view of the processes underlying the
analyses conducted by Merrill Lynch and Salomon Brothers and
their opinions. Neither Merrill Lynch nor Salomon Brothers made
any attempt to assign specific weights to particular analyses in
preparing its opinion. In performing their analyses, Merrill
Lynch and Salomon Brothers made numerous assumptions with respect
to industry performance, general business and economic
conditions, and other matters, many of which are beyond the
control of Broadway or Federated. Any estimates contained in
Merrill Lynch's or Salomon Brothers' analyses are not necessarily
indicative of actual past or future results or values, which may
be significantly more or less favorable than such estimates.
Estimates of values of companies do not purport to be appraisals
or to reflect the prices at which such companies may actually be
sold. Because such estimates are inherently subject to
uncertainty, none of Merrill Lynch, Salomon Brothers, Broadway,
Federated, or any other person assumes responsibility for their
accuracy. Neither Merrill Lynch nor Salomon Brothers expressed
any opinion as to the prices at which Federated Common Stock will
trade following the announcement or consummation of the Merger,
which, Merrill Lynch and Salomon Brothers noted, might vary
depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions,
and other factors that generally influence the price of
securities.
As part of its investment banking business, Merrill Lynch is
continuously engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions. The
Board of Directors of Broadway retained Merrill Lynch to act as
its financial advisor because Merrill Lynch is an internationally
recognized investment banking firm with substantial experience in
transactions similar to the Merger.
Merrill Lynch has, in the past, provided financial advisory
and financing services to Broadway and Federated, including
acting as underwriter in connection with a prior equity offering
by Broadway, and has received fees for the rendering of such
services and is currently providing financial advisory services
to Federated in an unrelated matter for which Merrill Lynch
expects to receive fees. In addition, in the ordinary course of
business, Merrill Lynch may actively trade Broadway Common Stock
as well as Federated Common Stock and other securities of
Broadway or Federated for Merrill Lynch's own account and for the
accounts of customers and, accordingly, may at any time hold a
long or short position in such securities.
For its financial advisory services in connection with the
Merger, Broadway has agreed to pay Merrill Lynch $500,000 upon
the public announcement of the Merger Agreement and will become
obligated to pay Merrill Lynch an additional fee of
$2,500,000 upon the consummation of the Merger. Broadway has
also agreed to reimburse Merrill Lynch for its reasonable out-of-
pocket expenses, including fees and expenses of its legal
counsel, and to indemnify Merrill Lynch and certain related
persons against certain liabilities in connection with its
engagement, including certain liabilities under the federal
securities laws.
Salomon Brothers is an internationally recognized investment
banking firm engaged in, among other things, the valuation of
businesses and their securities in connection with mergers and
acquisitions, restructurings, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements, and
valuations for estate, corporate, and other purposes. Salomon
Brothers has previously rendered certain investment banking and
financial advisory services to Broadway and Federated for which
Salomon Brothers received customary compensation. In addition,
in the ordinary course of its business, Salomon Brothers may
actively trade the equity and equity-linked securities of
Broadway and the equity and debt securities of Federated for its
31
own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
Pursuant to the engagement letter with Salomon Brothers,
Broadway paid Salomon Brothers a cash fee of $250,000 upon
execution of the engagement letter and will pay Salomon Brothers
an additional cash fee of $750,000, contingent upon the
consummation of the Merger and payable at the closing thereof.
Broadway has also agreed to reimburse Salomon Brothers for
certain expenses incurred in connection with its engagement and
to indemnify Salomon Brothers and certain related persons against
certain liabilities and expenses relating to or arising out of
its engagement, including certain liabilities under the Federal
securities laws.
The Merger Agreement
The following discussion is a summary of the material
provisions of the Merger Agreement. This summary and all other
discussions of the terms and conditions of the Merger and the
Merger Agreement included elsewhere in this Proxy
Statement/Prospectus are qualified in their entirety by reference
to the Merger Agreement, a copy of which is attached as
Appendix A hereto and incorporated by reference herein.
The Merger. On the terms and subject to the conditions of the
Merger Agreement, at the Effective Time Newco will be merged with
and into Broadway in accordance with the applicable provisions of
the DGCL and the separate corporate existence of Newco will
thereupon cease (with the Surviving Company being a subsidiary of
Federated). The Merger will have the effects specified in the
DGCL.
Effective Time. As soon as practicable following the date on
which the last of the conditions set forth in the Merger
Agreement is satisfied or waived, Newco and Broadway will cause a
certificate of merger to be filed with the Secretary of State of
the State of Delaware as provided in the DGCL. Upon completion
of such filing, the Merger will become effective in accordance
with the DGCL.
Certificate of Incorporation and By-Laws of the Surviving
Company. The Merger Agreement provides that the certificate of
incorporation and by-laws of the Surviving Company to be in
effect from and after the Effective Time until amended in
accordance with their terms and the DGCL will be the certificate
of incorporation and by-laws, respectively, of Broadway
immediately prior to the Effective Time, as amended and restated
to be in the forms attached as Appendices D and E, respectively,
hereto.
Directors and Officers of the Surviving Company. The Merger
Agreement provides that the initial directors of the Surviving
Company will be the members of the Board of Directors of Newco
immediately prior to the Effective Time and the officers of the
Surviving Company will consist of the officers of Newco
immediately prior to the Effective Time. Such persons will
continue as directors or officers, as the case may be, of the
Surviving Company until their successors have been duly elected
or appointed and qualified or until their earlier death,
resignation, or removal in accordance with the certificate of
incorporation and the by-laws of the Surviving Company.
Conversion of Securities in the Merger. The Merger Agreement
provides that, at the Effective Time (i) each share of Broadway
Common Stock issued and outstanding (other than such shares owned
by Federated or any of its direct or indirect wholly owned
subsidiaries or any of Broadway's direct or indirect wholly owned
subsidiaries) will, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into 0.27
shares of Federated Common Stock, (ii) each share of Broadway
Common Stock issued and outstanding and owned by Federated or any
of its direct or indirect wholly owned subsidiaries or by any of
Broadway's direct or indirect wholly owned subsidiaries will, by
32
virtue of the Merger and without any action on the part of the
holder thereof, cease to be outstanding, be cancelled and retired
without payment of any consideration therefor, and cease to
exist, (iii) each share of Broadway Preferred Stock issued and
outstanding will, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into the right to
receive one one-thousandth of a share of Surviving Company
Preferred Stock, and (iv) each share of Newco Common Stock will,
by virtue of the Merger and without any action on the part of
Newco or the holder thereof, be converted into 370.44 shares of
Surviving Company Common Stock. Because, among other things, the
reduction in the number of shares of Surviving Company Preferred
Stock outstanding immediately after the Effective Time, as
compared to the number of shares of Broadway Preferred Stock
outstanding immediately before the Effective Time, will be pro
rata, the relative rights and preferences of holders of preferred
shares are designed to be substantially identical before and
after the Effective Time, including with respect to dividends and
liquidation preference.
Each share of Federated Common Stock issued in connection with
the Merger will be accompanied by one Right. See "Description of
Federated Capital Stock -- Preferred Share Purchase Rights."
Payment for Shares of Broadway Common Stock. Prior to the
Effective Time, Federated will designate a person or entity
reasonably acceptable to Broadway to act as exchange agent (the
"Exchange Agent") under the Merger Agreement. The Merger
Agreement provides that, at the Effective Time, Federated will
make available to the Exchange Agent, for the benefit of the
holders of shares of Broadway Common Stock, a sufficient number
of certificates representing shares required to effect the
delivery of the aggregate merger consideration for shares of
Broadway Common Stock as provided in the Merger Agreement.
Pursuant to the Merger Agreement, promptly after the Effective
Time, the Exchange Agent will mail to each holder of record
(other than holders whose shares are to be cancelled as described
above) of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Broadway
Common Stock (the "Certificates") a form of letter of transmittal
(which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon proper
delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the
Certificates for payment therefor. The Merger Agreement provides
that, upon surrender of Certificates for cancellation to the
Exchange Agent, together with such letter of transmittal duly
executed and any other required documents, the holders of such
Certificates will be entitled to receive for each share of
Broadway Common Stock represented by such Certificates the merger
consideration therefor and the Certificates so surrendered will
promptly be cancelled. Until so surrendered, Certificates will
represent solely the right to receive the merger consideration
therefor.
The Merger Agreement provides that no dividends or other
distributions that are declared after the Effective Time on
shares of Federated Common Stock and payable to the holders of
record thereof after the Effective Time will be paid to persons
entitled by reason of the Merger to receive shares of Federated
Common Stock until such persons surrender their Certificates.
Under the Merger Agreement, upon such surrender there will be
paid to the person in whose name the shares of Federated Common
Stock are issued any dividends or distributions on such shares of
Federated Common Stock which shall have a record date after the
Effective Time and a payment date prior to such surrender. For
dividends which have a record date after the Effective Time but a
payment date after such surrender, such payment will be made on
such payment date. In no event will the persons entitled to
receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions. In
addition, if any cash or shares of Federated Common Stock are to
be paid to or issued in a name other than that in which the
33
Certificate so surrendered in exchange therefor is registered, it
will be condition of such exchange that the Certificate so
surrendered be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other taxes required by reason of
the issuance of a certificate in a name other than that of the
registered holder of the Certificate surrendered or establish to
the satisfaction of the Exchange Agent that such taxes have been
paid or are not applicable.
No fractional shares of Federated Common Stock will be issued
in the Merger. The Merger Agreement provides that, in lieu of
any such fractional securities, each holder of shares of Broadway
Common Stock who would otherwise have been entitled to a fraction
of a share of Federated Common Stock upon surrender of
Certificates for exchange pursuant to the Merger Agreement will
be paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (i) the per share closing
price on the NYSE of shares of Federated Common Stock on the date
of the Effective Time (or, if such shares do not trade on the
NYSE on such date, the first date of trading on the NYSE after
the Effective Time) by (ii) the fractional interest to which such
holder otherwise would be entitled.
Payment for Shares of Broadway Preferred Stock. The Merger
Agreement provides that, at the Effective Time, Federated and the
Surviving Company will make available to the Exchange Agent, for
the benefit of the holders of shares of the Broadway Preferred
Stock, a sufficient number of certificates representing shares of
Surviving Company Preferred Stock required to effect the delivery
of shares of Surviving Company Preferred Stock pursuant to the
Merger Agreement. Pursuant to the Merger Agreement, promptly
after the Effective Time the Exchange Agent will mail to each
holder of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Broadway
Preferred Stock (the "Preferred Certificates") a form of letter
of transmittal (which will specify that delivery will be
effected, and risk of loss and title to the Preferred
Certificates will pass, only upon proper delivery of the
Preferred Certificates to the Exchange Agent) and instructions
for use in effecting the surrender of the Preferred Certificates
for payment therefor. The Merger Agreement provides that, upon
surrender of Preferred Certificates for cancellation to the
Exchange Agent, together with such letter of transmittal duly
executed and any other required documents, the holder of such
Preferred Certificates will be entitled to receive for each of
the shares of Broadway Preferred Stock represented by such
Preferred Certificates one one-thousandth of a share of Surviving
Company Preferred Stock as provided in the Merger Agreement.
Notwithstanding the foregoing, the shares of Broadway
Preferred Stock that are issued and outstanding immediately prior
to the Effective Time and are held by stockholders who have not
voted such shares in favor of the adoption of the Merger
Agreement and who properly demand appraisal of such Broadway
Preferred Shares in accordance with Section 262 of the DGCL (the
"Dissenting Shares") will not be converted as described above at
or after the Effective Time unless and until the holder of such
Dissenting Shares fails to perfect or effectively withdraws or
loses such right to appraisal and payment under the DGCL. If a
holder of Dissenting Shares so fails to perfect or effectively
withdraws or loses such right to appraisal and payment, then, as
of the Effective Time or the occurrence of such event, whichever
last occurs, such holder's Dissenting Shares will be converted
into and represent solely the right to receive shares of
Surviving Company Preferred Stock as provided in the Merger
Agreement. (See "--Appraisal Rights--Appraisal Rights for
Broadway Preferred Stock.")
Closing of Stock Transfer Records. No transfers of shares of
Broadway Common Stock or Broadway Preferred Stock will be made on
the stock transfer books of Broadway after the close of business
on the day prior to the date of the Effective Time.
34
Treatment of Options. The Merger Agreement provides that
(subject to the required actions being taken by a committee of
Broadway's Board of Directors) at the Effective Time each
outstanding option to purchase shares of Broadway Common Stock
will become an option to acquire, at an aggregate purchase price
equal to the aggregate price that would have been payable upon
the exercise thereof immediately prior to the Effective Time, a
number of shares of Federated Common Stock equal to the product
of the number of shares of Broadway Common Stock subject to such
option immediately prior to the Effective Time and the Conversion
Rate, except that Federated will not issue any fractional share
of Federated Common Stock upon any exercise of any option and any
right in respect thereof will, without further action, be
forfeited.
Treatment of Broadway Warrants. The Merger Agreement provides
that, at or promptly following the Effective Time, Federated
will, and will cause the Surviving Company to, execute an
agreement providing that any holder of a Broadway Warrant will
have the right until the expiration date thereof to exercise the
Broadway Warrant, at an aggregate purchase price equal to the
aggregate price that would have been payable upon the exercise
thereof immediately prior to the Effective Time, to purchase the
number of shares of Federated Common Stock equal to the product
of the number of shares of Broadway Common Stock subject to such
Broadway Warrant immediately prior to the Effective Time and the
Conversion Rate, except that no fractional shares of Federated
Common Stock will be issued upon any exercise of any Broadway
Warrant and a cash payment based on the current market price of
Federated Common Stock on the trading day prior to the date of
such exercise will be made in lieu thereof.
Representations and Warranties. The Merger Agreement contains
various representations and warranties of the parties thereto.
These include representations and warranties by Broadway with
respect to corporate existence, good standing, corporate
authority, authorization, capitalization, subsidiaries and
interests in other entities, conflicts, required filings and
consents, compliance with laws and contractual obligations,
filings with the SEC and the financial statements included
therein, litigation, absence of certain changes, taxes, employee
benefit plans, state takeover statutes, finder's fees and
brokerage commissions, and the receipt of opinions of financial
advisors. Federated and Newco have also made certain
representations and warranties with respect to corporate
existence, good standing, corporate authority, authorization,
capitalization, conflicts, compliance with laws and contractual
obligations, filings with the SEC and financial statements
included therein, litigation, absence of certain changes, taxes,
employee benefit plans, finder's fees and brokerage commissions,
the formation of Newco, and the issuance of shares of Federated
Common Stock pursuant to the Merger Agreement.
Alternative Proposals. Pursuant to the Merger Agreement,
Broadway has agreed that prior to the Effective Time (i) neither
it nor any of its subsidiaries will, nor will it or any of its
subsidiaries permit their respective officers, directors,
employees, agents, and representatives to, initiate, solicit, or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including without
limitation any proposal or offer to its stockholders) with
respect to a merger, acquisition, consolidation, or similar
transaction involving any purchase of all or any significant
portion of the assets of Broadway and its subsidiaries or any
equity interest in Broadway or any of its subsidiaries other than
the transactions contemplated by the Merger Agreement and by the
Stock Agreement and transactions described below in clause (viii)
under the caption "--Interim Operations of Broadway" (any such
proposal or offer being hereinafter referred to as an
"Alternative Proposal") or engage in any negotiations concerning,
or provide any confidential information or data to, or have any
discussions with, any person relating to an Alternative Proposal,
or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal and (ii) Broadway will notify
35
Federated immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or
continued with, Broadway, except that nothing contained in the
Merger Agreement will prohibit the Board of Directors of Broadway
from, to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Alternative
Proposal. The Merger Agreement expressly provides that nothing
in the provisions of the Merger Agreement described above will
(a) permit Broadway to terminate the Merger Agreement, (b) permit
Broadway to enter into any agreement with respect to an
Alternative Proposal for as long as the Merger Agreement remains
in effect (Broadway having agreed that for as long as the Merger
Agreement remains in effect, Broadway will not enter into any
agreement with any person that provides for, or in any way
facilitates, an Alternative Proposal), or (c) affect any other
obligation of Broadway under the Merger Agreement.
Interim Operations of Broadway. Pursuant to the Merger
Agreement, Broadway has agreed that, prior to the Effective Time,
except as contemplated by any other provision of the Merger
Agreement, Broadway (i) will, and will cause each of its
subsidiaries to, conduct its operations in the ordinary and
normal course, consistent with past practice; (ii) will use its
reasonable best efforts, and will cause each of its subsidiaries
to use its reasonable best efforts, to preserve intact their
business organizations and goodwill, keep available the services
of their respective officers and employees, and maintain
satisfactory relationships with those persons having business
relationships with them; (iii) will not amend its certificate of
incorporation or by-laws or comparable governing instruments
(other than by-law amendments that are not material to Broadway
or to the consummation of the transactions contemplated by the
Merger Agreement); (iv) will, upon the occurrence of any event or
change in circumstances as a result of which any representation
or warranty of Broadway contained in the Merger Agreement would
be untrue or incorrect if such representation or warranty were
made immediately following the occurrence of such event or change
in circumstance, promptly (and in any event within two business
days of an executive officer of Broadway obtaining knowledge
thereof) notify Federated thereof; (v) will promptly deliver to
Federated true and correct copies of any report, statement, or
schedule filed by Broadway with the SEC (each an "SEC Report")
subsequent to the date of the Merger Agreement; (vi) will not
(a) except pursuant to the exercise of options, warrants,
conversion rights, and other contractual rights existing on the
date of the Merger Agreement and disclosed pursuant to the Merger
Agreement, issue any shares of its capital stock, effect any
stock split, or otherwise change its capitalization as it existed
on the date of the Merger Agreement, (b) grant, confer, or award
any option, warrant, conversion right, or other right not
existing on the date of the Merger Agreement to acquire any
shares of its capital stock or grant, confer, or award any
bonuses or other forms of cash incentive to any officer,
director, or key employee except consistent with past practice or
grant or confer any awards (other than pursuant to any of the
foregoing granted prior to the date of the Merger Agreement and
disclosed in an SEC Report prior to the date of the Merger
Agreement or in a schedule to the Merger Agreement), (c) increase
any compensation under any employment agreement with any of its
present or future officers, directors, or employees, except for
normal increases for employees consistent with past practice,
grant any severance or termination pay to, or enter into any
employment or severance agreement with any officer, director, or
employee or amend any such agreement in any material respect
other than severance arrangements which are consistent with past
practice with respect to employees terminated by Broadway, or
(d) adopt any new employee benefit plan or program (including any
stock option, stock benefit, or stock purchase plan) or amend any
existing employee benefit plan or program in any material respect
(but nothing in the Merger Agreement will prevent the payment or
other performance of any award or grant made prior to the date of
the Merger Agreement and disclosed in an SEC Report or made
pursuant to the Merger Agreement); (vii) will not (a) declare,
36
set aside, or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock or other
ownership interests or (b) directly or indirectly redeem,
purchase, or otherwise acquire any shares of its capital stock or
capital stock of any of its Subsidiaries, or make any commitment
for any such action; (viii) will not, and will not permit any of
its subsidiaries to, sell, lease, or otherwise dispose of any of
its assets (including capital stock of subsidiaries) or acquire
any business or assets, except (a) in the ordinary course of
business, in each case for an amount not exceeding $5,000,000 and
(b) that Broadway may sell its store in Westminster, Colorado to
an unaffiliated third party for such cash consideration as the
Board of Directors of Broadway determines in good faith to be
fair to Broadway; (ix) will not incur any material amount of
indebtedness for borrowed money or make any loans, advances, or
capital contributions to, or investments (other than non-
controlling investments in the ordinary course of business) in,
any other person other than a wholly owned subsidiary of
Broadway, or issue or sell any debt securities, other than
borrowings under existing lines of credit in the ordinary course
of business; (x) will not, except pursuant to and in accordance
with the capital budget disclosed to Federated prior to the date
of the Merger Agreement, authorize, commit to, or make capital
expenditures; (xi) will not mortgage or otherwise encumber or
subject to any lien any properties or assets except for such of
the foregoing as are in the normal course of business and would
not be reasonably likely to have, individually or in the
aggregate, a material adverse effect on the business, results of
operations, or financial condition of Broadway and its
subsidiaries taken as a whole (a "Broadway Material Adverse
Effect"); and (xii) will not make any change to its accounting
(including tax accounting) methods, principles, or practices,
except as may be required by generally accepted accounting
principles and except, in the case of tax accounting methods,
principles, or practices, in the ordinary course of business of
Broadway or any of its subsidiaries.
Certain Filings and Other Actions. Federated, Newco, and
Broadway have agreed, subject to the terms and conditions
provided in the Merger Agreement, that they will (i) promptly
make any required submissions under the HSR Act; (ii) use all
reasonable efforts to cooperate with one another in
(a) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits,
or authorizations are required to be obtained prior to the
Effective Time from, governmental or regulatory authorities of
the United States, the several states, and foreign jurisdictions
in connection with the execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated
thereby and (b) timely making all such filings and timely seeking
all such consents, approvals, permits, or authorizations; and
(iii) use all reasonable efforts to take, or cause to be taken,
all other action and do, or cause to be done, all other things
necessary, proper, or appropriate to consummate and make
effective the transactions contemplated by the Merger Agreement.
In this regard, the Merger Agreement provides that, in the case
of any consents, approvals, permits, or authorizations of any
governmental or regulatory authority required for consummation of
the Merger and the other transactions contemplated by the Merger
Agreement under the HSR Act or any federal or state antitrust or
similar law ("Antitrust Authorizations"), the reasonable efforts
of Federated will be deemed to include divesting or otherwise
holding separate, or taking such other action (or otherwise
agreeing to do any thereof) with respect to, the Surviving
Company's assets and properties necessary to obtain such
Antitrust Authorizations, except to the extent that Federated
reasonably determines in good faith that such actions would, in
the aggregate, require Federated to compromise fundamentally its
business interests in consummating the transactions contemplated
by the Merger Agreement.
Inspection of Records. Pursuant to the Merger Agreement, each
of Federated, Newco, and Broadway has agreed that, from the date
of the Merger Agreement to the Effective Time, it will (i) allow
37
all designated officers, attorneys, accountants, and other
representatives of the other reasonable access at all reasonable
times to the offices, records and files, correspondence, audits,
and properties, as well as to all information relating to
commitments, contracts, titles, and financial position, or
otherwise pertaining to the business and affairs, of the parties
and their respective subsidiaries, as the case may be;
(ii) furnish to the other, the other's counsel, financial
advisors, auditors, and other authorized representatives such
financial and operating data and other information as such
persons may reasonably request; and (iii) instruct the employees,
counsel, and financial advisors of the parties, as the case may
be, to cooperate with the other in the other's investigation of
the business of it and its subsidiaries.
Director and Officer Indemnification and Insurance. The
Merger Agreement provides that, from and after the Effective
Time, Federated will cause the Surviving Company to indemnify,
defend, and hold harmless, to the fullest extent that Broadway
would be required under its certificate of incorporation,
by-laws, and applicable law, each person who was on the date of
the Merger Agreement, or was at any time prior to the date of the
Merger Agreement, an officer or director of Broadway
(individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), against all losses, claims, damages,
liabilities, costs or expenses (including attorneys' fees),
judgments, fines, penalties, and amounts paid in settlement in
connection with any claim, action, suit, proceeding, or
investigation arising out of or pertaining to acts or omissions,
or alleged acts or omissions, by them in their capacities as such
occurring at or prior to the Effective Time. Under the Merger
Agreement, in the event of any such claim, action, suit,
proceeding, or investigation (an "Action"), any Indemnified Party
wishing to claim indemnification must promptly notify the
Surviving Company thereof (provided, however, that failure to so
notify the Surviving Company will not affect the obligations of
the Surviving Company to provide indemnification except to the
extent that the Surviving Company shall have been prejudiced as a
result of such failure). The Merger Agreement provides that,
with respect to any Action for which indemnification is
requested, the Surviving Company will be entitled to participate
therein at its own expense and, except as otherwise described
below, to the extent that it may wish, the Surviving Company may
assume the defense thereof, with counsel reasonably satisfactory
to the Indemnified Party. After notice from the Surviving
Company to the Indemnified Party of its election to assume the
defense of an Action, the Surviving Company will not be liable to
the Indemnified Party for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with
the defense thereof, other than as described below. The Merger
Agreement provides that the Surviving Company will not settle any
Action without the Indemnified Party's written consent (which
consent will not be unreasonably withheld). Under the Merger
Agreement, the Indemnified Party will have the right to employ
counsel in any Action, but the fees and expenses of such counsel
incurred after notice from the Surviving Company of its
assumption of the defense thereof will be at the expense of the
Indemnified Party, unless (i) the employment of counsel by the
Indemnified Party has been authorized by the Surviving Company;
(ii) the Indemnified Party shall have reasonably concluded upon
the advice of counsel that there may be a conflict of interest
between the Indemnified Party and the Surviving Company in the
conduct of the defense of an Action; or (iii) the Surviving
Company shall not in fact have employed counsel to assume the
defense of an Action, in each of which cases the reasonable fees
and expenses of counsel selected by the Indemnified Party will be
at the expense of the Surviving Company. Notwithstanding the
foregoing, under the Merger Agreement, the Surviving Company will
not be liable for any settlement effected without its written
consent and the Surviving Company will not be obligated pursuant
to the Merger Agreement to pay the fees and disbursements of more
than one counsel for all Indemnified Parties in any single
Action, except to the extent two or more of such Indemnified
Parties have conflicting interests in the outcome of such Action.
38
The Merger Agreement provides that Federated will cause the
Surviving Company to keep in effect provisions in its certificate
of incorporation and by-laws providing for exculpation of
director and officer liability and its indemnification of the
Indemnified Parties to the fullest extent permitted under the
DGCL, which provisions will not be amended except as required by
applicable law or except to make changes permitted by law that
would enlarge the Indemnified Parties' right of indemnification.
The Merger Agreement further provides that, for a period of
five years after the Effective Time, Federated will cause to be
maintained officers' and directors' liability insurance covering
the Indemnified Parties who were covered on the date of the
Merger Agreement, in their capacities as officers and directors,
by Broadway's existing officers' and directors' liability
insurance policies on terms substantially no less advantageous to
the Indemnified Parties than such existing insurance, except that
Federated will not be required in order to maintain or procure
such coverage to pay premiums on an annualized basis in excess of
two times the annual premium of $835,000 paid by Broadway for its
existing overage (the "Cap"); and except that if equivalent
coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of the Cap, Federated will only be
required to obtain as much coverage as can be obtained by paying
premiums on an annualized basis equal to the Cap.
Employee Benefits. The Merger Agreement provides that,
notwithstanding anything to the contrary contained therein, from
and after the Effective Time, the Surviving Company will have
sole discretion over the hiring, promotion, retention, firing,
and other terms and conditions of the employment of employees of
the Surviving Company. Subject to the foregoing, Federated has
agreed to provide, or to cause the Surviving Company to provide,
for the benefit of employees of the Surviving Company who were
employees of Broadway immediately prior to the Effective Time,
recognizing all prior service for eligibility and vesting
purposes of the officers, directors, or employees with Broadway
and any of its subsidiaries as service thereunder, "employee
benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA") (i) until
January 1, 1996, that are, in the aggregate, substantially
comparable to the "employee benefit plans" provided to such
individuals by Broadway on the date of the Merger Agreement and
(ii) thereafter until the expiration of one year after the
Effective Time that are, at the election of Federated, either
(a) in the aggregate, substantially comparable to the "employee
benefit plans" provided to such individuals by Broadway on the
date of the Merger Agreement or (b) in the aggregate,
substantially comparable to the "employee benefit plans" provided
to similarly situated employees of Federated or its subsidiaries
who were not employees of Broadway immediately prior to the
Effective Time; except that (1) nothing in the Merger Agreement
will be deemed to require Federated to modify the benefit
formulas under any pension plan of Broadway in a manner that
increases the aggregate expenses thereof as of the date of the
Merger Agreement in order to comply with the requirements of
ERISA, the Code, or the "Tax Reform Act of 1986;" (2) employee
stock ownership, stock option, and similar equity-based plans,
programs, and arrangements of Broadway or any of its subsidiaries
are not encompassed within the meaning of the term "employee
benefit plans" under such provisions of the Merger Agreement;
(3) nothing in the Merger Agreement will obligate Federated or
the Surviving Company to continue any particular employee benefit
plan for any period after the Effective Time; and (4) no employee
of Broadway or any subsidiary thereof will have any claim or
right by reason of the Merger Agreement. In addition, pursuant
to the Merger Agreement, Federated has agreed to cause the
Surviving Company to honor (subject to any withholdings under
applicable law) all employment, consulting, and severance
agreements or arrangements to which Broadway or any of its
subsidiaries was a party on the date of the Merger Agreement.
Certain Other Covenants by Federated. Pursuant to the Merger
Agreement, Federated has agreed that, prior to the Effective
39
Time, Federated will not declare, set aside, or pay any
extraordinary dividend or make any other extraordinary
distribution or payment with respect to shares of its capital
stock.
The Merger Agreement provides that, after the Effective Time,
Federated will contribute or otherwise make available to the
Surviving Company shares of Federated Common Stock to enable the
Surviving Company to issue, distribute, or release such shares of
Federated Common Stock in accordance with the Broadway plan of
reorganization.
Conditions
Conditions to Each Party's Obligation To Effect the Merger.
Under the Merger Agreement, the respective obligations of each
party to effect the Merger will be subject to the fulfillment of
the following conditions: (i) the Merger Agreement and the
transactions contemplated thereby shall have been approved in the
manner required by applicable law by the holders of the issued
and outstanding shares of capital stock of Broadway; (ii) the
waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated; (iii) none of
the parties to the Merger Agreement shall be subject to any order
or injunction of a court of competent jurisdiction which
prohibits the consummation of the transactions contemplated by
the Merger Agreement (provided that in the event any such order
or injunction shall have been issued, each party has agreed to
use its reasonable best efforts to have any such injunction
lifted); (iv) the Registration Statement shall have become
effective and shall be effective at the Effective Time, and no
stop order suspending effectiveness of the Registration Statement
shall have been issued, no action, suit, proceeding, or
investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing or, to the knowledge
of Federated or Broadway, be threatened in writing, and all
necessary approvals under state securities laws relating to the
issuance or trading of shares of Federated Common Stock to be
issued to Broadway stockholders in connection with the Merger
shall have been received; (v) all consents, authorizations,
orders, and approvals of (or filings or registrations with) any
governmental or regulatory authority required in connection with
the execution, delivery, and performance of the Merger Agreement
shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be
filed after the Effective Time and except where the failure to
have obtained or made any such consent, authorization, order,
approval, filing, or registration would not have a material
adverse effect on the business, financial condition, or results
of operations of the Surviving Company following the Effective
Time; and (vi) shares of Federated Common Stock to be issued to
Broadway stockholders in connection with the Merger shall have
been approved for listing on the NYSE, subject only to official
notice of issuance.
Conditions to Obligation of Broadway To Effect the Merger.
Under the Merger Agreement, the obligation of Broadway to effect
the Merger will be subject to the fulfillment of the following
additional conditions: (i) each of Federated and Newco shall
have performed in all material respects its agreements contained
in the Merger Agreement required to be performed by it on or
prior to the Closing Date, (a) all of the representations and
warranties of Federated and Newco contained in the Merger
Agreement shall have been true and correct in all material
respects as of the date of the Merger Agreement and (b) the
representations and warranties of Federated and Newco contained
in the Merger Agreement (with certain specified exceptions) shall
be true and correct in all material respects as of the Closing
Date, except (1) for changes specifically permitted by the Merger
Agreement and (2) that those representations and warranties which
address matters only as of a particular date shall remain true
and correct in all material respects as of such date, and
Broadway shall have received a certificate of the Chairman, the
President, or a Vice President of Federated, dated the Closing
40
Date, certifying to such effect; (ii) from the date of the Merger
Agreement through the Effective Time, there shall not have
occurred any material adverse change in the business or
properties of Federated excluding changes resulting from, arising
out of, or related to (A) Federated's operations, (B) Federated's
results of operations, (C) the department store or retail
business generally, or (D) general economic or financial
conditions; and (iii) Federated shall have executed a
registration rights agreement with affiliates of Broadway (the
"Registration Rights Agreement") (see "-- Registration Rights
Agreement").
Conditions to Obligation of Federated and Newco to Effect the
Merger. Under the Merger Agreement, the obligations of Federated
and Newco to effect the Merger will be subject to the fulfillment
of the following additional conditions: (i) Broadway shall have
performed in all material respects its agreements contained in
the Merger Agreement required to be performed on or prior to the
Closing Date, (a) the representations and warranties of Broadway
contained in the Merger Agreement shall have been true and
correct in all material respects as of the date of the Merger
Agreement and (b) the representations and warranties of Broadway
contained in the Merger Agreement shall be true and correct in
all material respects as of the Closing Date, except (1) for
changes specifically permitted by the Merger Agreement and
(2) that those representations and warranties which address
matters only as of a particular date will remain true and correct
in all material respects as of such date, and Federated and Newco
shall have received a certificate of the Chairman, the President,
or a Vice President of Broadway, dated the Closing Date,
certifying to such effect; (ii) from the date of the Merger
Agreement through the Effective Time, there shall not have
occurred any material adverse change in the business or
properties of Broadway excluding changes resulting from, arising
out of, or related to (a) Broadway's operations, (b) Broadway's
results of operations, (c) the department store or retail
business generally, or (d) general economic or financial
conditions; (iii) Broadway or the Board of Directors of Broadway
or the other persons or entities shall have taken certain
specified actions with respect to Broadway's 6-1/4% Convertible
Senior Subordinated Notes, the Broadway Warrants, Broadway's 1992
Stock Incentive Plan, and certain other matters; (iv) all
conditions to the obligations of FNC to consummate the
transactions contemplated by the Prudential Agreement shall have
been duly satisfied or waived in accordance with the provisions
thereof (see "Other Agreements -- The Prudential Agreement"); and
(v) after the Effective Time, no person will have any right under
any stock option plan (or any option granted thereunder) or other
plan, program, or arrangement to acquire any equity securities of
Broadway of any of its subsidiaries.
Termination
Termination by Mutual Consent. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to
the Effective Time, before or after the adoption of the Merger
Agreement by the stockholders of Broadway, by the mutual consent
of Federated and Broadway.
Termination by Either Federated or Broadway. The Merger
Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of either Federated or Broadway
if (i) the Merger shall not have been consummated by February 29,
1996 (the "Outside Date"), (ii) a United States federal or state
court of competent jurisdiction or United States federal or state
governmental, regulatory, or administrative agency or commission
issues an order, decree, or ruling or takes any other action
permanently restraining, enjoining, or otherwise prohibiting the
transactions contemplated by the Merger Agreement and such order,
decree, ruling, or other action becomes final and non-appealable;
provided that the party seeking to terminate the Merger Agreement
has used all reasonable efforts to remove such injunction, order,
or decree, or (iii) any condition to such party's obligations to
consummate the transactions contemplated by the Merger Agreement
41
is incapable of being satisfied by the Outside Date; and
provided, in the case of a termination as described in clause (i)
or (iii) above, that the terminating party has not breached the
Merger Agreement in any manner that proximately contributes to
the failure to consummate the Merger by the Outside Date.
Termination by Broadway. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to
the Effective Time, before or after the adoption of the Merger
Agreement by the stockholders of Broadway, by action of the Board
of Directors of Broadway if (i) there has been a material breach
by Federated or Newco of any representation or warranty contained
in the Merger Agreement which is not curable or, if curable, is
not cured by the Outside Date and such breach had or is
reasonably likely to have a material adverse effect on the
business, results of operations, or financial condition of
Federated and its subsidiaries taken as a whole or (ii) there has
been a material breach of any of the covenants set forth in the
Merger Agreement on the part of Federated, which breach is not
curable or, if curable, is not cured within 60 calendar days
after written notice of such breach is given by Broadway to
Federated.
Termination by Federated and Newco. The Merger Agreement may
be terminated and the Merger may be abandoned at any time prior
to the Effective Time, before or after the adoption of the Merger
Agreement by the stockholders of Broadway, by action of the Board
of Directors of Federated, if (i) the Board of Directors of
Broadway shall have withdrawn or modified in a manner materially
adverse to Federated or Newco its approval or recommendation of
the Merger Agreement or the Merger or shall have recommended an
Alternative Proposal to Broadway's stockholders, (ii) there has
been a material breach by Broadway of any representation or
warranty contained in the Merger Agreement which is not curable
or, if curable, is not cured by the Outside Date and such breach
had or is reasonably likely to have a Broadway Material Adverse
Effect, (iii) there has been a material breach of any of the
covenants set forth in the Merger Agreement on the part of
Broadway, which breach is not curable or, if curable, is not
cured within five days after written notice of such breach is
given by Federated to Broadway, (iv) there has been a material
breach by Zell/Chilmark of the Stock Agreement, (v) an
involuntary case under the United States Bankruptcy Code or any
applicable bankruptcy, insolvency, or other similar law is
commenced against Broadway or any of its subsidiaries, a decree
or order of a court of competent jurisdiction for the appointment
of a receiver, liquidator, sequestrator, trustee, custodian, or
other officer having similar powers of Broadway or any of its
subsidiaries or over a material portion of their respective
assets shall have been entered or the involuntary appointment of
an interim receiver, trustee, or other custodian of Broadway or
any of its subsidiaries shall have occurred and any such event
described in this clause (v) shall have continued neither stayed
nor dismissed for 60 calendar days, or (vi) Broadway or any of
its subsidiaries has an order for relief entered with respect to
it or commences a voluntary case under the United States
Bankruptcy Code or any applicable bankruptcy, insolvency, or
other similar law, or consents to the entry of an order for
relief in an involuntary case, to the conversion of an
involuntary case to a voluntary case or to the appointment of or
taking possession by a receiver, trustee, or other custodian of
any part of Broadway's property, or makes any assignment for the
benefit of creditors.
Effect of Exercise of Option. The Merger Agreement provides
that, in the event that Federated purchases shares of Broadway
Common Stock upon exercise of the Option (see "Other Agreements--
The Stock Agreement"), if requested by Federated, Broadway will,
promptly following the purchase of shares of Broadway Common
Stock upon exercise of the Option and from time to time
thereafter, take all action necessary to cause at least a
majority of the number of directors, rounded up to the next whole
number, of Broadway to be persons designated by Federated
(whether, at the request of Federated, by increasing the number
42
of directors of Broadway, or by seeking the resignation of
directors and causing Federated's designees to be elected to fill
the vacancies so created). Under the Merger Agreement, Broadway
has agreed that, at such time, it will take all action permitted
by law to cause persons designated by Federated to constitute at
least the same percentage as is on Broadway's Board of Directors
of (i) each committee of Broadway's Board of Directors, (ii) the
board of directors of each subsidiary of Broadway, and (iii) each
committee, if any, of each such board of directors. Under the
Merger Agreement, notwithstanding the foregoing, until the
Effective Time, Broadway will use all reasonable efforts to
assure that Broadway's Board of Directors has at least three
directors who were directors on the date of the Merger Agreement
(the "Continuing Directors") and, if the number of Continuing
Directors is reduced below three for any reason whatsoever, any
remaining Continuing Directors (or Continuing Director, if there
is only one remaining) will be entitled to designate three
persons to fill such vacancies who will be deemed to be
Continuing Directors for purposes of the Merger Agreement or, if
no Continuing Director then remains, the other directors will
designate three persons to fill such vacancies who are not
shareholders, affiliates, or associates of Federated and such
persons will be deemed to be Continuing Directors for purposes of
the Merger Agreement.
The Merger Agreement further provides that, in the event that
Federated purchases shares of Broadway Common Stock upon exercise
of the Option: (i) notwithstanding any other provision contained
in the Merger Agreement to the contrary, from and after the date
of the closing of the exercise of the Option, the obligations of
Federated and Newco to effect the Merger will be subject only to
the fulfillment at or prior to the Closing Date of the conditions
described in clauses (i), (iii), and (iv) under the caption "--
Conditions -- Conditions to Each Party's Obligation to Effect
the Merger" and all other conditions to the obligations of
Federated and Newco to effect the Merger on the terms and
conditions of the Merger Agreement as in effect immediately prior
to the exercise of the Option will be deemed satisfied or waived;
(ii) notwithstanding any other provision contained in the Merger
Agreement to the contrary, from and after the date of the closing
of such purchase, Federated and Newco will not be entitled to
terminate the Merger Agreement or abandon the Merger unless a
United States federal or state court of competent jurisdiction or
United States federal or state governmental, regulatory, or
administrative agency or commission issues an order, decree, or
ruling or takes any other action permanently restraining,
enjoining, or otherwise prohibiting the transactions contemplated
by the Merger Agreement and such order, decree, ruling, or other
action becomes final and non-appealable; and (iii) any action by
Broadway to waive or amend any provision of the Merger Agreement
will require the approval of a majority of the Continuing
Directors.
Effect of Termination and Abandonment. In the event of
termination of the Merger Agreement and the abandonment of the
Merger, all obligations of the parties will terminate, except the
obligations of the parties with respect to expenses and certain
other specified matters. In the event of termination of the
Merger Agreement other than by mutual consent, nothing in the
Merger Agreement will prejudice the ability of the non-breaching
party from seeking damages from any other party for any willful
breach of the Merger Agreement, including without limitation
attorneys' fees and the right to pursue any remedy at law or in
equity.
Expenses. The Merger Agreement provides that, whether or not
the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions
contemplated by the Merger Agreement will be paid by the party
incurring such expenses except as otherwise expressly provided in
the Merger Agreement and except that (i) the filing fee in
connection with the HSR Act filing, (ii) the filing fee in
connection with the filing of the Registration Statement or this
Proxy Statement/Prospectus with the SEC, and (iii) the expenses
43
incurred in connection with printing and mailing the Registration
Statement and Proxy Statement/Prospectus will be shared equally
by Federated and Broadway.
Amendment. The Merger Agreement may be amended by the parties
thereto, by action taken by their respective Boards of Directors,
at any time before or after approval of the Merger Agreement by
the stockholders of Broadway but, after any such stockholder
approval, no amendment will be made which by law requires the
further approval of such stockholders without obtaining such
further approval.
Delaware Law. The Board of Directors of Broadway has approved
the Merger, the Merger Agreement, the transactions contemplated
by the Merger Agreement, and the grant of the Option and the
purchase of shares of Broadway Common Stock pursuant thereto
(collectively, the "Stock Agreement Transactions"), with the
result that the restrictions of Section 203 of the DGCL are
inapplicable to the Merger, the Merger Agreement, the
transactions contemplated by the Merger Agreement, and the Stock
Agreement Transactions and to any subsequent transaction between
Federated and Broadway.
Section 203 of the DGCL prevents an "interested stockholder"
(generally, a stockholder owning 15% or more of a corporation's
outstanding voting stock or an affiliate or associate thereof)
from engaging in a "business combination" (defined to include a
merger and certain other transactions) with a Delaware
corporation for a period of three years following the date on
which such stockholder became an interested stockholder unless
(i) prior to such date, the corporation's board of directors
approved either the business combination or the transaction which
resulted in such stockholder becoming an interested stockholder,
(ii) upon consummation of the transaction which resulted in such
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the corporation's voting stock
outstanding at the time the transaction commenced (excluding
shares owned by certain employee stock plans and persons who are
directors and also officers of the corporation), or (iii) on or
subsequent to such date the business combination is approved by
the corporation's board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock
not owned by the interested stockholder.
Affiliate Letters. The shares of Federated Common Stock to be
issued to Broadway stockholders in connection with the Merger
will be freely transferable under the Securities Act, except for
shares of Federated Common Stock issued to any person deemed to
be an affiliate of Broadway for purposes of Rule 145 under the
Securities Act at the Record Date ("Affiliates"). Affiliates may
not sell their shares of Federated Common Stock acquired in
connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such
shares, or in compliance with Rule 145 promulgated under the
Securities Act or another applicable exemption from the
registration requirements of the Securities Act. Pursuant to the
Merger Agreement, Broadway has agreed that prior to the Effective
Time it will deliver to Federated a letter identifying all
persons who at the Record Date may be deemed to be Affiliates.
Broadway has further agreed to use all reasonable efforts to
cause each person who is so identified as an Affiliate in such
letter to deliver to Federated on or prior to the Closing Date a
letter agreement that such Affiliate will not sell, pledge,
transfer, or otherwise dispose of any shares of Federated Common
Stock received in the Merger in violation of the Securities Act.
Registration Rights Agreement
The following discussion is a summary of certain provisions of
the Registration Rights Agreement.
It is a condition to the obligation of Broadway to effect the
Merger that Federated shall have executed the Registration Rights
44
Agreement with each Affiliate. The Registration Rights Agreement
gives each Affiliate and each person who is an affiliate of such
Affiliate that is a holder of Registrable Securities (as defined
below) and each person that is a holder of Registrable Securities
who received or will receive certificates for Registrable
Securities bearing a restrictive legend, provided that if such
person is not an Affiliate, such person has opted in writing to
become bound by the terms and conditions of the Registration
Rights Agreement (each such person, a "Holder") the right to
require Federated, under certain circumstances, to register
Registrable Securities for resale under the Securities Act. For
purposes of the Registration Rights Agreement, "Registrable
Securities" include shares of Federated Common Stock issued in
the Merger ("Merger Shares") and any securities paid, issued, or
distributed in respect of Merger Shares, by way of stock dividend
or distribution of stock split or in connection with a
combination of shares, recapitalization, reorganization, merger,
consolidation, or otherwise.
For the purposes of the Registration Rights Agreement,
Registrable Securities will cease to be Registrable Securities
when and to the extent that (i) a registration statement covering
such Registrable Securities has been declared effective under the
Securities Act and such Registrable Securities have been disposed
of pursuant to such effective registration statement or three
years have passed since such registration statement was declared
effective, (ii) such Registrable Securities are distributed to
the public pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act, (iii) such Registrable
Securities have been otherwise transferred to a party that is not
an affiliate of an Affiliate and new certificates for such
Registrable Securities not bearing restrictive legends have been
delivered by Federated, or (iv) such Registrable Securities have
ceased to be outstanding.
Piggy-Back Registration Rights. Pursuant to the Registration
Rights Agreement, whenever during the period commencing on the
date of the Registration Rights Agreement and ending on the
earlier of (i) the first date as of which all Registrable
Securities cease to be such as provided in the Registration
Rights Agreement and described above and (ii) the date on which
such Holder may sell Registrable Securities in accordance with
Rule 145(d)(3) under the Securities Act (the "Registration Rights
Period") Federated proposes to file a registration statement
under the Securities Act relating to the public offering of
shares of Federated Common Stock for cash pursuant to a firm
commitment underwritten offering, Federated will, on the terms
and subject to the conditions set forth in the Registration
Rights Agreement, include among the securities covered by such
registration statement the number of Registrable Securities which
each Holder requests to be included (subject to reduction as
provided in the Registration Rights Agreement).
Demand Registration Rights. The Registration Rights Agreement
provides that, upon written request during the Registration
Rights Period of holders of at least 25% of the Registrable
Securities that Federated will seek to effect the registration
under the Securities Act of all or part of such Holder's or
Holders' Registrable Securities, and will file a registration
statement covering such Holder's or Holders' Registrable
Securities requested to be registered, except that Federated will
not be required to take such action: (i) if Federated shall have
previously effected one such demand registration; (ii) if
Federated has offered registration within the preceding 180-day
period which permitted such Holder or Holders of Registrable
Securities to register Registrable Securities as described in the
preceding paragraph; (iii) if Federated shall at the time have
effected a shelf registration pursuant to which Holders of
Registrable Securities could effect the disposition of the
Registrable Securities in the manner requested; (iv) if
Registrable Securities which shall have been requested to be
registered shall have a then-current market value of less than
$50,000,000, unless such registration request is for all
45
remaining Registrable Securities; or (v) during the pendency of a
Blackout Period (as defined below).
Under the Registration Rights Agreement, in connection with
any underwritten offering pursuant to a registration statement
filed pursuant to a demand made as described in the immediately
preceding paragraph, Holders of a majority of the Registrable
Securities to be included in the registration statement will have
the right to select a managing underwriter or underwriters to
administer the offering, which managing underwriter or
underwriters must be reasonably satisfactory to Federated.
Blackout Periods. Under the Registration Rights Agreement, if
during the Registration Rights Period Federated files or proposes
to file a registration statement with respect to any securities
of Federated and with reasonable prior notice, (i) Federated (in
the case of a non-underwritten offering pursuant to such
registration statement) advises the Holders in writing that a
sale or distribution of Registrable Securities would adversely
affect such offering or (ii) the managing underwriter or
underwriters (in the case of an underwritten offering) advise
Federated in writing that a sale or distribution of Registrable
Securities would adversely affect such offering, then Federated
will not be obligated to effect the initial filing of a
registration statement as described under the caption "-- Demand
Registration Rights" during the period commencing on the date
that is 30 calendar days prior to the date Federated in good
faith estimates will be the date of the filing of, and ending on
the date which is 120 calendar days following the effective date
of, such registration statement.
The Registration Rights Agreement further provides that, if
Federated determines in good faith that the registration and
distribution of Registrable Securities (i) would materially
impede, delay, or interfere with any pending financing,
acquisition, corporate reorganization, or other significant
transaction involving Federated or (ii) would require disclosure
of non-public material information, the disclosure of which would
materially and adversely affect Federated, and, in the case of
clause (ii), Federated is concurrently forbidding purchases or
sales in the open market by senior executives of Federated,
Federated will promptly give the Holders written notice of such
determination and will be entitled to postpone the filing or
effectiveness of a registration statement for a reasonable period
of time not to exceed 120 calendar days.
The beginning of any period referred to in the two immediately
preceding paragraphs (each a "Blackout Period") will be at least
120 calendar days after the end of the prior Blackout Period, and
the aggregate number of days included in all Blackout Periods and
other periods during which Holders are required to refrain from
effecting public sales and distribution as provided under the
Registration Rights Agreement, during any consecutive 12-month
period during the Registration Rights Period will not exceed 180
calendar days.
Expenses. Under the Registration Rights Agreement, all
expenses (except the expense of counsel retained by the Holders
and underwriting discounts and transfer taxes relating to the
sale or disposition of Registrable Securities) of any
registration of Registrable Securities will be paid by Federated.
Indemnification and Contribution. The Registration Rights
Agreement contains certain customary indemnification provisions
whereby Federated is obligated to indemnify and hold harmless
each Holder and certain related parties, and each Holder is
obligated to indemnify and hold harmless Federated and certain
related parties, in each case in connection with certain
liabilities relating to the registration of the Registrable
Securities. The Registration Rights Agreement also provides for
certain rights of contribution in the event that such indemnity
is unavailable.
46
Certain Federal Income Tax Consequences
The following is a general summary of certain U.S. federal
income tax consequences of the Merger that are generally
applicable to the holders of Broadway Common Stock and Broadway
Preferred Stock and is based upon current provisions of the Code,
regulations promulgated thereunder, and applicable rulings and
decisions, as currently in effect, all of which are subject to
change. No ruling from the IRS or opinion of tax counsel has
been or will be sought concerning any federal income tax
consequences of the Merger. The tax discussion below is intended
for general information only. It is not intended to be, nor
should it be construed to be, legal or tax advice to any
particular holder of Broadway Common Stock or Broadway Preferred
Stock. It does not address any aspect of state, local, or
foreign taxation and does not discuss all of the tax consequences
that may be relevant to particular Broadway stockholders in light
of their personal investment circumstances, or to certain types
of stockholders that may be subject to special tax rules, such as
financial institutions, tax-exempt organizations, insurance
companies, dealers in securities, foreign persons, and
individuals who acquired Broadway shares or options in connection
with stock option plans or in other compensatory transactions.
Holders Of Broadway Common Stock Or Broadway Preferred Stock
Are Advised And Expected To Consult With Their Own Legal And Tax
Advisors Regarding The U.S. Federal Income Tax Consequences Of
The Merger In Light Of Their Particular Circumstances, And Any
Other Consequences To Them Of The Merger Under State, Local, And
Foreign Tax Laws.
Qualification as a Reorganization. Although it is generally
anticipated that the Merger will qualify as a reorganization
within the meaning of Section 368(a)(1)(A) and (a)(2)(E) of the
Code, whether or not it will so qualify will depend upon whether
a number of requirements are satisfied, including the following:
(i) following the Merger, the Surviving Company must hold
substantially all of the assets held by Newco and Broadway prior
to the Merger; (ii) the holders of Broadway capital stock must
maintain a substantial continuing ownership interest in the
capital stock they receive in the Merger; and (iii) the Surviving
Company must continue Broadway's historic business or use a
significant portion of Broadway's historic business assets in a
business following the Merger. If any of these requirements is
not satisfied, the Merger may fail to qualify as a reorganization
within the meaning of the Code. Neither Federated nor Broadway,
nor any of the Broadway stockholders, has made any commitment to
take or not take any action to ensure that all of the
requirements will be met in order for the Merger to qualify as a
reorganization within the meaning of the Code.
Consequences to Holders of Broadway Common Stock. If the
Merger qualifies as a reorganization as described above, holders
of Broadway Common Stock generally would recognize no taxable
gain or loss upon the Merger, except to the extent that such
holders receive cash payments in lieu of fractional shares of
Federated Common Stock. Such cash payments generally would be
treated as if the holders had received such fractional shares and
had them redeemed for the cash payments, giving rise to
recognized gain or loss for tax purposes. Such gain or loss
generally would be capital gain or loss, provided that the
Broadway Common Stock was held as a capital asset at the
Effective Time, and would be long-term capital gain or loss if
the Broadway Common Stock had been held for more than one year at
the Effective Time. The aggregate tax basis of the Federated
Common Stock (including fractional share interests) received by a
holder of Broadway Common Stock in the Merger would be the same
as the aggregate tax basis of the holder's Broadway Common Stock
exchanged therefor. The holding period of the Federated Common
Stock received by a holder of Broadway Common Stock in the Merger
would include the holding period of the Broadway Common Stock
surrendered in exchange therefor, provided that the Broadway
Common Stock so surrendered was held as a capital asset at the
Effective Time.
47
If the Merger does not qualify as a reorganization as
described above, holders of Broadway Common Stock would recognize
gain or loss upon the conversion of their Broadway Common Stock
into Federated Common Stock, equal to the difference between the
fair market value of the Federated Common Stock and their basis
in the Broadway Common Stock at the Effective Time.
As in the case of cash received in lieu of fractional shares
as described above, the gain or loss would be capital gain or
loss, and long-term capital gain or loss, if the Broadway Common
Stock were held as a capital asset, and had been held for more
than one year at the Effective Time. The basis of the Federated
Common Stock received in the Merger would be its fair market
value as of the Effective Time, and the holder's holding period
for the Federated Common Stock would begin the day after the
Merger.
Consequences to Broadway Preferred Stockholders. If the
Merger qualifies as a reorganization as described above, the
holders of Broadway Preferred Stock generally would not recognize
any gain or loss upon the Merger, except to the extent that a
holder receives a cash payment pursuant to the exercise of
dissenter's rights. In the case of such payments, holders of
Broadway Preferred Stock would recognize gain or loss in the
amount of the difference between the amount of the cash payment
received and their basis in the Broadway Preferred Stock. In
addition, the receipt of the right to receive warrants in
exchange for the Surviving Company Preferred Stock could
constitute the receipt of property other than stock or securities
of Federated, Broadway, or Newco received in the Merger. In that
event, any gain realized by a holder of Broadway Preferred Stock
in the Merger would be recognized, but only to the extent of the
value of that right. Any such gain may be treated as ordinary
income rather than as a capital gain. The basis of the Surviving
Company Preferred Stock would generally be the same as the basis
of the Broadway Preferred Stock, decreased by the fair market
value of the right to exchange the stock for warrants, if it were
treated as separate property, and increased by the amount of any
gain recognized on the Merger. The basis of the exchange right,
if treated as separate property, would be its fair market value.
The holding period of the Surviving Company Preferred stock would
generally include the holding period of the Broadway Preferred
Stock, provided that the Broadway Preferred Stock was held as a
capital asset at the Effective Time.
If the Merger does not qualify as a reorganization as
described above , the holders of the Broadway Preferred Stock may
be treated as exchanging the Broadway Preferred Stock for
Surviving Company Preferred Stock. Such an exchange may itself
qualify as a reorganization as described above. In that event,
the consequences described above would apply to the deemed
exchange. If an exchange were deemed to take place and neither
the Merger nor the deemed exchange were to qualify as a
reorganization as described above, holders of the Broadway
Preferred Stock would recognize gain or loss in an amount equal
to the difference between the fair market value of the Surviving
Company Preferred Stock and their basis in the Broadway Preferred
Stock, their basis in the Surviving Company Preferred Stock would
equal its fair market value, and their holding period for the
Surviving Company Preferred Stock would begin on the day after
the Merger.
Interests of Certain Persons in the Merger
Enhanced Severance Pay Plan. Effective as of July 31, 1995,
Broadway adopted the Broadway Stores, Inc. Enhanced Severance Pay
Plan. The plan currently covers Broadway's President & Chief
Executive Officer (David L. Dworkin), Executive Vice President &
Chief Financial Officer (John C. Haeckel), Executive Vice
President of Merchandising & Marketing (Elayne M. Garofolo),
Executive Vice President of Operations (Robert M. Menar), Senior
Vice President of Human Resources (Steve Milovich), and Senior
Vice President, Director of Stores (Gary Siler). Under the Plan,
a covered executive other than Mr. Dworkin will receive a benefit
48
equal to two years of base pay if the executive (i) incurs a "job
reduction" within 12 months of a "change in control" or (ii)
incurs an "involuntary termination" (as such terms are defined in
the Plan). Mr. Dworkin will receive a benefit equal to three
years of base pay following a "change in control" (which, for Mr.
Dworkin, is defined in the same manner as "change of control" in
Mr. Dworkin's employment agreement). Upon a change in control
such benefits are payable in the following lump sum amounts
within two weeks of the triggering event, less applicable taxes
and withholding amounts: Mr. Dworkin, $3,000,000.00; Mr.
Haeckel, $700,000.00; Ms. Garofolo, $800,000.00; Mr. Menar,
$650,000.00; Mr. Milovich, $370,000.00; and Mr. Siler,
$370,000.00. Upon an involuntary termination such benefits are
payable in the form of salary continuation and are reduced by
income from other employment during the second half of the salary
continuation period. The Plan also provides for the payment of
the first 12 months of a covered executive's medical and dental
care "continuation coverage" (as such term is defined in the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"))
and for a lump sum outplacement benefit equal to the lesser of
$40,000 or 10% of the executive's base pay. The Merger will
constitute a change in control as defined in the Plan and a
change of control as defined in Mr. Dworkin's employment
agreement. The benefits under the Plan are payable as an
alternative to, rather than in addition to, any severance or
termination benefits to which a covered executive may be entitled
under an employment agreement or any other severance plan or
program.
Executive Severance Pay Plan. Effective as of July 31, 1995,
Broadway adopted the Broadway Stores, Inc. Executive Severance
Pay Plan. The plan covers approximately 45 Senior Vice
Presidents, Vice Presidents, DMMs, Directors, Senior Counselors,
and Managers selected by Broadway. Under the Plan, a covered
executive will receive a benefit equal to from six to 18 months
of base pay (based upon the executive's position) if the
executive (i) incurs a "job reduction" within 12 months of a
"change in control" or (ii) incurs an "involuntary termination"
(as such terms are defined in the Plan). Upon a change in
control, such benefits are payable in a lump sum within two weeks
of the triggering event. Upon an involuntary termination such
benefits are payable in the form of salary continuation and are
reduced by income from other employment during the second half of
the salary continuation period. The Plan also provides for the
payment of the first 12 months of a covered executive's medical
and dental care "continuation coverage" (as such term is defined
in COBRA) and for a lump sum outplacement benefit equal to 10% of
the executive's base pay. The Merger will constitute a change in
control as defined in the Plan. The benefits under the Plan are
payable as an alternative to, rather than in addition to, any
severance or termination benefits to which a covered executive
may be entitled under an employment agreement or any other
severance plan or program.
Stock Incentive Plan. Under the Carter Hawley Hale Stores,
Inc. 1992 Stock Incentive Plan, Broadway has granted stock
options and stock appreciation rights to selected directors,
officers, key employees, and consultants. The plan provides that
upon a "change in control" (as such term is defined in the Plan)
all outstanding stock options will become immediately and fully
exercisable, except to the extent otherwise provided in an option
holder's option agreement. The Merger will constitute a change
in control as defined in the Plan.
Dworkin Employment Agreement. Under his employment agreement,
Mr. Dworkin is entitled to benefits equal to two years of base
pay upon a "change of control" (as such term is defined in the
agreement). The Merger will constitute such a change of control.
As described above, however, upon a change of control Mr. Dworkin
would be entitled to greater alternative benefits under the
Broadway Stores, Inc. Enhanced Severance Pay Plan. See
"-- Enhanced Severance Pay Plan."
49
Management Deferred Compensation Plan. Under the Carter
Hawley Hale Stores, Inc. Management Deferred Compensation Plan,
upon any of certain change-in-control events designated in the
Plan as a "termination event," participants may request immediate
lump sum payments of their Plan benefits. Federated and Broadway
believe that the performance of the transactions contemplated by
the Merger Agreement will not constitute such a termination
event. Moreover, such payments may be granted only in the
discretion of the committee that administers the Plan.
Directors Deferred Compensation Plan. Under the Carter Hawley
Hale Stores, Inc. Directors Deferred Compensation Plan, upon any
of certain change-in-control events designated in the Plan as a
termination event" participants may request immediate lump sum
payments of their Plan benefits. Federated and Broadway believe
that the Merger will not constitute such a termination event.
Moreover, such payments may be granted only in the discretion of
the committee that administers the Plan.
Regulatory Approvals
Federated and Broadway must observe the notification and
waiting period requirements of the HSR Act before the Merger or
the purchase of shares of Broadway Common Stock pursuant to the
Option may be consummated. The HSR Act provides for an initial
30-calendar day waiting period following the filing with the FTC
and the Antitrust Division of certain Notification and Report
Forms by the parties to the Merger and certain other parties.
The HSR Act further provides that if, within the initial 30-
calendar day waiting period, the FTC or the Antitrust Division
issues a request for additional information or documents, the
waiting period will be extended until 11:59 p.m. on the twentieth
day after the date of substantial compliance by the filing
parties with such request. Only one such extension of the
initial waiting period is permitted under the HSR Act; however,
the filing parties may voluntarily extend the waiting period.
Federated and Broadway have made the requisite initial filings
under the HSR Act in connection with the Merger and the Stock
Agreement, and the initial waiting periods with respect to such
filings are presently scheduled to expire at 11:59 p.m. on
September 20, 1995.
The FTC and the Antitrust Division frequently scrutinize the
legality under the antitrust laws of transactions such as the
Merger. At any time before or after the Effective Time, the FTC
or the Antitrust Division could, among other things, seek under
the antitrust laws to enjoin the Merger or to cause Federated to
divest itself, in whole or in part, of Broadway or of other
business conducted by Federated. Under certain circumstances,
private parties and state governmental authorities may also bring
legal action under the antitrust laws challenging the Merger.
See "--Conditions."
Appraisal Rights
Absence of Appraisal Rights for Broadway Common Stock. Under
Delaware law, appraisal rights are unavailable to holders of
Broadway Common Stock because the Broadway Common Stock was, on
the record date, listed on the NYSE and the PSE, and will be
converted into Federated Common Stock, which on the effective
date of the Merger will be listed on the NYSE.
Appraisal Rights for Broadway Preferred Stock. Under Delaware
law, holders of Broadway Preferred Stock are entitled to
appraisal rights in connection with the Merger. Any holder of
record of Broadway Preferred Stock who objects to the Merger may
elect to have his shares appraised under the procedures of the
DGCL and to be paid the appraised value of his shares, which,
pursuant to Section 262 of the DGCL, will be the shares' fair
value exclusive of any element of value arising from the
accomplishment or expectation of the Merger. An appraisal
proceeding may result in a determination of fair value less than
50
or greater than the value of the consideration to be received in
the Merger.
Any holder of Broadway Preferred Stock contemplating the
exercise of appraisal rights is urged to review carefully the
provisions of Section 262 of the DGCL (a copy of which is
attached as Appendix F hereto), particularly with respect to the
procedural steps required to perfect the right of appraisal. The
right of appraisal may be lost if the procedural requirements of
Section 262 of the DGCL are not followed exactly. If the right
of appraisal is lost, the holder of Broadway Preferred Stock will
receive one one-thousandth of a share of Surviving Company
Preferred Stock for each share of Broadway Preferred Stock owned
immediately prior to the Effective Time. Set forth below, to be
read in conjunction with the full text of Section 262 of the DGCL
attached as Appendix F hereto, is a summary of the procedures
relating to exercise of the right of appraisal.
Under Section 262 of the DGCL, a corporation, not less than 20
calendar days prior to the meeting at which a proposed merger is
to be voted on, must notify each of its stockholders entitled to
appraisal rights as of the record date of the meeting that such
appraisal rights are available and include in such notice a copy
of Section 262 of the DGCL. This Proxy Statement/Prospectus
constitutes such notice to the holders of Broadway Preferred
Stock.
A stockholder electing to exercise his rights under Section
262 of the DGCL must deliver to Broadway, before the taking of a
vote with respect to the adoption of the Merger Agreement, a
written demand for appraisal which reasonably informs Broadway of
the identity of the stockholder and that the stockholder intends
thereby to demand appraisal of his, her, or its shares. A proxy
or vote against the adoption of the Merger Agreement, or an
abstention or broker non-vote, will not constitute such a demand;
a stockholder electing to take such action must do so by a
separate written demand. Such demands should be mailed or
delivered to George C. Touras, Secretary, Broadway Stores, Inc.,
3880 North Mission Road, Los Angeles, California 90031. Within
10 calendar days after the Effective Time, the Surviving Company
will notify each stockholder who has made a proper written demand
and who has not voted in favor of adoption of the Merger
Agreement as of the Effective Time. A vote in favor of adoption
of the Merger Agreement will have the effect of waiving all
appraisal rights.
Within 120 calendar days after the Effective Time, Broadway or
any stockholder who has complied with the foregoing notice
requirement may file a petition in the Delaware Court of Chancery
(the "Court") demanding a determination of the value of the
shares of all stockholders who have complied with such
provisions. However, because Broadway has no obligation to file
such a petition and does not currently intend to do so if any
stockholders exercise appraisal rights, any stockholder that
desires that such a petition be filed is advised to do so on a
timely basis. If neither Broadway nor any dissenting stockholder
files a petition for appraisal within 120 calendar days, all
appraisal rights will cease, and dissenting stockholders will be
entitled only to receive one one-thousandth of a share of
Surviving Company Preferred Stock on account of each share of
Broadway Preferred Stock owned immediately prior to the Effective
Time. Any holder of shares may withdraw a demand for appraisal
at any time within 60 calendar days after the Effective Time (or
thereafter with the written consent of Broadway) and receive,
pursuant to the terms of the Merger, one one-thousandth of a
share of Surviving Company Preferred Stock on account of each
share of Broadway Preferred Stock owned immediately prior to the
Effective Time. Notwithstanding the foregoing, no appraisal
proceeding in the Court will be dismissed as to any stockholder
without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
Within 120 calendar days after the Effective Time, any
stockholder who has complied with the above-described notice
51
requirements may also deliver to Broadway a written request for a
statement listing the aggregate number of shares with respect to
which demands for appraisal have been received and the aggregate
number of holders of such shares. Such a statement will be
mailed to the stockholder within 10 calendar days after his
written request for it is received by Broadway.
Upon the filing of any petition by a stockholder demanding
appraisal, service of a copy thereof will be made upon Broadway,
which will, within 20 calendar days after such service, file in
the office of the Register in Chancery in which the petition was
filed a duly verified list containing the names and addresses of
all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not
been reached by Broadway. If a petition is filed by Broadway,
the petition will be accompanied by such a duly verified list.
The Register in Chancery, if so ordered by the Court, will give
notice of the time and place fixed for the hearing of such
petition by registered or certified mail to Broadway and to the
stockholders shown on the list at the addresses therein stated,
and such notice will also be given by publishing a notice at
least one week from the day of the hearing in a newspaper of
general circulation published in Wilmington, Delaware, or such
publication as the Court deems advisable. The forms of the
notices by mail and by publication will be approved by the Court,
and the costs thereof will be borne by Broadway.
After determining the stockholders entitled to an appraisal
under Section 262 of the DGCL, the Court will appraise the
shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the
Merger. In determining such fair value, the Court will take into
account all relevant factors. The Court will direct the payment
of the appraised value of the shares, together with interest, if
any, by Broadway to the stockholders entitled thereto upon
surrender to Broadway of the certificates representing such
shares. The costs of the appraisal proceeding may be determined
by the Court and taxed upon the parties as the Court deems
equitable in the circumstances. Upon application of a
stockholder, the Court may order all or a portion of the expenses
incurred by any stockholder in connection with the appraisal
proceeding, including without limitation reasonable attorneys'
fees and the fees and expenses of experts, to be charged pro rata
against the value of all of the shares entitled to an appraisal.
After the Effective Time, no stockholder who has demanded his
appraisal rights as set forth above will be entitled to vote his
shares for any purpose or to receive payment of dividends or
other distributions on his shares (except dividends or other
distributions payable to stockholders of record at a date prior
to the Effective Time).
OTHER AGREEMENTS
The Stock Agreement
General. The following discussion is a summary of certain
provisions of the Stock Agreement.
As a condition to its willingness to enter into the Merger
Agreement, Federated required that, simultaneously with the
execution thereof, Zell/Chilmark enter into the Stock Agreement.
The Option. Pursuant to the Stock Agreement, Zell/Chilmark
has granted to Federated an irrevocable option to purchase, on
the terms and subject to the conditions set forth therein, all of
the 24,800,866 shares of Broadway Common Stock owned by
Zell/Chilmark on the date of the Stock Agreement (the "Owned
Shares"), together with (i) any additional shares of capital
stock of Broadway which Zell/Chilmark is or becomes entitled to
receive from Broadway by reason of being a record holder of the
Owned Shares, (ii) any securities or other property into which
any such Owned Shares shall have been or shall be converted or
52
changed (other than shares of Federated Common Stock), whether by
amendment to the certificate of incorporation of Broadway,
merger, consolidation, reorganization, capital change, or
otherwise, (iii) any additional shares of Broadway Common Stock
acquired by Zell/Chilmark as the result of Zell/Chilmark
exercising an option, warrant, or other right to acquire shares
of capital stock from Broadway (all of the foregoing hereinafter
collectively referred to as the "Additional Owned Shares"), and
(iv) any shares of capital stock referred to in clauses (i),
(ii), and (iii) above that are issued or issuable in respect of
Additional Owned Shares (the Owned Shares, the Additional Owned
Shares, and any securities referred to in clause (iv) above
hereinafter collectively referred to as the "Option Shares").
Under the Stock Agreement, subject to the conditions described
below, the Option may be exercised in whole but not in part by
notice given by Federated to Zell/Chilmark at any time prior to
the later of (i) February 29, 1996 and (ii) the date to which the
Outside Date specified in the Merger Agreement may from time to
time be extended (the "Stock Agreement Outside Date"). Under the
Merger Agreement, the total price payable to Zell/Chilmark upon
exercise of the Option will be the number of shares of Federated
Common Stock equal to the product of (i) the Conversion Rate and
(ii) the number of Option Shares to be purchased upon such
exercise; except that if any additional shares of capital stock
of Broadway or any of its subsidiaries other than those described
in the Merger Agreement are issued by Broadway or any of its
subsidiaries or any of their respective successors (the "Excess
Shares"), the total number of shares of Federated Common Stock
payable to Zell/Chilmark for all of the Option Shares, including
any Excess Shares owned beneficially or of record by
Zell/Chilmark, will be the number of shares of Federated Common
Stock equal to the product of (a) the Conversion Rate and (b) the
total number of Option Shares, less the total number of Excess
Shares, owned beneficially or of record by Zell/Chilmark.
The obligations of Federated and Zell/Chilmark to consummate
the purchase and sale of the Option Shares pursuant to the Stock
Agreement will be subject to the fulfillment of the following
conditions: (i) the expiration or termination of the waiting
period applicable to the consummation of such transactions under
the HSR Act and (ii) neither of the parties thereto being subject
to any order of injunction of a court of competent jurisdiction
which prohibits the consummation of such transactions.
Voting of Shares. Pursuant to the Stock Agreement,
Zell/Chilmark has agreed that it will, with respect to (i) all
Owned Shares and (ii) any other Option Shares that it owned of
record or beneficially on the Record Date, vote or cause to be
voted such Option Shares (a) in favor of the adoption of the
Merger Agreement and approval of the Merger and the other
transactions contemplated by the Merger Agreement, (b) against
any Alternative Proposal, and (c) in favor of any other matter
necessary for the consummation of the transactions contemplated
by the Merger Agreement and considered and voted upon at the
Special Meeting.
No Solicitation. Pursuant to the Stock Agreement,
Zell/Chilmark has agreed that, prior to the Effective Time
(i) Zell/Chilmark will not, and will cause its officers,
directors, and employees, in their capacities as such, and its
agents or representatives not to, initiate, solicit, or
encourage, directly or indirectly, any inquiries or the making or
implementation of any Alternative Proposal or engage in any
negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person relating to
an Alternative Proposal, or otherwise facilitate any effort or
attempt to make or implement an Alternative Proposal, and
(ii) Zell/Chilmark will notify Federated immediately if any such
inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it.
53
The Stock Agreement gives Zell/Chilmark the right to require
Federated, under certain circumstances, to register for resale
under the Securities Act the shares of Federated Common Stock
acquired by Zell/Chilmark upon the exercise of the Option. Such
registration rights are substantially identical to those
described under the caption of "The Merger Agreement --
Registration Rights Agreement."
Agreement with Respect to Shares of Federated Common Stock.
The Stock Agreement provides that, prior to the Effective Time
or, if earlier, the termination of the Merger Agreement in
accordance with its terms, Zell/Chilmark will not directly or
indirectly, through any affiliate or associate, sell, assign,
transfer, pledge, or otherwise dispose of or acquire, or enter
into any put, call, or other contract, option, or other
arrangement or undertaking with respect to the direct or indirect
acquisition or sale, assignment, or other disposition of any
shares of Federated Common Stock and that, for 90 calendar days
beginning on the date of the Effective Time, Zell/Chilmark will
not directly or indirectly, through any affiliate or associate,
sell, assign, transfer, pledge, or otherwise dispose of
(including make any distribution to its limited partners) or
acquire, or enter into any put, call, or other contract, option,
or other arrangement or undertaking with respect to the direct or
indirect acquisition or sale, assignment, or other disposition of
any shares of Federated Common Stock.
Termination. If Federated has not theretofore purchased the
Option Shares pursuant to the Option or given prior notice of its
desire to exercise the Option, the Stock Agreement terminates
automatically upon the earlier to occur of (i) the Stock
Agreement Outside Date and (ii) the termination of the Merger
Agreement (a) by mutual consent, (ii) by either party as
described in clause (i) or (ii) under the caption "Termination --
Termination by Either Federated or Broadway," or (iii) by
Federated and Newco as described under the caption
"Termination -- Termination by Federated and Newco." In
addition, if Federated fails to exercise the Option to purchase
shares of Broadway Common Stock within 60 calendar days after
giving notice that it wishes to do so, the Stock Agreement will
terminate.
The Prudential Agreement
Pursuant to the Prudential Agreement, FNC, a wholly owned
subsidiary of Federated, has agreed to purchase from Prudential
all of Prudential's right, title, and interest in, to, and under
five promissory notes (the "Notes") made by Broadway in favor of
Prudential, the loan documents pursuant to which the Notes were
issued, and the mortgages and deeds of trust granted by Broadway
in favor of Prudential as security for Broadway's obligations
under the Notes and such loan documents. As of August 14, 1995,
the aggregate unpaid principal amount of the Notes was
$421,149,531. The Notes bear interest at rates ranging from
9.00% to 10.69% per annum. Amortization of the principal of the
Notes commences on November 1, 1997, with the entire outstanding
balance of the Notes being due and payable on October 7, 2002.
Subject to certain exceptions, the Notes are cross-collateralized
and are subject to certain cross-default provisions. The
collateral securing the Notes includes, among other things, first
mortgages on specified Broadway stores.
The purchase price payable at the closing of the purchase and
sale of the Notes pursuant to the Prudential Agreement (the "Note
Purchase Closing") consists of (i) a promissory note (the "FNC
Note") to be made by FNC in favor of Prudential in the principal
amount of $221,149,531 (subject to adjustment as provided in the
Prudential Agreement) and (ii) at FNC's option, either (a)
$200,000,000 in cash or (b) a number of shares of Federated
Common Stock equal to the quotient that results from dividing
$200,000,000 by the closing price of shares of Federated Common
Stock on the NYSE on the trading day next preceding the Note
Purchase Closing (except that if such closing price is $29-5/8 or
less, such number of shares will be 6,751,055 and the contingent
54
payment provision described in the next sentence will be
applicable). If the closing price of shares of Federated Common
Stock on the trading day next preceding the Note Purchase Closing
is less than $29-5/8, and the average closing price for shares of
Federated Common Stock on the NYSE for the period of 10 trading
days next following the Note Purchase Closing (the "Post-Closing
Average Price") is also less than $29-5/8, FNC will be required
to deliver to Prudential an additional amount (the "Contingent
Payment Amount") equal to the product of (x) the amount by which
$29-5/8 is greater than the Post-Closing Average Price and (y)
6,751,055. The Contingent Payment Amount, if any, is payable, at
FNC's option, in cash, shares of Federated Common Stock (valued
at the closing price on the last day of the 10-trading day period
referred to above), or by amending the FNC Note to increase the
principal amount thereof by an amount equal to the Contingent
Payment Amount. FNC's obligations under the FNC Note will be
secured by a security interest in the Notes and other interests
purchased from Prudential pursuant to the Prudential Agreement
and guaranteed on a subordinated basis by Federated. In
addition, Federated will pledge the stock of FNC to Prudential.
The respective obligations of FNC and Prudential to consummate
the transactions contemplated by the Prudential Agreement are
subject to the satisfaction of waiver of certain conditions,
including the representations and warranties of the other
contained in the Prudential Agreement being true in all material
respects, the other having performed in all material respects the
covenants to be performed by it, any applicable waiting period
under the HSR Act having expired or been terminated, the receipt
of specified third party consents, and, in the case of FNC only,
the Merger having been consummated.
Pursuant to the Prudential Agreement, Federated has agreed to
cause the shares of Federated Common Stock, if any, delivered to
Prudential as part of the purchase price of the Notes to be and
remain for up to three years registered for resale under the
Securities Act. If the Note Purchase Closing shall not have
previously occurred, either FNC or Prudential may terminate the
Prudential Agreement, except that FNC may not terminate the
Prudential Agreement unless the Merger Agreement shall have been
terminated.
The Broadway Working Capital Amendment
Pursuant to the Broadway Working Capital Amendment, the size
of the Broadway Working Capital Facility was increased to $250.0
million from $225.0 million, and the percentage of the value of
"Eligible Inventory" that constitutes the "Borrowing Base" under
the Broadway Working Capital Facility was increased to 55% from
50%. In addition, the minimum inventory balance requirements
under the Broadway Working Capital Facility were relaxed and
various financial covenants previously contained therein were
eliminated. In connection with the Broadway Working Capital
Amendment, Broadway paid fees aggregating $1.25 million to GE
Capital and will reimburse GE Capital for its expenses incurred
in connection therewith, and GE Capital consented to the
transactions contemplated by the Merger Agreement and the Stock
Agreement.
As a condition to GE Capital's entering into the Broadway
Working Capital Amendment, GE Capital and Federated entered into
a Put Agreement (the "Put Agreement"), and a Last-Out
Participation Agreement (the "Participation Agreement"). Under
the Put Agreement, Federated will be required to purchase from GE
Capital for $30.0 million a last-out participation in the
Broadway Working Capital Facility upon the earlier to occur of
(i) the commitment termination date under the Broadway Working
Capital Facility (unless all of Broadway's obligations under the
Broadway Working Capital Facility are repaid or otherwise
satisfied in accordance with the terms such facility on or prior
to such date) and (ii) the tenth banking day prior to the then-
current expiration date of the letter of credit that Federated
provided to GE Capital to secure the performance of Federated's
contingent purchase obligation thereunder.
55
The Participation Agreement provides for a $30.0 million last-
out participation in the Broadway Working Capital Facility, under
the terms of which Federated would not be entitled to receive any
payments of principal until Broadway's obligations to GE Capital
and any other members of the lender syndicate under the Broadway
Working Capital Facility are fully repaid or otherwise satisfied.
In addition, Federated's right to receive payments of interest in
respect of the last-out participation would be subordinated in
certain circumstances.
The Bank of America Agreement
Pursuant to the Bank of America Agreement, Bank of America, on
behalf of itself and certain lenders under the Bank of America
Loan, consented to the consummation of the Merger. Such consent
is conditioned upon Broadway entering into an amendment to the
Bank of America Loan providing for recourse against Broadway for
repayment of its obligations thereunder, with the effectiveness
of such amendment to be conditioned upon the consummation of the
Merger.
PRO FORMA CAPITALIZATION OF FEDERATED
The following table sets forth the capitalization of each of
Federated and Broadway as of April 29, 1995 and the pro forma
capitalization of Federated as of that date, giving effect to (i)
the consummation of the Merger and (ii) the purchase by FNC from
Prudential of certain mortgage indebtedness of Broadway for
consideration assumed to consist of a $221,149,531 promissory
note of FNC, 6,751,055 shares of Federated Common Stock, and
$843,877 in cash. As described in "Other Agreements--The
Prudential Agreement," if FNC elects to pay a portion of the
purchase price under the Prudential Agreement in the form of
Federated Common Stock, such purchase price will be determined
with reference to actual market prices for shares of Federated
Common Stock (which market prices may be higher or lower than the
$29.50 per share price assumed for purposes of the following pro
forma information).
The pro forma information set forth below is presented for
illustrative purposes only and is not necessarily indicative of
what Federated's actual consolidated capitalization would have
been had the foregoing transactions been consummated on April 29,
1995, nor does it give effect to (a) any transactions other than
the foregoing transactions and those discussed in the Notes to
Unaudited Pro Forma Information of Federated included elsewhere
in this Proxy Statement/Prospectus or (b) Federated's or
Broadway's respective results of operations since April 29, 1995.
Accordingly, the pro forma information set forth below does not
purport to be indicative of Federated's consolidated
capitalization as of the date hereof, the Effective Time, or any
other future date.
The following table should be read in conjunction with the
historical financial statements of Federated and Broadway, the
unaudited pro forma financial information, the related notes, and
the other information contained elsewhere in this Proxy
Statement/Prospectus or incorporated by reference herein. See
"Unaudited Pro Forma Financial Information of Federated,"
"Available Information," and "Incorporation of Certain Documents
by Reference."
56
PRO FORMA CAPITALIZATION OF FEDERATED
April 29, 1995
(unaudited)
(in thousands)
Historical
------------------------------
Federated Broadway Pro Forma
------------ --------------- --------------
Short-term debt:
Bank credit facility . . . . . . . . . $ 250,000 $ -- $ 250,000
Receivables backed commercial paper . . 361,777 -- 361,777
Working capital facility . . . . . . . -- 88,752 88,752
Current portion of long-term debt . . . 59,964 6,750 66,714
------------ ------------- -----------
Total short-term debt . . . . . . . . 671,741 95,502 767,243
------------ ------------- -----------
Long-term debt:
Bank credit facility . . . . . . . . . 1,700,000 -- 1,700,000
Receivables backed certificates . . . . 1,056,869 -- 1,056,869
Receivable based financing . . . . . . -- 515,443 515,443
Senior notes . . . . . . . . . . . . . 450,000 -- 450,000
Mortgages . . . . . . . . . . . . . . . 417,439 522,118 518,407
Senior convertible discount notes . . . 307,383 -- 307,383
FNC note . . . . . . . . . . . . . . . -- -- 221,150
Convertible subordinated notes (a) . . -- 143,750 143,750
Tax notes . . . . . . . . . . . . . . . 174,964 -- 174,964
Note monetization facility (b) . . . . 352,000 -- 352,000
Capitalized leases . . . . . . . . . . 66,614 40,727 107,341
Other . . . . . . . . . . . . . . . . . 922 -- 922
------------ ------------- -----------
Total long-term debt . . . . . . . . 4,526,191 1,222,038 5,548,229
------------ ------------- -----------
Total debt . . . . . . . . . . . . 5,197,932 1,317,540 6,315,472
------------ ------------- -----------
Shareholders' equity:
Common stock outstanding . . . . . . . 2,124 469 2,319
Preferred stock outstanding . . . . . . -- 8 --
Additional paid-in capital . . . . . . 3,705,949 502,039 4,278,794
Retained earnings (deficit) . . . . . . 436,873 (160,162) 436,873
Treasury stock . . . . . . . . . . . . (560,077) -- (560,077)
------------ ------------- -----------
Total shareholders' equity . . . . . 3,584,869 342,354 4,157,909
------------ ------------- -----------
Total capitalization . . . . . . . $ 8,782,801 $ 1,659,894 $10,473,381
============ ============= ===========
Ratio of total debt to total
capitalization
(excluding note monetization facility) 57.48% 79.37% 58.92%
============ ============= ===========
____________________
(a) Following the consummation of the Merger, the Surviving
Company will be required to offer to purchase all of
Broadway's outstanding convertible subordinated notes
at a price equal to the principal amount thereof plus
accrued interest. As of the date of this Proxy
Statement/Prospectus, the results of such offer could
not be determined and no decision had been made as to
the means of funding the purchase price thereunder;
accordingly, the foregoing pro forma information does
not give effect thereto.
57
(b) The note monetization facility represents debt of a
trust of which Federated is the beneficiary. The
repayment of such debt is nonrecourse to Federated and
its assets (other than its interests in such trust).
58
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF FEDERATED
The following unaudited pro forma financial statements of
Federated give effect to (i) the consummation of the Merger and
(ii) the purchase by FNC from Prudential of certain mortgage
indebtedness of Broadway for consideration assumed to consist of
a $221,149,531 promissory note of FNC, 6,751,055 shares of
Federated Common Stock, and $843,877 in cash, in each case as if
the foregoing transactions had been consummated on April 29,
1995, in the case of the Unaudited Pro Forma Balance Sheet at
April 29, 1995, and on January 30, 1994, in the case of the
Unaudited Pro Forma Statements of Operations for the 13 weeks
ended April 29, 1995 and the 52 weeks ended January 28, 1995. As
described in "Other Agreements--The Prudential Agreement," if FNC
elects to pay a portion of the purchase price under the
Prudential Agreement in the form of Federated Common Stock, such
purchase price will be determined with reference to actual market
prices for shares of Federated Common Stock (which market prices
may be higher or lower than the $29.50 per share price assumed
for purposes of the following pro forma information). Because
Federated's acquisition of Macy's on December 19, 1994 was
accounted for under the purchase method of accounting,
Federated's historical statements of operations gives effect to
the results of operations of the Macy's business only from and
after such date. The Unaudited Pro Forma Statement of Operations
for the 52 weeks ended January 28, 1995 also give effect to
Federated's acquisition of Macy's as if such acquisition had been
consummated on January 30, 1994 rather than on December 19, 1994.
The following unaudited pro forma financial information is
presented for illustrative purposes only and is not necessarily
indicative of what Federated's actual financial position or
results of operations would have been had the foregoing
transactions, including the acquisition of Macy's, been
consummated on such dates, nor does it give effect to (a) any
repurchase by the Surviving Company of Broadway's subordinated
convertible notes or any other transactions other than those
discussed above or in the accompanying Notes to Unaudited Pro
Forma Financial Information, (b) Federated's or Broadway's
results of operations since April 29, 1995, (c) the synergies,
cost savings, and one-time charges expected to result from the
Merger and from the acquisition of Macy's, or (d) the effects of
sales of stores which may occur subsequent to the Merger.
Accordingly, the pro forma financial information does not purport
to be indicative of Federated's financial position or results of
operations as of the date hereof or for any period ended on the
date hereof, as of the Effective Time, for any period ending at
the Effective Time, or as of or for any other future date or
period.
The following unaudited pro forma financial information is
based upon the historical financial statements of Federated and
Broadway (and, with respect to the 52-weeks ended January 28,
1995, certain financial data of Macy's) and should be read in
conjunction with such historical financial statements, the
related notes, and the other information contained elsewhere in
this Proxy Statement/Prospectus or incorporated by reference
herein. See "Available Information" and "Incorporation of
Certain Documents by Reference." Certain items derived from
Broadway's historical financial statements have been reclassified
to conform to the pro forma presentation.
In the preparation of the following unaudited pro forma
financial information, it has been generally assumed that the
historical book value of Broadway's assets approximates the fair
value thereof, as an independent valuation has not been
completed. Federated will be required to determine the fair
value of the assets of Broadway (including intangible assets) as
of the Effective Time. Although such determination of fair value
is not presently expected to result in values that are materially
greater or less than the values assumed in the preparation of the
following unaudited pro forma financial information, there can be
no assurance with respect thereto.
59
The retail business is seasonal in nature, with a higher
proportion of sales and earnings usually being generated in the
months of November and December than in other periods. Because
of this seasonality and other factors, results of operations for
an interim period are not necessarily indicative of results of
operations for an entire fiscal year.
60
UNAUDITED PRO FORMA BALANCE SHEET OF FEDERATED
APRIL 29, 1995
(in thousands)
----------------------------- -----------------------------
Historical Pro Forma Adjustments
----------------------------- -----------------------------
Federated Broadway Debit Credit Pro Forma
------------ ------------- ------------ ------------- --------------
ASSETS:
Current Assets:
Cash . . . . . . . . . . . . . $ 150,242 $ 17,440 $ $ 8,000(a) $ 158,838
844(b)
Accounts receivable . 2,237,598 595,937 2,833,535
Merchandise inventories . . . . 2,553,193 435,443 13,313(a) 2,956,411
18,912(a)
Supplies and prepaid expenses . 114,191 18,637 7,885(a) 124,943
Deferred income taxes . . . . . 232,889 - 232,889
------------ ----------- --------------
Total Current Assets. . . . . 5,288,113 1,067,457 6,306,616
Property and Equipment - net . . 5,245,346 887,353 6,132,699
Intangible Assets - net . . . . . 1,037,861 - 104,793(a) 1,142,654
Notes Receivable . . . . . . . . 407,293 - 407,293
Other Assets . . . . . . . . . . 386,818 37,183 23,785(a) 400,216
------------ ----------- ----------- ----------- --------------
Total Assets . . . . . . . . $ 12,365,431 $ 1,991,993 $ 104,793 $ 72,739 $ 14,389,478
============ =========== =========== =========== -------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Current Liabilities:
Short-term debt . . . . . . . . $ 671,741 $ 95,502 $ $ $ 767,243
Accounts payable and accrued
liabilities . . . . . . . . . 2,085,154 207,770 2,292,924
Income taxes . . . . . . . . . 9,621 914 10,535
------------ ----------- --------------
Total Current Liabilities . . 2,766,516 304,186 3,070,702
Long-Term Debt . . . . . . . . . 4,526,191 1,222,038 421,150(b) 221,150(b) 5,548,229
Deferred Income Taxes . . . . . . 989,228 14,850 1,004,078
Other Liabilities . . . . . . . . 498,627 108,565 4,300(a) 7,718(a) 608,560
2,050(a)
Shareholders' Equity . . . . . . 3,584,869 342,354 342,354(a) 373,884(a) 4,157,909
199,156(b)
------------ ----------- ----------- ----------- --------------
Total Liabilities and
Shareholders' Equity. . . . . $12,365,431 $ 1,991,993 $ 769,854 $ 801,908 $ 14,389,478
============ =========== =========== ========== ==============
See accompanying Notes to Unaudited Pro Forma Financial Information.
61
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS OF FEDERATED
For the 13 Weeks Ended April 29, 1995
(in thousands, except for per share data)
----------------------------- -----------------------------
Historical Pro Forma Adjustments
----------------------------- -----------------------------
Federated Broadway Debit Credit Pro Forma
------------ ------------- ------------ ------------- --------------
Net sales, including
leased department sales . . . . $ 2,988,006 $ 423,911 $ $ $ 3,411,917
----------- ---------- -------------
Cost of sales . . . . . . . . . . 1,823,921 324,753 --(a) 51,239(c) 2,105,320
Selling, general and 7,885(b)
administrative expenses . . . . 1,069,959 111,321 1,310(d) 1,233,829
51,239(c)
Business integration and
consolidation expenses . . . . 83,322 -- 83,322
----------- ---------- -------------
Operating income (loss) . . . . . 10,804 (12,163) (10,554)
Interest expense . . . . . . . . (109,501) (31,135) 4,180(e) 14,209(f) (130,607)
Interest income . . . . . . . . . 11,949 -- 11,949
----------- ---------- -------------
Loss before income taxes . . . . (86,748) (43,298) (129,212)
Federal, state and local
income tax benefit . . . . . . 29,749 -- 16,873(g) 46,622
----------- ---------- -------------
Net loss . . . . . . . . . . . . $ (56,999) $ (43,298) $ (82,590)
=========== ========== =============
OTHER INCOME STATEMENT DATA
EBITDA (h) . . . . . . . . . . . $ 209,385 $ (2,826) $ 198,674
Loss per share of common stock . . (0.31) (0.92) (0.41)
See accompanying Notes to Unaudited Pro Forma Financial Information.
62
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS OF FEDERATED
For the 52 Weeks Ended January 28, 1995
(in thousands, except for per share data)
Pro Forma Adjustments
for Macy's Acquisition
Historical ---------------------------- Historical
Federated Debit Credit Pro Forma Broadway
---------- ------------ ------------- ----------- ----------
Net sales, including leased department
sales . . . . . . . . . . . . . . . . . . $8,315,877 $ $5,631,177 (A) $13,947,054 $2,086,804
---------- ----------- ----------
Cost of sales . . . . . . . . . . . . . . . 5,131,363 3,405,824 (A) 8,537,187 1,560,035
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . 2,549,122 2,110,615 (A) 22,682 (C) 4,575,351 463,075
22,975 (B) 84,679 (D)
Unusual items . . . . . . . . . . . . . . . 85,867 195,719 (A) 281,586 --
---------- ----------- ----------
Operating income . . . . . . . . . . . . . 549,525 552,930 63,694
Interest expense . . . . . . . . . . . . . (262,115) 146,104 (A) (465,217) (100,904)
56,998 (E)
Interest income . . . . . . . . . . . . . . 43,874 255 (A) 44,129 --
---------- ----------- ----------
Income (loss) before earthquake loss,
reorganization items and income taxes . . . 331,284 131,842 (37,210)
Earthquake loss . . . . . . . . . . . . . . -- 15,000 (A) (15,000) --
Reorganization items . . . . . . . . . . . -- 50,914 (A) 50,914 --
---------- ----------- ----------
Income (loss) before income taxes . . . . . 331,284 167,756 (37,210)
Federal, state and local income tax expense (143,668) 31,003 (F) (86,011) (150)
26,654 (A)
---------- ----------- ----------
Income (loss) from continuing operations . $ 187,616 $ 81,745 $ (37,360)
========== =========== ==========
OTHER INCOME STATEMENT DATA
EBITDA (h) . . . . . . . . . . . . . . . . $ 921,253 $ 1,303,359 $ 95,770
Income (loss) from continuing operations
per share of common stock . . . . . . . . $ 1.41 $ 0.45 $ (0.80)
(Table continued on following page.)
63
Pro Forma Adjustments for
the Merger and Debt Purchase
----------------------------
Debit Credit Pro Forma
----------- -------------- ------------
Net sales, including leased department
sales . . . . . . . . . . . . . . . . . . $ $ $16,033,858
-----------
Cost of sales . . . . . . . . . . . . . . . 295 (a) 201,242 (c) 9,896,275
-- (b)
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . 5,240 (d) 5,244,908
201,242 (c)
Unusual items . . . . . . . . . . . . . . . 281,586
-----------
Operating income . . . . . . . . . . . . . 611,089
Interest expense . . . . . . . . . . . . . 15,626 (e) 54,253 (f) (527,494)
Interest income . . . . . . . . . . . . . . 44,129
-----------
Income (loss) before earthquake loss,
reorganization items and income taxes . . . 127,724
Earthquake loss . . . . . . . . . . . . . . (15,000)
Reorganization items . . . . . . . . . . . 50,914
-----------
Income (loss) before income taxes . . . . . 163,638
Federal, state and local income tax expense 610 (g) (86,771)
-----------
Income (loss) from continuing operations . $ 76,867
===========
OTHER INCOME STATEMENT DATA
EBITDA (h) . . . . . . . . . . . . . . . . $ 1,398,834
Income (loss) from continuing operations
per share of common stock . . . . . . . . $ 0.38
See accompanying Notes to Unaudited Pro Forma Financial Information.
64
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
Note 1. Unaudited Pro Forma Balance Sheet Adjustments
(a) To record: (i) the Merger, which will be accounted for
under the purchase method of accounting, and the assumed
issuance of 12,674,036 shares of Federated Common Stock at
an assumed per share price of $29.50 (which was the closing
price of such shares on the NYSE on August 14, 1995, the
last trading day prior to the announcement of the execution
of the Merger Agreement); (ii) adjustments to reflect the
net assets acquired at fair value; and (iii) the excess of
cost over net assets acquired, all as set forth below:
Debit Credit Description
------- ------ -------------------------
(in thousands)
Cash $ $ 8,000 Payment of transaction
costs
Merchandise 13,313 Elimination of
inventories Broadway's last-in,
first-out ("LIFO")
adjustment
18,912 Elimination of indirect
costs capitalized in
Broadway's inventory
Supplies and 7,885 Elimination of deferred
prepaid expenses expenses of Broadway
Intangible 104,793 To record excess of cost
assets - net over net assets
Other assets 23,785 Elimination of deferred
financing costs of
Broadway
Other liabilities 7,718 Adjustment to fair value
of Broadway's pension
liability
4,300 Adjustment to fair value
of Broadway's other
postretirement benefits
liabilities
2,050 Elimination of
Broadway's deferred rent
accrual
Shareholders' 342,354 Elimination of
equity Broadway's
shareholders' equity
373,884 Issuance of equity
-------- ------- pursuant to the Merger
$ 453,497 $453,497
======== =======
65
(b) To record the purchase by FNC of certain mortgage
indebtedness of Broadway for consideration assumed to
consist of a $221,149,531 promissory note of FNC, 6,751,055
shares of Federated Common Stock, and $843,877 in cash. As
described in "Other Agreements -- The Prudential
Agreement," if FNC elects to pay a portion of the purchase
price under the Prudential Agreement in the form of
Federated Common Stock, such purchase price will be
determined with reference to actual market prices for
shares of Federated Common Stock (which market prices may
be higher or lower than the $29.50 per share price assumed
for purposes of the pro forma information).
66
NOTES TO PRO FORMA UNAUDITED FINANCIAL INFORMATION
Note 2. Unaudited Pro Forma Statements of Operations for the 13
Weeks Ended April 29, 1995 and the 52 Weeks Ended
January 28, 1995 -- Adjustments for the Merger and the
Debt Purchase
(a) To adjust Broadway's cost of sales to eliminate the effects
of the capitalization of inventory costs which will be
expensed subsequent to the Merger.
(b) To adjust Broadway's cost of sales to eliminate the effects
of deferred expenses written off in connection with the
Merger.
(c) To reclassify buying and occupancy costs as selling,
general and administrative expenses consistent with
Federated's accounting policies.
(d) To record amortization of estimated excess of cost over net
assets acquired over an assumed 20-year period.
(e) To record interest expense on the promissory note issued by
FNC in connection with the purchase of certain mortgage
indebtedness of Broadway at assumed rates per annum of
7.56% for the 13 weeks ended April 29, 1995 and 7.07% for
the 52 weeks ended January 28, 1995.
(f) To reverse historical interest expense on the mortgage debt
purchased by FNC and to reverse amortization of deferred
financing costs.
(g) To adjust income tax expense (benefit) based upon an
assumed composite (federal, state, and local) income tax
rate of 41%.
(h) EBITDA is defined for purposes of this Proxy
Statement/Prospectus as earnings before interest, taxes,
depreciation, amortization and unusual items. EBITDA does
not represent and should not be considered as an
alternative to net income or cash flow as determined by
generally accepted accounting principles.
67
NOTES TO PRO FORMA UNAUDITED FINANCIAL INFORMATION
Note 3. Unaudited Pro Forma Statement of Operations for the 52
Weeks Ended January 28, 1995 -- Adjustments for the
Macy's Acquisition
(A) To record historical results of Macy's prior to December
19, 1994.
(B) To record amortization of excess of cost over net assets
acquired over a 20-year period and the fair value of Macy's
tradenames over a 40-year period.
(C) To reverse amortization of deferred expense items
eliminated in connection with the acquisition of Macy's.
(D) To adjust depreciation of Macy's property and equipment to
amounts based on fair market value.
(E) To record interest expense on the indebtedness incurred in
connection with the acquisition of Macy's and to reverse
historical interest expense on certain indebtedness of
Macy's and Federated.
(F) To adjust income tax expense (benefit) based upon an
assumed composite (federal, state, and local) income tax
rate of 40%.
(G) Although no adjustments have been recorded in the Unaudited
Pro Forma Statements of Operations, it is estimated that
Federated will have incurred expenses in connection with
the consolidation of Federated's and Macy's operations of
approximately $270.0 million in the 52 weeks subsequent to
the acquisition of Macy's (of which approximately $190.0
million had been expensed through July 29, 1995).
68
DESCRIPTION OF BROADWAY CAPITAL STOCK
Authorized Capital Stock
Broadway's certificate of incorporation provides that the
authorized capital stock of Broadway consists of 100 million
shares of Broadway Common Stock and 25 million shares of
Preferred Stock, par value $0.01 per share, of Broadway.
Common Stock
The holders of Broadway Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote
of stockholders. Subject to preferential rights that may be
applicable to any Preferred Stock of Broadway, holders of
Broadway Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors of
Broadway out of funds legally available therefor. In the event
of a liquidation, dissolution, or winding up of Broadway, holders
of Broadway Common Stock will be entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation
preference of any Preferred Stock of Broadway. Holders of
Broadway Common Stock have no preemptive rights and have no right
to convert their Broadway Common Stock into any other securities
and there are no redemption provisions with respect to such
shares.
Preferred Stock
The Board of Directors of Broadway has the authority to issue
25 million shares of Preferred Stock in one or more classes or
series and to fix the designations, voting powers, full or
limited, or no voting powers, and such preferences and relative
participating, optional, or other special rights and such
qualifications, limitations, or restrictions thereof by adopting
a resolution.
Broadway Preferred Stock
Dividends and Distributions. Subject to the prior and
superior rights of the holders of any other series of Preferred
Stock of Broadway, holders of shares of Broadway Preferred Stock
will be entitled to receive, when, as, and if declared by the
Board of Directors of Broadway out of funds legally available for
such purposes, annual dividends payable in arrears in cash on
September 15 of each year (each such date being referred to as a
"Broadway Dividend Payment Date"), in an amount equal to $.05 per
share per annum (and no more). Dividends not declared will not
cumulate and Broadway shall have no obligation with respect
thereto.
Voting Rights. Each share of Broadway Preferred Stock
entitles the holder thereof to one vote on all matters submitted
to a vote of the stockholders of Broadway (subject to adjustment
in the event Broadway shall at any time (i) declare a dividend on
Broadway Common Stock payable in shares of Broadway Common Stock,
69
(ii) subdivide the outstanding Broadway Common Stock, or (iii)
combine the outstanding Broadway Common Stock into a smaller
number of shares). Except as otherwise provided in Broadway's
certificate of incorporation or by-laws, the holders of Broadway
Preferred Stock and the holder of shares of Broadway Common Stock
vote together as a single class on all matters submitted to a
vote of stockholders of Broadway. Except with respect to certain
amendments to the certificate of incorporation, holders of
Broadway Preferred Stock have no special, separate, class, or
series voting rights and their consent is not required (except to
the extent that they are entitled to vote with holders of
Broadway Common Stock) for taking any corporate action.
Liquidation. Upon any liquidation (voluntary or otherwise),
dissolution, or winding up of Broadway, no distribution will be
made to the holders of the shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up)
to Broadway Preferred Stock unless, prior thereto the holders of
shares of Broadway Preferred Stock shall have received $.25 per
share. After payment of such amount, the holders of Broadway
Preferred Stock will not be entitled to any further right or
claim to any of the remaining assets of Broadway.
Optional Redemption. Broadway's certificate of incorporation
will provide that Broadway, at any time after the Expiration Date
(as such date is defined in the Warrant Agreement pursuant to
which the Broadway Warrants were issued (the "Warrant
Agreement"), and from time to time thereafter, may at its option
redeem all, or any number less than all, of the outstanding
shares of Broadway Preferred Stock. Any redemption of shares of
Broadway Preferred Stock shall be effected at a price equal to
$.25 per share (subject to adjustment in the event that Broadway
shall at any time (i) declare any dividend on Broadway Common
Stock payable in shares of Broadway Common Stock, (ii) subdivide
the outstanding Broadway Common Stock, or (iii) combine the
outstanding Broadway Common Stock into a smaller number of
shares).
Exchange. Any holder of record of shares of Broadway
Preferred Stock may exchange any or all shares of Broadway
Preferred Stock, at any time prior to the close of business on
the Exchange Termination Date (as defined below), into an equal
number of Broadway Warrants, as such Broadway Warrants are
adjusted or modified from time to time. The "Exchange
Termination Date" with respect to a given share of Broadway
Preferred Stock means (i) in the case of redemption of such
share, the date fixed for redemption as specified in a notice of
redemption with respect to such shares or (ii) the Expiration
Date (as such term is defined in the Warrant Agreement).
As of the date hereof, each Broadway Warrant entitles the
holder to purchase one share of Broadway Common Stock at any time
prior to October 8, 1999 at a purchase price equal to $17.00 per
share, subject to adjustment from time to time in the event of,
among other things, the payment of a stock dividend with respect
to Broadway Common Stock, the subdivision, combination, or
70
reclassification of Broadway Common Stock, the merger or
consolidation of Broadway and the issuance of rights, options, or
warrants to acquire shares of Broadway Common Stock.
Ranking. The Broadway Preferred Stock ranks junior to all
other series of Broadway's Preferred Stock as to payment of
dividends and the distribution of assets.
Amendment. Broadway's certificate of incorporation may not be
amended in any manner which would materially alter or change the
powers or preferences of the Broadway Preferred Stock so as to
affect them adversely without the affirmative vote of the holders
of a majority or more of the outstanding shares of Broadway
Preferred Stock, voting separately as a class.
DESCRIPTION OF FEDERATED CAPITAL STOCK
Authorized Capital Stock
Federated's certificate of incorporation provides that the
authorized capital stock of Federated consists of 500 million
shares of Federated Common Stock and 125 million shares of
Preferred Stock, par value $.01 per share (the "Federated
Preferred Stock").
Common Stock
The holders of the Federated Common Stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of stockholders. Subject to preferential rights that may be
applicable to any Federated Preferred Stock, holders of Federated
Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors of Federated out of
funds legally available therefor. In the event of a liquidation,
dissolution, or winding up of Federated, holders of Federated
Common Stock will be entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation
preference of any Federated Preferred Stock. Holders of
Federated Common Stock have no preemptive rights and have no
rights to convert their Federated Common Stock into any other
securities and there are no redemption provisions with respect to
such shares.
Preferred Stock
The Board of Directors of Federated has the authority to issue
125 million shares of Federated Preferred Stock in one or more
series and to fix the designations, relative powers, preferences,
limitations, and restrictions of all shares of each such series,
including without limitation dividend rates, conversion rights,
voting rights, redemption and sinking fund provisions,
liquidation preferences, and the number of shares constituting
each such series, without any further vote or action by the
stockholders. The issuance of the Federated Preferred Stock
could decrease the amount of earnings and assets available for
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distribution to holders of Federated Common Stock or adversely
affect the rights and powers, including voting rights, of the
holders of Federated Common Stock. The issuance of the Federated
Preferred Stock could have the effect of delaying, deferring, or
preventing a change in control of Federated without further
action by the stockholders.
Preferred Share Purchase Rights
Each outstanding share of Federated Common Stock issued is
accompanied by one right (a "Right") issued pursuant to a share
purchase rights agreement between Federated and The Bank of New
York, as Rights Agent (the "Share Purchase Rights Agreement").
Each Right entitles the registered holder thereof to purchase
from Federated one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the
"Federated Series A Preferred Shares"), of Federated at a price
(the "Purchase Price") of $62.50 per one one-hundredth of a
Federated Series A Preferred Share, subject to adjustment.
Until the earliest to occur of the following dates (the
earliest of such dates being hereinafter called the "Rights
Distribution Date"), the Rights will be evidenced by the
certificates evidencing shares of Common Stock: (i) the close of
business on the tenth business day (or such later date as may be
specified by the Board of Directors of Federated) following the
first date of public announcement by Federated that a person
(other than Federated or a subsidiary or employee benefit or
stock ownership plan of Federated), together with its affiliates
and associates, has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the outstanding Federated
Common Stock (any such person being hereinafter called an
"Acquiring Person"); (ii) the close of business on the tenth
business day (or such later date as may be specified by the
Board of Directors of Federated) following the commencement of a
tender offer or exchange offer by a person (other than Federated
or a subsidiary or employee benefit or stock ownership plan of
Federated), the consummation of which would result in beneficial
ownership by such person of 20% or more of the outstanding
Federated Common Stock; and (iii) the close of business on the
tenth business day following the first date of public
announcement by Federated that Flip-in Event or a Flip-over Event
(as such terms are hereinafter defined) has occurred.
The Share Purchase Rights Agreement provides that, until the
Rights Distribution Date, the Rights may be transferred with and
only with the Federated Common Stock. Until the Rights
Distribution Date (or earlier redemption or expiration of the
Rights), any certificate evidencing shares of Federated Common
Stock issued upon transfer or new issuance of Federated Common
Stock will contain a notation incorporating the Share Purchase
Rights Agreement by reference. Until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates evidencing Federated
Common Stock will also constitute the transfer of the Rights
associated with such certificates. As soon as practicable
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following the Rights Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of Federated Common Stock as of the close of
business on the Rights Distribution Date and such separate Rights
Certificates alone will evidence the Rights. No Right is
exercisable at any time prior to the Rights Distribution Date.
The Rights will expire on December 19, 2004 (the "Final
Expiration Date") unless earlier redeemed or exchanged by
Federated as described below. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of
Federated, including without limitation the right to vote or to
receive dividends.
The Purchase Price payable, and the number of Federated Series
A Preferred Shares or other securities issuable, upon exercise of
the Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a
subdivision, combination, or reclassification of, the Federated
Series A Preferred Shares, (ii) upon the grant to holders of the
Federated Series A Preferred Shares of certain rights or warrants
to subscribe for or purchase Federated Series A Preferred Shares
at a price, or securities convertible into Federated Series A
Preferred Shares with a conversion price, less than the then-
current market price of the Federated Series A Preferred Shares,
or (iii) upon the distribution to holders of the Federated Series
A Preferred Shares of evidences of indebtedness or cash
(excluding regular periodic cash dividends), assets, stock
(excluding dividends payable in Federated Series A Preferred
Shares) or of subscription rights or warrants (other than those
referred to above). The number of outstanding Rights and the
number of one one-hundredths of a Federated Series A Preferred
Share issuable upon exercise of each Right also is subject to
adjustment in the event of a stock dividend on the Federated
Common Stock payable in shares of Federated Common Stock or a
subdivision, combination, or reclassification of the Federated
Common Stock occurring, in any such case, prior to the Rights
Distribution Date.
The Federated Series A Preferred Shares issuable upon exercise
of the Rights will not be redeemable. Each Federated Series A
Preferred Share will be entitled to a minimum preferential
quarterly dividend payment equal to the greater of (i) $1.00 per
share and (ii) an amount equal to 100 times the aggregate
dividends, declared per share of Common Stock during the related
quarter. In the event of liquidation, the holders of the
Federated Series A Preferred Shares will be entitled to a
preferential liquidation payment equal to the greater of (a) $100
per share and (b) an amount equal to 100 times the liquidation
payment made per share of Federated Common Stock. Each Federated
Series A Preferred Shares will have 100 votes, voting together
with the Federated Common Stock. Finally, in the event of any
merger, consolidation, or other transaction in which shares of
Federated Common Stock are exchanged, each Federated Series A
Preferred Share will be entitled to receive 100 times the amount
received per share of Federated Common Stock. These rights will
be protected by customary antidilution provisions. Because of
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the nature of the Federated Series A Preferred Shares' dividend,
voting and liquidation rights, the value of the one one-hundredth
interest in a Federated Series A Preferred Share purchasable upon
exercise of each Right should approximate the value of one share
of Federated Common Stock.
Rights may be exercised to purchase Federated Series A
Preferred Shares only after the Rights Distribution Date occurs
and prior to the occurrence of a Flip-in Event of Flip-over
Event. A Rights Distribution Date resulting from the
commencement of a tender offer or exchange offer described in
clause (ii) of the definition of "Rights Distribution Date" could
precede the occurrence of a Flip-in Event or Flip-over Event and
thus result in the Rights being exercisable to purchase Federated
Series A Preferred Shares. A Rights Distribution Date resulting
from any occurrence described in clause (i) or clause (iii) of
the definition of "Rights Distribution Date" would necessarily
follow the occurrence of a Flip-in Event or Flip-over Event and
thus result in the Rights being exercisable to purchase shares of
Federated Common Stock or other securities as described below.
In the event (a "Flip-in Event") that (i) any person, together
with its affiliates and associates, becomes the beneficial owner
of 20% or more of the outstanding Federated Common Stock, (ii)
any Acquiring Person merges into or combines with Federated and
Federated is the surviving corporation or any Acquiring Person
effects certain other transactions with Federated, as described
in the Share Purchase Rights Agreement, or (iii) during such time
as there is an Acquiring Person, there is any reclassification of
securities or recapitalization or reorganization of Federated
which has the effect of increasing by more than 1% the
proportionate share of the outstanding shares of any class of
equity securities of Federated or any of its subsidiaries
beneficially owned by the Acquiring Person, proper provision will
be make so that each holder of a Right, other than Rights that
are or were owned beneficially by the Acquiring Person (which,
from and after the later of the Rights Distribution Date and the
date of the earliest of any such events, will be void), will
thereafter have the right to receive upon exercise thereof at the
then-current exercise price of the Right, that number of shares
of Federated Common Stock (or, under certain circumstances, an
economically equivalent security or securities of Federated) that
have a market value of two times the exercise price of the Right.
In the event (a "Flip-over Event") that, following the first
date of public announcement by Federated that a person has become
an Acquiring Person, (i) Federated merges with or into any person
and Federated is not the surviving corporation, (ii) any person
merges with or into Federated and Federated is the surviving
corporation, but all or part of Federated Common Stock is changed
or exchanged, or (iii) 50% or more of Federated's assets or
earning power, including without limitation securities creating
obligations of Federated, are sold proper provision will be so
that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then-current exercise
price of the Right, that number of shares of common stock (or,
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under certain circumstances, an economically equivalent security
or securities) of such other person which at the time of such
transaction would have a market value of two times the exercise
price of the Right.
Following the occurrence of any Flip-in Event or Flip-over
Event, Rights (other than any Rights which have become void) may
be exercised as described above, upon payment of the exercise
price or, at the option of the holder thereof, without the
payment of the exercise price that would otherwise be payable.
If a holder of Rights elects to exercise, Rights without the
payment of the exercise price that would otherwise be payable,
such holder will be entitled to receive upon the exercise of such
Rights securities having a market value equal to the exercise
price of the Rights. In addition, at any time after the later of
the Rights Distribution Date and the first occurrence of a Flip-
in Event or a Flip-over Event and prior to the acquisition by any
person or group of affiliated or associated persons of 50% or
more of the outstanding Federated Common Stock, Federated may
exchange the Rights (other than any Rights which have become
void), in whole or in part, at an exchange ratio of one share of
Federated Common Stock per Right (subject to adjustment).
With certain exceptions, no adjustments in the Purchase Price
will be required until cumulative adjustments require an
adjustment in the Purchase Price of at least 1%. Federated is
not required to issue fractional Federated Series A Preferred
Shares (other than fractions that are integral multiples of one
one-hundredth of a Federated Series A Preferred Share, which may,
at the option of Federated, be evidenced by depositary receipts)
or fractional shares of Federated Common Stock or other
securities issuable upon the exercise of Rights. In lieu of
issuing such securities, Federated may make a cash payment, as
provided in the Share Purchase Rights Agreement.
Federated may redeem the Rights in whole, but not in part, at
a price of $0.03 per Right, subject to adjustment and, in the
event that the payment of such amount would be prohibited by loan
agreements or indentures to which Federated is a party, deferral
(the "Redemption Price"), at any time prior to the close of
business on the later of (i) the Rights Distribution Date and
(ii) the first date of public announcement that a person has
become an Acquiring Person. Immediately upon any redemption of
the Rights, the right to exercise the Rights will terminate and
the only right of the holders will be to receive the Redemption
Price.
The Share Purchase Rights Agreement may be amended by
Federated without the approval of any holders of Rights
Certificates, including amendments which add other events
requiring adjustment to the Purchase Price payable and the number
of Federated Series A Preferred Shares or other securities
issuable upon the exercise of the Rights of which modify
procedures relating to the redemption of the Rights, provided
that no amendment may be made which decreases the stated
Redemption Price to an amount less than $0.01 per Right,
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decreases the period time remaining until the Final Expiration
Date, or modifies a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable.
Certain Corporate Governance Matters
Federated's certificate of incorporation and by-laws provide
that the directors of Federated are to be classified into three
classes, with the directors in each class serving for three-year
terms and until their successors are elected. Any additional
person elected to the Board of Directors of Federated will be
added to a particular class of directors to be determined at the
time of such election, although in accordance with Federated's
certificate of incorporation and by-laws, the number of directors
in each class will be identical or as nearly practicable thereto
based on the total number of directors then serving as such.
Federated's by-laws provide that nominations for election of
directors by the stockholders will be made by the Board of
Directors of Federated or by any stockholder entitled to vote in
the election of directors generally. Federated's by-laws require
that stockholders intending to nominate candidates for election
as directors deliver written notice thereof to the Secretary of
Federated not later than 60 calendar days in advance of the
meeting of stockholders; provided, however, that in the event
that the date of the meeting is not publicly announced by
Federated by inclusion in a report filed with the SEC or
furnished to stockholders, or by mail, press release, or
otherwise more than 75 calendar days prior to the meeting, notice
by the stockholder to be timely must be delivered to the
Secretary of Federated not later than the close of business on
the tenth day following the date on which such announcement of
the date of the meeting was so communicated. Federated's by-laws
further require that the notice by the stockholder set forth
certain information concerning such stockholder and the
stockholder's nominees, including their names and addresses, a
representation that the stockholder is entitled to vote at such
meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice, a description of all arrangements or understandings
between the stockholders and each nominee, such other information
as would be required to be included in a proxy statement
soliciting proxies for the election of the nominees of such
stockholder, and the consent of each nominee to serve as a
director of Federated if so elected. The chairman of the meeting
may refuse to acknowledge the nomination of any person not made
in compliance with these requirements.
In addition to the provisions relating to the classification
of the Board of Directors and the director nomination procedures
described above, Federated's certificate of incorporation and by-
laws provide, in general, that (i) the number of directors of
Federated will be fixed, within a specified range, by a majority
of the total number of Federated directors (assuming no
vacancies) or by the holders of at least 80% of Federated's
voting stock, (ii) the directors of Federated in office from time
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to time will fill any vacancy or newly created directorship on
the Board of Directors of Federated with any new director to
serve in the class of directors to which he or she is so elected,
(iii) directors of Federated may be removed only for cause by the
holders of at least 80% of Federated's voting stock, (iv)
stockholder action can be taken only at an annual or special
meeting of stockholders and not by written consent in lieu of a
meeting, (v) except as described below, special meetings of
stockholders may be called only by Federated's Chief Executive
Officer or by a majority of the total number of directors of
Federated (assuming no vacancies) and the business permitted to
be conducted at any such meeting is limited to that brought
before the meeting by Federated's Chief Executive Officer or by a
majority of the total number of directors of Federated (assuming
no vacancies), and (vi) subject to certain exceptions, the Board
of Directors of Federated may postpone and reschedule any
previously scheduled annual or special meeting of stockholders.
Federated's by-laws also require that stockholders desiring to
bring any business before an annual meeting of stockholders
deliver written notice thereof to the Secretary of Federated not
later than 60 calendar days in advance of the meeting of
stockholders; provided, however, that in the event that the date
of the meeting is not publicly announced by Federated by press
release or inclusion in a report filed with the SEC or furnished
to stockholders more than 75 calendar days prior to the meeting,
notice by the stockholders to be timely must be delivered to the
Secretary of Federated not later than the close of business on
the tenth calendar day following the day on which such
announcement of the date of the meeting was so communicated.
Federated's by-laws further require that the notice by the
stockholder set forth a description of the business to be brought
before the meeting and the reasons for conducting such business
at the meeting and certain information concerning the stockholder
proposing such business and the beneficial owner, if any, on
whose behalf the proposal is made including their name and
addresses, the class and number of shares of Federated, that are
owned beneficially and of record by each of them, and any
material interest of either of them in the business proposed to
be brought before the meeting. Upon the written request of the
holders of not less than 15% of Federated's voting stock, the
Board of Directors of Federated will be required to call a
meeting of stockholders for the purpose specified in such written
request and fix a record date for the determination of
stockholders entitled to notice of and to vote at such meeting
(which record date may not be later than 60 calendar days after
the date of receipt of notice of such meeting), provided that in
the event that the Board or Directors of Federated calls an
annual or special meeting of stockholders to be held not later
than 90 calendar days after receipt of any such written request,
no separate special meeting of stockholders as so requested will
be required to be convened provided that the purposes of such
annual or special meeting called by the Board of Directors of
Federated include (among others) the purposes specified in such
written request of the stockholders.
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Under applicable provisions of Delaware law, the approval of a
Delaware company's board of directors, in addition to stockholder
approval, is required to adopt any amendment to the company's
certificate of incorporation, but a company's by-laws may be
amended either by action of its stockholders or, if the company's
certificate of incorporation so provides, its board of directors.
Federated's certificate of incorporation and by-laws provide that
(i) except as described below, the provisions summarized above
and the provisions relating to the classification of the Board
and nominating procedures may not be amended by the stockholders,
nor may any provision inconsistent therewith be adopted by the
stockholders, without the affirmative vote of the holders of at
least 80% of Federated's voting stock, voting together as single
class, except that if any such action (other than any direct or
indirect amendments to the provision requiring that stockholder
action be taken at a meeting of stockholders rather than by
written consent in lieu of a meeting) is approved by the holders
of a majority, but less than 80%, of the then-outstanding voting
stock (in addition to any other approvals require by law,
including approval by the Board of Directors of Federated with
respect to any amendment to Federated's certificate of
incorporation), such action will be effective as of one year from
the date of adoption, or (ii) Federated's by-law provisions
relating to the right of stockholders to cause special meetings
of stockholders to be called and to the composition of certain
directorate committees may not be amended by the Board without
stockholder approval.
Federated is subject to Section 203 of the DGCL, which
restricts the consummation of certain business combination
transactions in certain circumstances. In addition, Federated's
certificate of incorporation contains provisions that are
substantially similar to those contained in Section 203 of the
DGCL that restrict business combination transactions with (i) any
person or group (an "Initial 15% Stockholder") that became or is
deemed to have become the beneficial owner of 15% or more of the
voting stock of Federated as a result of its receipt of Federated
Common Stock or warrants that thereafter becomes the beneficial
owner of an additional 1% or more of the voting stock of the
Company and (ii) any other person or group that becomes the
beneficial owner of 15% more of the voting stock of Federated.
The foregoing provisions of Federated's certificate of
incorporation, the provisions of its by-laws relating to advance
notice of stockholder nominations, and the provisions of the
Share Purchase Rights Agreement (see "-- Preferred Share Purchase
Rights") may discourage or make more difficult the acquisition
of control of Federated by means of a tender offer, open market
purchase, proxy contest, or otherwise. These provisions are
intended to discourage or may have the effect of discouraging
certain types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control
of Federated first to negotiate with Federated. Federated's
management believes that the foregoing measures, many of which
are substantially similar to the takeover-related measures in
effect for many other publicly held companies, provide benefits
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by enhancing Federated's potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to take over
or restructure Federated that outweigh the disadvantages of
discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of
their terms.
DESCRIPTION OF SURVIVING COMPANY CAPITAL STOCK
Authorized Capital Stock
The Surviving Company's certificate of incorporation will
provide that the authorized capital stock of the Surviving
Company will consist of 37,044 shares of Surviving Company Common
Stock and 756 shares of Surviving Company Preferred Stock.
Common Stock
The holders of Surviving Company Common Stock will be entitled
to one vote for each share held of record on all matters
submitted to a vote of stockholders. Holders of Surviving
Company Common Stock will be entitled and receive ratably such
dividends, if any, as may be declared by the Board of Directors
of the Surviving Company out of funds legally available therefor.
In the event of a liquidation, dissolution, or winding up of the
Surviving Company, holders of Surviving Company Common Stock will
be entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of the
Surviving Company Preferred Stock. Holders of Surviving Company
Common Stock have no preemptive rights and have no right to
convert their Surviving Company Common Stock into any other
securities, and there are no redemption provisions with respect
to such shares.
Preferred Stock
Dividends and Distributions. Holders of shares of Surviving
Company Preferred Stock will be entitled to receive, when, as,
and if declared by the Board of Directors of the Surviving
Company out of funds legally available for such purposes, annual
dividends payable in arrears in cash on September 15 of each year
(each such date being referred to as a "Surviving Company
Dividend Payment Date"), commencing on the first Surviving
Company Dividend Payment Date after the first issuance of a share
or a fraction of a share of Surviving Company Preferred Stock in
an amount equal to $50.00 per share per annum (and no more).
Dividends not declared will not cumulate and the Surviving
Company will have no obligation with respect thereto.
Voting Rights. Each share of Surviving Company Preferred
Stock shall entitle the holder thereof to one vote on all matters
submitted to a vote of the stockholders of the Surviving Company
(subject to adjustment in the event the Surviving Company shall
at any time (i) declare a dividend on the Surviving Company
Common Stock payable in shares of Surviving Company Common Stock,
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(ii) subdivide the outstanding Surviving Company Common Stock, or
(iii) combine the outstanding Surviving Company Common Stock into
a smaller number of shares). Except as otherwise provided in the
Surviving Company's certificate of incorporation or by-laws, the
holders of the Surviving Company Preferred Stock and the holder
of shares of Surviving Company Common Stock will vote together as
a single class on all matters submitted to a vote of stockholders
of the Surviving Company. Except with respect to certain
amendments to the certificate of incorporation, holders of
Surviving Company Preferred Stock have no special, separate,
class or series voting rights and their consent will not be
required (except to the extent that they are entitled to vote
with holders of Surviving Company Common Stock) for taking any
corporate action.
Liquidation. Upon any liquidation (voluntary or otherwise),
dissolution, or winding up of the Surviving Company, no
distribution will be made to the holders of the shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Surviving Company Preferred
Stock unless, prior thereto the holders of shares of Surviving
Company Preferred Stock shall have received $250.00 per share.
After payment of such amount, the holders of the Surviving
Company Preferred Stock will not be entitled to any further right
or claim to any of the remaining assets of the Surviving Company.
Optional Redemption. The Surviving Company's certificate of
incorporation will provide that the Surviving Company, at any
time after the expiration of the warrants (the "Surviving Company
Warrants") for which shares of Surviving Company Preferred Stock
will be exchangeable as described below, and from time to time
thereafter, may at its option redeem all, or any number less than
all, of the outstanding shares of Surviving Company Preferred
Stock. Any redemption of shares of Surviving Company Preferred
Stock shall be effected at a price equal to $250.00 per share
(subject to adjustment in the event that the Surviving Company
shall at any time (i) declare any dividend on Surviving Company
Common Stock payable in shares of Surviving Company Common Stock,
(ii) subdivide the outstanding Surviving Company Common Stock, or
(iii) combine the outstanding Surviving Company Common Stock into
a smaller number of shares).
Exchange. Any holder of record of shares of Surviving Company
Preferred Stock may exchange any or all shares of Surviving
Company Preferred Stock, at any time prior to the close of
business on the Exchange Termination Date (as defined below), for
1,000 Surviving Company Warrants for each share of Surviving
Company Preferred Stock so exchanged (subject to adjustment in
certain circumstances). Each Surviving Company Warrant will be
exercisable to purchase 0.27 shares of Federated Common Stock
upon the payment of an exercise price per Surviving Company
Warrant of $17.00 (subject to adjustment in certain circumstances).
The "Exchange Termination Date" with respect to a given share of
Surviving Company Preferred Stock means (i) in the case of
redemption of such share, the date fixed for redemption as
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specified in the notice of redemption with respect to such shares
or (ii) the date on which such Surviving Company Warrants expire.
Amendment. The Surviving Company's certificate of
incorporation may not be amended in any manner which would
materially alter or change the powers or preferences of the
Surviving Company Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more
of the outstanding shares of Surviving Company Preferred Stock,
voting separately as a class.
COMPARISON OF STOCKHOLDERS' RIGHTS
At the Effective Time, the holders of Broadway Common Stock
will become holders of Federated Common Stock and their rights
will be governed by Federated's certificate of incorporation and
by-laws and by the DGCL, and the holders of Broadway Preferred
Stock will become holders of Surviving Company Preferred Stock
and their rights will be governed by the Surviving Company's
certificate of incorporation and by-laws and by the DGCL. The
following are summaries of certain differences between (i) the
rights of holders of Broadway Common Stock and holders of
Federated Common Stock and (ii) the rights of holders of Broadway
Preferred Stock and holders of Surviving Company Preferred Stock.
Because each of Broadway, Federated, and the Surviving Company
are or will be organized under the DGCL, any differences in the
rights of their stockholders arise solely from differences in
their respective certificates of incorporation and by-laws.
The following discussions are not intended to be complete and
are qualified in their entirety by reference to the DGCL,
Broadway's certificate of incorporation and by-laws, Federated's
certificate of incorporation and by-laws, and the Surviving
Company's certificate of incorporation and by-laws, as
appropriate. Copies of the forms of the certificate of
incorporation and by-laws to be in effect for the Surviving
Company immediately following the Effective Time are attached as
Appendices D and E, respectively, hereto.
Certain Differences in Rights of Holders of Broadway Common Stock
and Federated Common Stock
After the Merger becomes effective, the rights of holders of
Broadway Common Stock who become holders of Federated Common
Stock will be governed by Federated's certificate of
incorporation and the by-laws and by the DGCL. The following is
a summary of certain material differences between the rights of
holders of Broadway Common Stock and Federated Common Stock.
Authorized Capital. The total number of authorized shares of
capital stock of Federated is 625 million shares, consisting of
500 million shares of Federated Common Stock and 125 million
shares of preferred stock, par value $0.01 per share. The total
number of authorized shares of Broadway is 125 million,
consisting of 100 million shares of Broadway Common Stock and 25
81
million shares of Preferred Stock, par value $0.01 per share, of
Broadway.
Action by Written Consent of Stockholders. Under Broadway's
by-laws, any action required or permitted to be taken at an
annual or special meeting of stockholders may be taken without a
meeting if a consent in writing is signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were
present and voted. Under Federated's certificates of
incorporation and by-laws, stockholder action can be taken only
at an annual or special meeting of stockholders and not by
written consent.
Special Meetings of Stockholders. Broadway's by-laws provide
that its Board of Directors, Chairman of the Board of Directors,
Chief Executive Officer, President, or Secretary may call a
special meeting of the stockholders, at the written request of a
majority of the Board or the holders of more than 15% of
Broadway's outstanding voting stock. Federated by-laws provide
that special meetings of the stockholders may be called by the
Chairman of the Board, the Secretary upon the written request of
a majority of Directors, or by the Board of Directors upon the
written request of not less than 15% of the holders of the
outstanding voting stock.
Number, Election, and Term of Directors. Broadway's by-laws
provide for a Board of Directors consisting of not less than
three nor more than 25 directors, elected by a plurality of votes
cast at the stockholders' annual meeting. The exact number of
Broadway directors is to be determined by a majority vote of the
entire Board of Directors. Under Broadway's certificate of
incorporation, at least two members of Broadway's Board of
Directors must be neither members of Broadway's management nor
designated by Zell/Chilmark. Federated's by-laws provide for a
Board of Directors consisting of not less than three nor more
than 16 directors. The authorized number of directors is to be
determined by a majority vote of the whole Board of Directors or
by an affirmative vote of the holders of at least 80% of the
voting stock. Each Federated director must be elected by a
plurality vote of stockholders.
Classes of Directors. Broadway's Board of Directors is not
divided into separate classes. Each Broadway director serves
until the next annual meeting of stockholders after his or her
election. Federated's certificate of incorporation establishes
three classes of directors, as nearly equal in number of
directors as possible, with each director elected for a term
expiring at the third succeeding annual meeting of stockholders
after his or her election.
Removal of Directors. Broadway's certificate of incorporation
and by-laws contain no express removal provisions; therefore,
pursuant to Section 141 of the DGCL, directors can be removed
with or without cause by an affirmative vote of a majority of the
82
stockholders then entitled to vote. Federated's certificate of
incorporation provides that the holders of Federated Common Stock
may remove any director only for cause and only at an annual or
special meeting where the notice of such meeting states that a
director's removal is among the purposes of the meeting and only
upon an 80% vote of the stockholders.
Notices of Director Nominations and Stockholder Business.
Broadway's by-laws provide that to be timely, a stockholder's
notice of nomination or proposed business must be received not
less than 60 nor more than 90 calendar days before the annual
meeting. If the public announcement of such meeting is not made
at least 70 calendar days before the date of such meeting, the
stockholder must make a request not later than 10 calendar days
after the announcement of the meeting. Federated's by-laws
provide that a stockholder's notice of a proposed director
nomination or of a request for business to be brought before an
annual meeting must be received by the Secretary not less than 60
calendar days prior to the meeting. If the public announcement
of such meeting is not made at least 75 calendar days before the
date of such meeting, the stockholder must make a request not
later than 10 calendar days after the announcement of the
meeting.
Business Combination Provisions. Each of Federated and
Broadway is subject to Section 203 of the DGCL. In addition,
Federated's certificate of incorporation contains provisions that
are substantially similar to those contained in Section 203 of
the DGCL that restrict business combination transactions with any
persons or groups that own 15% or more of Federated's voting
stock.
Amendment of Certificate of Incorporation and By-Laws. Under
Broadway's certificate of incorporation, the provisions thereof
relating to the call of a special meeting of stockholders may not
be amended except with the vote of stockholders representing 66-
2/3% of the voting power of Broadway, voting together as a single
class. Amendments with respect to other provisions of the
certificates of incorporation require a majority vote.
Stockholders may also amend the by-laws with a majority vote.
Federated's certificate of incorporation and by-laws provide
that the provisions contained therein relating to classification
of the Board of Directors, nominating procedures, the call of
special meetings, the bringing of stockholder business, removal
of directors, filling of vacancies, and certain other matters
cannot be amended by the stockholders without the affirmative
vote of at least 80% of Federated's voting stock, voting together
as a single class.
Rights Plan. Broadway does not have a share purchase rights
plan. Federated has issued Rights under the Share Purchase
Rights Agreement. See "Description of Federated Capital Stock --
Preferred Share Purchase Rights."
83
Certain Differences in Rights of Holders of Broadway Preferred
Stock and Surviving Company Preferred Stock
After the Merger becomes effective, the rights of holders of
Broadway Preferred Stock who become holders of Surviving Company
Preferred Stock will be governed by the Surviving Company's
certificate of incorporation and by-laws and the DGCL. The
following is a summary of certain material differences between
the rights of holders of Broadway Preferred Stock and the rights
of holders of Surviving Company Preferred Stock.
As the following discussion reflects, in effect, the Merger
will result in 1-for-1,000 reverse stock split of both the
Broadway Preferred Stock and the Broadway Common Stock, such that
the Surviving Company Preferred Stock should be in the same
relative position with respect to the Surviving Company Common
Stock as the Broadway Preferred Stock is presently with respect
to the Broadway Common Stock.
Authorized Capital. The total number of authorized shares of
Broadway is 125,000,000, consisting of 100,000,000 shares of
Common Stock and 25,000,000 shares of Broadway preferred stock,
par value $0.01 per share. The total number of authorized shares
of capital stock of the Surviving Company will be 37,800 shares
Surviving Company, consisting of 37,044 shares of Surviving
Company Common Stock and 756 shares of preferred stock.
Dividend Payment, Liquidation Preference, and Redemption.
Broadway's certificate of incorporation provides that holders of
Broadway Preferred Stock are entitled to receive, when, as, and
if declared, dividends in an amount equal to $0.05 per share per
annum. Surviving Company's certificate of incorporation will
provide that holders of Surviving Company Preferred Stock will be
entitled to receive, when, as, and if declared, dividends in an
amount equal to $50.00 per share per annum. Upon any
liquidation, prior to any holders of junior securities receiving
a distribution, and upon a redemption, holders of Broadway
Preferred Stock are entitled to receive $0.25 per share as
opposed to the $250.00 per share to be received by holders of
Surviving Company Preferred Stock.
Exchange of Preferred Stock. Broadway's certificate of
incorporation provides for the exchange of shares of Broadway
Preferred Stock for a warrant exercisable to purchase one share
of Broadway Common Stock at an exercise price of $17.00 per
share. The Surviving Company's certificate of incorporation will
provide for the exchange of shares of Surviving Company Preferred
Stock for a warrant exercisable to purchase 0.27 shares of
Federated Common Stock at an exercise price of $17.00.
Blank Check Preferred Stock. Broadway's certificate of
incorporation permits the Board of Directors of Broadway to issue
shares of Preferred Stock in new series with such designations
and relative rights and preferences as may be determined by
resolution. Surviving Company's certificate of incorporation
84
does not permit the board of directors of the Surviving Company
to issue shares of Preferred Stock in multiple series.
LEGAL MATTERS
The validity of the Federated Common Stock to be issued in
the Merger will be passed upon for Federated by Jones, Day,
Reavis & Pogue, New York, New York.
EXPERTS
The consolidated financial statements of Federated as of
January 28, 1995 and January 29, 1994, and for each of the fifty-
two week periods ended January 28, 1995, January 29, 1994, and
January 30, 1993, have been incorporated by reference in this
Proxy Statement/Prospectus in reliance upon the report,
incorporated by reference herein, of KPMG Peat Marwick LLP,
independent certified public accountants and upon the authority
of that firm as experts in accounting and auditing.
The consolidated financial statements of Broadway
incorporated in this Proxy Statement/Prospectus by reference to
the Annual Report on Form 10-K of Broadway Stores, Inc. for the
52-week period ended January 28, 1995, have been so incorporated
in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in
auditing and accounting.
Representatives of Price Waterhouse LLP, Broadway's
independent auditors, are expected to be present at the Special
Meeting and will have the opportunity to make a statement if they
desire to do so. It is also expected that they will be available
to respond to appropriate questions.
PROPOSALS BY BROADWAY STOCKHOLDERS
Any proposal of a stockholder of Broadway intended to be
presented at the 1996 annual meeting of the stockholders of
Broadway must be received in writing by the Secretary of Broadway
by December 29, 1995, for inclusion, if appropriate, in the
proxy, notice of meeting, and proxy statement relating to such
annual meeting.
OTHER MATTERS
The Board of Directors of Broadway knows of no business
which will be presented for consideration at the Special Meeting
other than that discussed herein. However, if any business
incidental to the conduct of the Special Meeting shall properly
come before the Special Meeting, the persons named in the
enclosed form of proxy or their substitutes will vote said proxy
in respect of any such business in accordance with their best
85
judgment pursuant to the discretionary authority conferred
thereby. The affirmative vote of the holders of shares
representing a majority of the combined voting power of the
shares of Broadway Common Stock and Broadway Preferred Stock
represented and entitled to vote at the Special Meeting, voting
together as a single class, would be required with respect to any
such matter brought to a stockholder vote. Accordingly,
abstentions and broker non-votes would have the effect of
negative votes with respect to any such matter.
By Order of the Board of
Directors
George C. Touras
Secretary
Los Angeles, California
___________ __, 1995
PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY CARD AND
RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
86
[FORM OF PROXY]
BROADWAY STORES, INC.
This Proxy is Solicited on Behalf of the Board of Directors of Broadway
Stores, Inc.
for use at the Special Meeting of Stockholders to be held on
---------- -
, 1995
The undersigned holder of shares of Broadway Stores, Inc. hereby appoints
, , and
------------------- --------------------- --------------------------
, and each of them, as proxies of the undersigned, with full power of
substitution and resubstitution, to represent and vote as set forth
herein all of the shares of Common Stock and Preferred Stock of Broadway
Stores, Inc. (the "Company") held of record by the undersigned on
--------
, 1995 at the Special Meeting of Stockholders of the Company to be
- --
held on , , 1995, at 9:00 a.m., Eastern Time,
------------ ----------- --
at ______________, New York, New York, and at any and all postponements
and adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY
WILL BE VOTED "FOR" THE PROPOSAL TO ADOPT THE MERGER AGREEMENT, AND IN
ACCORDANCE WITH THE JUDGMENT OF THE PERSON OR PERSONS VOTING THE PROXY
WITH RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(Continued, and to be dated and signed, on the other side)
[X] Please mark your
vote as in this example.
THE DIRECTORS OF BROADWAY RECOMMEND A VOTE FOR THE
ADOPTION OF THE MERGER AGREEMENT.
1. Adoption of the Agreement and Plan of Merger, dated as of
August 14, 1995 by and among Broadway Stores, Inc., Federated
Department Stores, Inc. and a wholly owned subsidiary of Federated
Department Stores, Inc.
FOR AGAINST ABSTAIN
2. In their discretion, the proxies are authorized to vote upon
such other matters as may properly come before the Special Meeting.
FOR AGAINST ABSTAIN
This proxy should be dated,
signed by the stockholder as
his or her name appears below,
and returned promptly in the
enclosed envelope. Joint
owners should each sign
personally, and trustees and
others signing in a
representative capacity should
indicate the capacity in which
they sign.
Dated:
______________________________
______________________________
Signature of Stockholder
______________________________
Signature of Stockholder
USING BLUE OR BLACK INK, PLEASE MARK, SIGN, AND PROMPTLY RETURN
THIS PROXY CARD IN THE ENVELOPE PROVIDED
APPENDIX A
===========================================================================
AGREEMENT AND PLAN OF MERGER
by and among
BROADWAY STORES, INC.
FEDERATED DEPARTMENT STORES, INC.
and
NOMO COMPANY, INC.
---------------------------------
Dated as of August 14, 1995
---------------------------------
===========================================================================
A-1
Table of Contents
Page
----
1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-5
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . A-5
1.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . A-5
1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . A-6
1.4 Certificate of Incorporation and By-Laws of Surviving
Corporation . . . . . . . . . . . . . . . . . . . . . . . . A-6
1.5 Directors and Officers of Surviving Corporation . . . . . . A-6
2. Conversion of Securities . . . . . . . . . . . . . . . . . . . . . A-6
2.1 Conversion of Securities . . . . . . . . . . . . . . . . . A-6
2.2 Payment for Company Common Shares . . . . . . . . . . . . . A-8
2.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . A-9
2.4 Payment for Company Series A Preferred Shares . . . . . . . A-9
2.5 Dissenting Company Series A Preferred Shares . . . . . . A-10
2.6 No Transfer after the Effective Time . . . . . . . . . . A-10
3. Representations and Warranties of the Company . . . . . . . . . . A-10
3.1 Existence; Good Standing; Corporate Authority . . . . . . A-10
3.2 Authorization, Validity and Effect of Agreement . . . . . A-11
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . A-11
3.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . A-12
3.5 Other Interests . . . . . . . . . . . . . . . . . . . . . A-12
3.6 No Conflict; Required Filings and Consents . . . . . . . A-12
3.7 Compliance . . . . . . . . . . . . . . . . . . . . . . . A-13
3.8 SEC Documents . . . . . . . . . . . . . . . . . . . . . . A-13
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . A-15
3.10 Absence of Certain Changes . . . . . . . . . . . . . . . A-15
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
3.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . A-15
3.13 State Takeover Statutes . . . . . . . . . . . . . . . . . A-16
3.14 No Brokers . . . . . . . . . . . . . . . . . . . . . . . A-16
3.15 Opinion of Financial Advisor . . . . . . . . . . . . . . A-16
4. Representations and Warranties of Parent and Merger Sub . . . . . A-17
4.1 Existence; Good Standing; Corporate Authority . . . . . . A-17
4.2 Authorization, Validity and Effect of Agreement . . . . . A-17
4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . A-17
4.4 No Conflict; Required Filings and Consents . . . . . . . A-18
4.5 Compliance . . . . . . . . . . . . . . . . . . . . . . . A-19
4.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . A-19
4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . A-20
4.8 Absence of Certain Changes . . . . . . . . . . . . . . . A-20
4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
4.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . A-21
A-2
Table of Contents (Cont'd)
Page
----
4.11 No Brokers . . . . . . . . . . . . . . . . . . . . . . . A-21
4.12 Merger Sub . . . . . . . . . . . . . . . . . . . . . . . A-21
4.13 Issuance of Parent Common Shares . . . . . . . . . . . . A-21
5. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
5.1 Alternative Proposals . . . . . . . . . . . . . . . . . . A-21
5.2 Interim Operations . . . . . . . . . . . . . . . . . . . A-22
5.3 Meeting of Stockholders . . . . . . . . . . . . . . . . . A-24
5.4 Filings, Other Action . . . . . . . . . . . . . . . . . . A-24
5.5 Inspection of Records . . . . . . . . . . . . . . . . . . A-24
5.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . . A-25
5.7 Registration Statement . . . . . . . . . . . . . . . . . A-25
5.8 Listing Application . . . . . . . . . . . . . . . . . . . A-26
5.9 Further Action . . . . . . . . . . . . . . . . . . . . . A-26
5.10 Affiliate Letters . . . . . . . . . . . . . . . . . . . . A-26
5.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . A-26
5.12 Insurance; Indemnity . . . . . . . . . . . . . . . . . . A-26
5.13 Employee Benefits . . . . . . . . . . . . . . . . . . . . A-28
5.14 Conveyance Taxes . . . . . . . . . . . . . . . . . . . . A-28
5.15 Consents . . . . . . . . . . . . . . . . . . . . . . . . A-29
5.16 No Extraordinary Dividends by Parent . . . . . . . . . . A-29
5.17 Delivery of Parent Company Shares under the Company POR . A-29
6. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
6.1 Conditions to Each Party's Obligation To Effect the Merger
A-29
6.2 Conditions to Obligation of Company To Effect the Merger A-30
6.3 Conditions to Obligation of Parent and Merger Sub to
Effect the Merger . . . . . . . . . . . . . . . . . . . . A-30
7. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
7.1 Termination by Mutual Consent . . . . . . . . . . . . . . A-32
7.2 Termination by Either Parent or Company . . . . . . . . . A-32
7.3 Termination by Company . . . . . . . . . . . . . . . . . A-32
7.4 Termination by Parent and Merger Sub . . . . . . . . . . A-32
7.5 Effect of Termination and Abandonment . . . . . . . . . . A-33
8. General Provisions . . . . . . . . . . . . . . . . . . . . . . . A-33
8.1 Nonsurvival of Representations, Warranties and Agreements A-33
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . A-33
8.3 Assignment; Binding Effect . . . . . . . . . . . . . . . A-35
8.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . A-35
8.5 Amendment . . . . . . . . . . . . . . . . . . . . . . . . A-35
8.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . A-35
A-3
Table of Contents (Cont'd)
Page
----
8.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . A-35
8.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . A-36
8.9 Interpretation . . . . . . . . . . . . . . . . . . . . . A-36
8.10 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . A-36
8.11 Incorporation of Schedules . . . . . . . . . . . . . . . A-36
8.12 Severability . . . . . . . . . . . . . . . . . . . . . . A-36
8.13 Enforcement of Agreement . . . . . . . . . . . . . . . . A-36
8.14 Prudential Loan . . . . . . . . . . . . . . . . . . . . . A-36
8.15 Effect of Exercise of Option . . . . . . . . . . . . . . A-37
8.16 Absence of Certain Knowledge . . . . . . . . . . . . . . A-38
List of Schedules
Schedule 2.1(f) - Options
Schedule 3.6(a) - Certain Conflicts of the Company
Schedule 3.8(d) - Indebtedness of the Company
Schedule 4.4(a) - Certain Conflicts of Parent
Schedule 5.13 - Employee Agreements and Arrangements
Schedule 6.3(d) - Certain Actions by the Company and its Board of Directors
List of Exhibits
Exhibit A - Form of Amended and Restated Certificate of Incorporation
Exhibit B - Form of Amended and Restated By-Laws
Exhibit C - Form of Affiliate Letter
Exhibit D - Form of Registration Rights Agreement
A-4
Agreement and Plan of Merger
Agreement and Plan of Merger (this "Agreement"), dated as of
August 14, 1995, by and among Broadway Stores, Inc., a Delaware corporation
(the "Company"), Federated Department Stores, Inc., a Delaware corporation
("Parent"), and Nomo Company, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub").
Recitals
A. Each of the Boards of Directors of the Company, Parent and
Merger Sub has determined it is in the best interests of its respective
stockholders for Merger Sub to merge with and into the Company (the
"Merger"), on the terms and subject to the conditions set forth herein.
B. Each of the Company, Parent and Merger Sub desires to
provide for the consummation of the Merger and certain other transactions
relating thereto, on the terms and subject to the conditions set forth
herein.
C. As a condition to its willingness to enter into this
Agreement, Parent has required that, simultaneously with the execution
hereof, [Cub], a Delaware limited partnership and stockholder of the
Company ("Stockholder"), enter into the Stock Agreement, dated as of even
date herewith (the "Stock Agreement"), with Parent, pursuant to which
Stockholder is granting to Parent the option (the "Option") to purchase all
of the Company Common Shares (as defined below) owned by Stockholder.
1. The Merger
1.1 The Merger. (a) On the terms and subject to the conditions
----------
of this Agreement, at the Effective Time (as defined below), Merger Sub
will be merged with and into the Company in accordance with the applicable
provisions of the General Corporation Law of the State of Delaware (the
"DGCL"), and the separate corporate existence of Merger Sub will thereupon
cease. The Company will be the surviving corporation in the Merger (as
such, the "Surviving Corporation").
(b) At the Effective Time, the corporate existence of the
Company with all its rights, privileges, powers and franchises will
continue unaffected and unimpaired by the Merger. The Merger will have the
effects specified in the DGCL.
1.2 The Closing. The closing (the "Closing") of the
-----------
transactions contemplated by this Agreement will take place at the offices
of Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York, at
10:00 a.m., local time, on the first business day following the date on
which the last of the conditions (excluding conditions that by their terms
cannot be satisfied until the Closing Date (as defined below)) set forth in
Article 6 is satisfied or waived in accordance herewith or at such other
place, time or date as the parties may agree. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date".
A-5
1.3 Effective Time. On the Closing Date or as soon as
--------------
practicable following the date on which the last of the conditions set
forth in Article 6 is satisfied or waived in accordance herewith, Merger
Sub and the Company will cause a certificate of merger to be filed with the
Secretary of State of the State of Delaware as provided in Section 251 of
the DGCL. Upon completion of such filing, the Merger will become effective
in accordance with the DGCL. The time and date on which the Merger becomes
effective is herein referred to as the "Effective Time."
1.4 Certificate of Incorporation and By-Laws of Surviving
-----------------------------------------------------
Corporation. (a) The certificate of incorporation of the Surviving
-----------
Corporation to be in effect from and after the Effective Time until amended
in accordance with its terms and the DGCL will be the certificate of
incorporation of the Company immediately prior to the Effective Time, as
amended and restated in the form of Exhibit A.
(b) The by-laws of the Surviving Corporation to be in effect
from and after the Effective Time until amended in accordance with their
terms and the DGCL will be the by-laws of the Company immediately prior to
the Effective Time, as amended and restated in the form of Exhibit B.
1.5 Directors and Officers of Surviving Corporation. (a) The
-----------------------------------------------
members of the initial Board of Directors of the Surviving Corporation will
be the members of the Board of Directors of Merger Sub immediately prior to
the Effective Time. All of the members of the Board of Directors of the
Surviving Corporation will serve until their successors are duly elected or
appointed and qualified or until their earlier death, resignation or
removal in accordance with the certificate of incorporation and the by-laws
of the Surviving Corporation.
(b) The officers of the Surviving Corporation will consist of
the officers of Merger Sub immediately prior to the Effective Time. Such
persons will continue as officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the certificate of
incorporation and the by-laws of the Surviving Corporation.
2. Conversion of Securities
2.1 Conversion of Securities. (a) At the Effective Time, each
------------------------
share of Common Stock, par value $0.01 per share, of the Company (each a
"Company Common Share") issued and outstanding immediately prior to the
Effective Time (other than Company Common Shares owned by Parent or any
direct or indirect wholly owned subsidiary of Parent (collectively, the
"Parent Companies") or any of the Company's direct or indirect wholly owned
subsidiaries) will, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into 0.27 shares (the "Conversion
Rate") of Common Stock, par value $0.01 per share, of Parent and the
associated share purchase rights (collectively, the "Parent Common
Shares").
A-6
(b) All Company Common Shares to be converted into Parent Common
Shares pursuant to this Section 2.1 will, by virtue of the Merger and
without any action on the part of the holders thereof, cease to be
outstanding, be cancelled and retired and cease to exist, and each holder
of a certificate previously representing any such Company Common Shares
will thereafter cease to have any rights with respect to such Company
Common Shares, except the right to receive for each of the Company Common
Shares, upon the surrender of such certificate in accordance with Section
2.2, the number of Parent Common Shares specified above and cash in lieu of
fractional Parent Common Shares as contemplated by Section 2.3
(collectively, the "Consideration").
(c) At the Effective Time, each Company Common Share issued and
outstanding and owned by any of the Parent Companies or any of the
Company's direct or indirect wholly owned subsidiaries immediately prior to
the Effective Time will, by virtue of the Merger and without any action on
the part of the holder thereof, cease to be outstanding, be cancelled and
retired without payment of any consideration therefor and cease to exist.
(d) At the Effective Time, each share of Series A Preferred
Stock, par value $0.01 per share, of the Company (each, a "Company Series A
Preferred Share") issued and outstanding immediately prior to the Effective
Time will, by virtue of the Merger and without any action on the part of
the holders thereof, be converted into one one-thousandth of a share of
Series A Preferred Stock, par value $0.01 per share, of the Surviving
Corporation (each a "Surviving Corporation Series A Preferred Share"),
having the powers, preferences and relative, participating, optional or
other special rights set forth in Exhibit A.
(e) At the Effective Time, each share of Common Stock, par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time will, by virtue of the Merger and without any action on
the part of Merger Sub or the holder thereof, be converted into 370.44
shares of common stock, par value $0.01 per share, of the Surviving
Corporation, with the result that the Surviving Corporation will be a
wholly owned subsidiary of Parent.
(f) Subject to the satisfaction of the obligations of the
Company with respect thereto in Schedule 6.3(d), at the Effective Time,
each outstanding option to purchase Company Common Shares (each, an
"Option") listed on Schedule 2.1(f) and each outstanding Option issued in
accordance with Section 5.2(f) will become an option to acquire, on
substantially the same terms and conditions as were applicable under such
Option immediately prior to the Effective Time, a number of Parent Common
Shares equal to the product of the Conversion Rate and the number of
Company Common Shares subject to such Option immediately prior to the
Effective Time, at a price per share equal to the aggregate exercise price
for the Company Common Shares subject to such Option divided by the number
of Parent Common Shares deemed to be purchasable pursuant to such Option;
provided, however, that Parent will not issue any fractional Parent Common
Share upon any exercise of any Option and any right in respect thereof
will, without further action, be forfeited. Subject to the satisfaction of
the obligations of the Company with respect thereto in Schedule 6.3(d),
following the Effective Time Parent will issue the Parent Common Shares
required to be issued upon the exercise of any Option as provided in the
immediately preceding sentence.
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(g) At or promptly following the Effective Time, Parent will,
and will cause the Surviving Corporation to, execute an agreement providing
that any holder of a Company Warrant (as defined below) will have the right
until the expiration date thereof to exercise such Company Warrant for the
number of Parent Common Shares receivable pursuant to Section 2.1(a) by a
holder of the number of Company Common Shares for which such Company
Warrant might have been exercised immediately prior to the Effective Time.
2.2 Payment for Company Common Shares. (a) At the Effective
---------------------------------
Time, Parent will make available to The Bank of New York or such other
exchange agent as may be selected by Parent and reasonably acceptable to
the Company (the "Exchange Agent"), for the benefit of the holders of
Company Common Shares, a sufficient number of certificates representing
Parent Common Shares required to effect the delivery of the aggregate
Consideration pursuant to Section 2.1(a) (the certificates representing
Parent Common Shares and any cash delivered to the Exchange Agent pursuant
to Section 2.3 comprising such aggregate Consideration being hereinafter
referred to as the "Exchange Fund"). The Exchange Agent will, pursuant to
irrevocable instructions, deliver the Parent Common Shares contemplated to
be issued pursuant to Section 2.1(a) out of the Exchange Fund, and, except
as provided in Section 2.3, the Exchange Fund will not be used for any
other purpose.
(b) Promptly after the Effective Time, the Exchange Agent will
mail to each holder of record (other than holders of certificates for
Company Common Shares referred to in Section 2.1(c)) of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Company Common Shares (the "Certificates") (i) a form of letter
of transmittal (which will specify that delivery will be effected, and risk
of loss and title to the Certificates will pass, only upon proper delivery
of the Certificates to the Exchange Agent) and (ii) instructions for use in
effecting the surrender of the Certificates for payment therefor. Upon
surrender of Certificates for cancellation to the Exchange Agent, together
with such letter of transmittal duly executed and any other required
documents, the holder of such Certificates will be entitled to receive for
each of the Company Common Shares represented by such Certificates the
Consideration and the Certificates so surrendered will promptly be
cancelled. Until so surrendered, Certificates will represent solely the
right to receive the Consideration. No dividends or other distributions
that are declared after the Effective Time on Parent Common Shares and
payable to the holders of record thereof after the Effective Time will be
paid to persons entitled by reason of the Merger to receive Parent Common
Shares until such persons surrender their Certificates. Upon such
surrender, there will be paid to the person in whose name the Parent Common
Shares are issued any dividends or other distributions on such Parent
Common Shares which will have a record date after the Effective Time and
prior to such surrender and a payment date after such surrender and such
payment will be made on such payment date. In no event will the persons
entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions. If any cash or
certificate representing Parent Common Shares is to be paid to or issued in
a name other than that in which the Certificate surrendered in exchange
therefor is registered, it will be a condition of such exchange that the
Certificate so surrendered be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such Parent Common Shares in a name other than
that of the registered holder of the Certificate surrendered, or establish
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to the satisfaction of the Exchange Agent that such tax has been paid or is
not applicable. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto will be liable to a holder of Company Common Shares
for any Parent Common Shares or dividends thereon or, in accordance with
Section 2.3, cash in lieu of fractional Parent Common Shares, delivered to
a public official pursuant to applicable escheat law. The Exchange Agent
will not be entitled to vote or exercise any rights of ownership with
respect to such Parent Common Shares for the account of the persons
entitled thereto.
(c) Any portion of the Exchange Fund or the cash made available
to the Exchange Agent pursuant to Section 2.3 which remains unclaimed by
the former stockholders of the Company for one year after the Effective
Time will be delivered to Parent and any former stockholders of the Company
will thereafter look only to Parent for payment of their claim for the
Consideration for the Company Common Shares.
2.3 Fractional Shares. No fractional Parent Common Shares will
-----------------
be issued in the Merger. In lieu of any such fractional securities, each
holder of Company Common Shares who would otherwise have been entitled to a
fraction of a Parent Common Share upon surrender of Certificates for
exchange pursuant to this Article 2 will be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (a) the
per share closing price on the New York Stock Exchange, Inc. (the "NYSE")
of Parent Common Shares (as reported on the NYSE Composite Transactions) on
the date of the Effective Time (or, if Parent Common Shares do not trade on
the NYSE on such date, the first date of trading of Parent Common Shares on
the NYSE after the Effective Time) by (b) the fractional interest to which
such holder otherwise would be entitled. Promptly upon request from the
Exchange Agent, Parent will make available to the Exchange Agent the cash
necessary for this purpose.
2.4 Payment for Company Series A Preferred Shares. At the
---------------------------------------------
Effective Time, Parent and the Surviving Corporation will make available to
the Exchange Agent, for the benefit of the holders of Company Series A
Preferred Shares, a sufficient number of certificates representing
Surviving Corporation Series A Preferred Shares required to effect the
delivery of Surviving Corporation Series A Preferred Shares pursuant to
Section 2.1(d). Promptly after the Effective Time, the Exchange Agent will
mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Company
Series A Preferred Shares (the "Preferred Certificates") (a) a form of
letter of transmittal (which will specify that delivery will be effected,
and risk of loss and title to the Preferred Certificates will pass, only
upon proper delivery of the Preferred Certificates to the Exchange Agent)
and (b) instructions for use in effecting the surrender of the Preferred
Certificates for payment therefor. Upon surrender of Preferred
Certificates for cancellation to the Exchange Agent, together with such
letter of transmittal duly executed and any other required documents, the
holder of such Preferred Certificates will be entitled to receive for each
of the Company Series A Preferred Shares represented by such Preferred
Certificates one Surviving Corporation Series A Preferred Share and the
Preferred Certificates so surrendered will promptly be cancelled. Until so
surrendered, Preferred Certificates will represent solely the right to
receive Surviving Corporation Series A Preferred Shares.
A-9
2.5 Dissenting Company Series A Preferred Shares.
--------------------------------------------
(a) Notwithstanding the provisions of Section 2.1 or any other provision
of this Agreement to the contrary, the Company Series A Preferred Shares
that are issued and outstanding immediately prior to the Effective Date and
are held by stockholders who have not voted such Company Series A Preferred
Shares in favor of the adoption of this Agreement and who properly demand
appraisal of such Company Series A Preferred Shares in accordance with
Section 262 of the DGCL (the "Dissenting Shares") will not be converted as
provided in Section 2.1(d) at or after the Effective Date unless and until
the holder of such Dissenting Shares fails to perfect or effectively
withdraws or loses such right to appraisal and payment under the DGCL. If
a holder of Dissenting Shares so fails to perfect or effectively withdraws
or loses such right to appraisal and payment, then, as of the Effective
Time or the occurrence of such event, whichever last occurs, such holder's
Dissenting Shares will be converted into and represent solely the right
provided in Section 2.1(d).
(b) The Company will give Parent (i) prompt written notice of
any written demands for appraisal, withdrawals of demands for appraisal and
any other instruments served pursuant to Section 262 of the DGCL and
received by the Company and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under Section 262 of
the DGCL. The Company will not voluntarily make any payment with respect
to any demands for appraisal and will not, except with the prior written
consent of Parent, settle or offer to settle any such demands.
2.6 No Transfer after the Effective Time. No transfers of
------------------------------------
Company Common Shares or Company Series A Preferred Shares will be made on
the stock transfer books of the Company after the close of business on the
day prior to the date of the Effective Time.
3. Representations and Warranties of the Company
The Company hereby represents and warrants to each of Parent and
Merger Sub as follows:
3.1 Existence; Good Standing; Corporate Authority. The Company
---------------------------------------------
is a corporation duly incorporated, validly existing and in good standing
under the laws of Delaware. The Company is duly licensed or qualified to
do business as a foreign corporation and is in good standing under the laws
of any other state of the United States in which the character of the
properties owned or leased by it or in which the transaction of its
business makes such qualification necessary, except where the failure to be
so qualified or to be in good standing would not have a material adverse
effect on the business, results of operations or financial condition of the
Company and its Subsidiaries (as defined below) taken as a whole (a
"Company Material Adverse Effect"). The Company has all requisite
corporate power and authority to own, operate and lease its properties and
carry on its business as now conducted. Each of the Company's Subsidiaries
is a corporation or partnership duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, has the corporate or partnership power and authority to own
its properties and to carry on its business as it is now being conducted,
and is duly qualified
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to do business and is in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so
qualified or to be in good standing would not have a Company Material
Adverse Effect. The copies of the Company's certificate of incorporation
and by-laws previously made available to Parent are true and correct. As
used in this Agreement, the word "Subsidiary" when used with respect to any
party means any corporation or other organization, whether incorporated or
unincorporated, of which such party directly or indirectly owns or controls
at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions.
3.2 Authorization, Validity and Effect of Agreement. The
-----------------------------------------------
Company has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby
to be executed and delivered by it. Subject only to the approval of this
Agreement, the Merger and the transactions contemplated hereby by the
holders of a majority of the outstanding Company Common Shares and the
outstanding Company Series A Preferred Shares, voting together as one
class, this Agreement, the Merger and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by all
requisite corporate action. This Agreement constitutes, and all agreements
and documents contemplated hereby to be executed and delivered by the
Company (when executed and delivered pursuant hereto) will constitute, the
valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms.
3.3 Capitalization. The authorized capital stock of the Company
--------------
consists of 100,000,000 Company Common Shares and 25,000,000 shares of
preferred stock, par value $0.01 per Share (the "Company Preferred
Shares"). As of August 10, 1995, there were 46,052,006 Company Common
Shares, and 755,424 Company Preferred Shares (comprised solely of Company
Series A Preferred Shares) issued and outstanding. Since such date, (a) no
additional shares of capital stock of the Company have been issued, except
pursuant to the Company's stock option and stock purchase plans and other
similar employee benefit plans (the "Company Stock Plans") or pursuant to
the instruments and securities described in the last sentence of this
Section 3.3, and (b) no options, warrants or other rights to acquire shares
of the Company's capital stock (collectively, the "Company Rights") have
been granted. Except as described in the last sentence of this Section
3.3, the Company has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote or which are
convertible into or exercisable for securities having the right to vote
with the stockholders of the Company on any matter. All issued and
outstanding Company Common Shares and Company Preferred Shares are duly
authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. There are not at the date of this Agreement any
existing options, warrants, calls, subscriptions, convertible securities or
other Company Rights which obligate the Company or any of its Subsidiaries
to issue, transfer or sell any shares of capital stock of the Company or
any of its Subsidiaries other than (i) the Company's 6-1/4% Convertible
Senior Subordinated Notes due 2000, which as of the date hereof were
convertible into an aggregate of 11,792,453 Company Common Shares (the
"Company Convertible Notes"), (ii) the Company's warrants to purchase
Company Common Shares (the "Company Warrants"), which as of the date hereof
were exercisable to purchase
A-11
an aggregate of 1,579,668 Company Common Shares, (iii) 958,558 Company
Common Shares reserved for issuance under the Company's Plan of
Reorganization (the "Company POR"), (iv) 80,878 Company Warrants reserved
for issuance and issuable under the Company POR, (v) 60,163 Company
Series A Preferred Shares reserved for issuance and issuable under the
Company POR, (vi) Company Warrants issuable upon the exchange of Company
Series A Preferred Shares, and (vii) Company Common Shares issuable under
the Company Stock Plans or awards granted pursuant thereto.
3.4 Subsidiaries. The Company owns, directly or indirectly,
------------
each of the outstanding shares of capital stock (or other ownership
interests having by their terms ordinary voting power to elect a majority
of directors or others performing similar functions with respect to such
Subsidiary) of each of the Company's Subsidiaries. Each of the outstanding
shares of capital stock of each of the Company's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable, and is owned,
directly or indirectly, by the Company. Each of the outstanding shares of
capital stock of each Subsidiary of the Company is owned, directly or
indirectly, by the Company free and clear of all liens, pledges, security
interests, claims or other encumbrances other than (a) liens granted to
secure the Company's indebtedness under its working capital facility with
General Electric Capital Corporation or (b) liens imposed by local law
which are not material. The following information for each Subsidiary of
the Company has been previously provided to Parent, if applicable: (i) its
name and jurisdiction of incorporation or organization; (ii) its authorized
capital stock or share capital; and (iii) the number of issued and
outstanding shares of capital stock or share capital.
3.5 Other Interests. Except for interests in the Company's
---------------
Subsidiaries, neither the Company nor any of the Company's Subsidiaries
owns, directly or indirectly, any interest or investment (whether equity or
debt) in any corporation, partnership, joint venture, business, trust or
entity (other than (a) non-controlling investments in the ordinary course
of business and corporate partnering, development, cooperative marketing
and similar undertakings and arrangements entered into in the ordinary
course of business and (b) other investments of less than $5,000,000 in the
aggregate).
3.6 No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by the Company do not, and the
consummation by the Company of the transactions contemplated hereby will
not, (i) conflict with or violate the certificate of incorporation or by-
laws or equivalent organizational documents of the Company or any of its
Subsidiaries, (ii) subject to making the filings and obtaining the
approvals identified in Section 3.6(b), conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected, or (iii) subject to making
the filings, obtaining the approvals and effecting any other matters
identified in Schedule 3.6(a), result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, result in the loss of a material benefit under, or
give to others any right of purchase or sale, or any right of termination,
amendment, acceleration, increased payments or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of
the Company or any of its Subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
A-12
or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
or any property or asset of the Company or any of its Subsidiaries is bound
or affected, except, in the case of clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would
not prevent or delay consummation of any of the transactions contemplated
hereby in any material respect, or otherwise prevent the Company from
performing its obligations under this Agreement in any material respect,
and would not, individually or in the aggregate, have a Company Material
Adverse Effect.
(b) The execution and delivery of this Agreement by the Company
do not, and the performance of this Agreement and the consummation by the
Company of the transactions contemplated hereby will not, require any
consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or
foreign (each a "Governmental Entity"), except (i) for (A) applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Securities Act of 1933, as amended (the
"Securities Act"), and state securities or "blue sky" laws ("Blue Sky
Laws"), (B) the pre-merger notification requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder (the "HSR Act"), (C) the filing of a certificate of
merger pursuant to the DGCL, (D) filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to
any notification, disclosure or required approval, triggered by the Merger
or the other transactions contemplated by this Agreement, and
(E) applicable requirements, if any, of the Internal Revenue Code of 1986,
as amended (the "Code"), and state, local and foreign tax laws, and
(ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent the
Company from performing its obligations under this Agreement in any
material respect, and would not, individually or in the aggregate, have a
Company Material Adverse Effect.
3.7 Compliance. Neither the Company nor any of its Subsidiaries
----------
is in conflict with, or in default or violation of, (a) any law, rule,
regulation, order, judgment or decree applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected or (b) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries or any property
or asset of the Company or any of its Subsidiaries is bound or affected, in
each case except for such conflicts, defaults or violations that have
previously been disclosed by the Company to Parent and such other
conflicts, defaults or violations that would not, individually or in the
aggregate, have a Company Material Adverse Effect. The Company and its
Subsidiaries have obtained all licenses, permits and other authorizations
and have taken all actions required by applicable law or government
regulations in connection with their business as now conducted, except
where the failure to obtain any such item or to take any such action would
not, individually or in the aggregate, have a Company Material Adverse
Effect.
3.8 SEC Documents. (a) The Company has filed all forms,
-------------
reports and documents required to be filed by it with the Securities and
Exchange Commission (the "SEC") since January 30, 1993 (collectively, the
"Company Reports"). As of their
A-13
respective dates, the Company Reports and any such reports, forms and other
documents filed by the Company with the SEC after the date of this
Agreement (i) complied, or will comply, as to form in all material respects
with the applicable requirements of the Securities Act, the Exchange Act
and the rules and regulations thereunder and (ii) did not, or will not,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. The representation in clause (ii) of the preceding sentence
does not apply to any misstatement or omission in any Company Report filed
prior to the date of this Agreement which was superseded by a subsequent
Company Report filed prior to the date of this Agreement. No Subsidiary of
the Company is required to file any report, form or other document with the
SEC.
(b) Each of the consolidated balance sheets of the Company
included in or incorporated by reference into the Company Reports
(including the related notes and schedules) presents fairly, in all
material respects, the consolidated financial position of the Company and
its Subsidiaries as of its date, and each of the consolidated statements of
income, retained earnings and cash flows of the Company included in or
incorporated by reference into the Company Reports (including any related
notes and schedules) presents fairly, in all material respects, the results
of operations, retained earnings or cash flows, as the case may be, of the
Company and its Subsidiaries for the periods set forth therein (subject, in
the case of unaudited statements, to normal year-end audit adjustments), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted
therein.
(c) Neither the Company nor any of its Subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or
reserved against in, a balance sheet of the Company or in the notes
thereto, prepared in accordance with generally accepted accounting
principles consistently applied, except for (i) liabilities or obligations
that were so reserved on, or reflected in (including the notes to), the
consolidated balance sheet of the Company as of January 28, 1995 or
April 29, 1995, (ii) liabilities or obligations arising in the ordinary
course of business (including trade indebtedness) since April 29, 1995, and
(iii) liabilities or obligations which would not, individually or in the
aggregate, have a Company Material Adverse Effect.
(d) Set forth on Schedule 3.8(d) is a listing of all of the
Company's indebtedness for borrowed money outstanding as of the date
hereof, setting forth in each case the principal amount thereof.
(e) No payment default has occurred and is continuing under
(i) the Loan Modification Implementation Agreement and Amendment to Loan
Agreement, dated as of October 8, 1992, between the Company and The
Prudential Insurance Company of America, (ii) the Amended and Restated Term
Loan Agreement, dated as of October 8, 1992, by and between the Company and
Bank of America, N.T. & S.A., or (iii) the Company's 6 1/4% Convertible Senior
Subordinated Notes due 2000.
A-14
3.9 Litigation. Except as described in the Company Reports,
----------
there are no actions, suits or proceedings resulting from, arising out of
or related to (a) debt (including trade payables), contractual obligations
or other liabilities or obligations relating to the financial condition of
the Company or (b) all other matters, in either case pending against the
Company or any of its Subsidiaries or, to the actual knowledge of the
executive officers of the Company, threatened against the Company or any of
its Subsidiaries, at law or in equity, or before or by any Governmental
Entity, that, individually or in the aggregate, are reasonably likely to
have a Company Material Adverse Effect.
3.10 Absence of Certain Changes. Except as described in the
--------------------------
Company Reports or previously disclosed by the Company to Parent, since
January 28, 1995, there has not been (a) any Company Material Adverse
Effect, (b) any declaration, setting aside or payment of any dividend of
other distribution with respect to its capital stock, or (c) any material
change in its accounting principles, practices or methods.
3.11 Taxes. (a) The Company and each of its Subsidiaries has
-----
filed all tax returns and reports required to be filed by it, or requests
for extensions to file such returns or reports have been timely filed and
granted and have not expired, and all tax returns and reports are complete
and accurate in all respects, except to the extent that such failures to
file or be complete and accurate in all respects, as applicable,
individually or in the aggregate, would not have a Company Material Adverse
Effect. The Company and each of its Subsidiaries has paid (or the Company
has paid on its behalf) or made provision for all taxes shown as due on
such tax returns and reports. The most recent financial statements
contained in the Company Reports reflect adequate reserves for all taxes
payable by the Company and its Subsidiaries for all taxable periods and
portions thereof accrued through the date of such financial statements, and
no deficiencies for any taxes have been proposed, asserted or assessed
against the Company or any of its Subsidiaries that are not adequately
reserved for, except for inadequately reserved taxes and inadequately
reserved deficiencies that would not, individually or in the aggregate,
have a Company Material Adverse Effect. No requests for waivers of the
time to assess any taxes against the Company or any of its Subsidiaries
have been granted or are pending, except for requests with respect to such
taxes that have been adequately reserved for in the most recent financial
statements contained in the Company Reports, or, to the extent not
adequately reserved, the assessment of which would not, individually or in
the aggregate, have a Company Material Adverse Effect. As used in this
Agreement the term "taxes" includes all federal, state, local and foreign
income, franchise, property, sales, use, excise and other taxes, including
without limitation obligations for withholding taxes from payments due or
made to any other person and any interest, penalties or additions to tax.
(b) The consummation of the Merger and the other transactions
contemplated hereby will not result in any taxes being imposed by any state
of the United States on the stockholders of the Company as a result of the
ownership by the Company or any Subsidiary of the Company of any interest
in real property.
3.12 Employee Benefit Plans. Except as described in the Company
----------------------
Reports (and subsequent financial and actuarial statements and reports
furnished to Parent or its agents prior to the date hereof) or as would not
have a Company Material Adverse Effect,
A-15
(a) all employee benefit plans or programs maintained for the benefit of
the current or former employees or directors of the Company or any of its
Subsidiaries that are sponsored, maintained or contributed to by the
Company or any of its Subsidiaries, or with respect to which the Company or
any of its Subsidiaries has any liability, including without limitation any
such plan that is an "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA"), are in
compliance with all applicable requirements of law, including ERISA and the
Code, (b) neither the Company nor any of its Subsidiaries has any
liabilities or obligations with respect to any such employee benefit plans
or programs, whether accrued, contingent or otherwise, nor to the knowledge
of the executive officers of the Company are any such liabilities or
obligations expected to be incurred, and (c) neither the Company nor any of
its Subsidiaries is a party to any contract or other arrangement under
which, after giving effect to the Merger, Parent or the Surviving
Corporation would be obligated to make any "parachute" payment within the
meaning of Section 280G of the Code. Except as described in Schedule
3.6(a), the execution of, and performance of the transactions contemplated
by, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any benefit
plan, program, policy, arrangement or agreement or any trust, loan or
funding arrangement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits
with respect to any employee.
3.13 State Takeover Statutes. The Board of Directors of the
-----------------------
Company has (a) approved the Merger, this Agreement, the transactions
contemplated hereby, and the grant of the Option and the purchase of
Company Common Shares pursuant thereto (collectively, the "Stock Agreement
Transaction") and such approval is sufficient to render inapplicable to the
Merger, this Agreement, the transactions contemplated hereby and the Stock
Agreement Transaction, the provisions of Section 203 of the DGCL. To the
knowledge of the executive officers of the Company after due inquiry, no
other "fair price", "merger moratorium", "control share acquisition" or
other anti-takeover statute or similar statute or regulation applies or
purports to apply to the Merger, this Agreement, the Stock Agreement or any
of the transactions contemplated hereby or thereby.
3.14 No Brokers. The Company has not entered into any contract,
----------
arrangement or understanding with any person or firm which may result in
the obligation of the Company or Parent to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby, except that the Company has retained
Merrill Lynch, Pierce, Fenner & Smith and Salomon Brothers Inc as its
financial advisors, the arrangements with which have been disclosed to
Parent prior to the date hereof. Other than the foregoing arrangements,
none of the executive officers of the Company is aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement
or the consummation of the transactions contemplated hereby.
3.15 Opinion of Financial Advisor. The Company has received the
----------------------------
opinions of Merrill Lynch, Pierce, Fenner & Smith and Salomon Brothers Inc
to the effect that, as of
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the date hereof, the consideration to be received by the holders of Company
Common Shares in the Merger is fair to such holders from a financial point
of view.
4. Representations and Warranties of Parent and Merger Sub
Each of Parent and Merger Sub represents and warrants to the
Company as of the date of this Agreement as follows:
4.1 Existence; Good Standing; Corporate Authority. Each of
---------------------------------------------
Parent and Merger Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware. Parent is duly licensed
or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which
the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary, except
where the failure to be so qualified or to be in good standing would not
have a material adverse effect on the business, results of operations or
financial condition of Parent and its Subsidiaries taken as a whole (a
"Parent Material Adverse Effect"). Parent has all requisite corporate
power and authority to own, operate and lease its properties and carry on
its business as now conducted. The copies of the certificate of
incorporation and by-laws of Parent and the articles of incorporation and
code of regulation of Merger Sub previously made available to the Company
are true and correct.
4.2 Authorization, Validity and Effect of Agreement. Each of
-----------------------------------------------
Parent and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and all agreements and documents
contemplated hereby to be executed respectively by it. This Agreement, the
Merger and the consummation by Parent and Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of Parent and Merger Sub and by Parent as sole
stockholder of Merger Sub, and no other corporate action on the part of
Parent and Merger Sub is necessary to authorize this Agreement or the
Merger or to consummate the transactions contemplated hereby. This
Agreement constitutes, and all agreements and documents contemplated hereby
to be executed and delivered by Parent or Merger Sub (when executed and
delivered pursuant hereto) will constitute, the valid and binding
obligations of Parent or Merger Sub, as the case may be, enforceable
respectively against them in accordance with their respective terms.
4.3 Capitalization. The authorized capital stock of Parent
--------------
consists of 500,000,000 Parent Common Shares, and 125,000,000 shares of
Preferred Stock, par value $0.01 per Share (the "Parent Preferred Shares").
As of July 29, 1995, there were 182,931,302 Parent Common Shares and no
Parent Preferred Shares issued and outstanding (excluding 29,474,155 Parent
Common Shares held by wholly owned subsidiaries of Parent). Since such
date, no additional shares of capital stock of Parent have been issued
except pursuant to Parent's stock option and employee stock purchase plans
(the "Parent Stock Plans") or pursuant to the instruments and securities
described in the last sentence of this Section 4.3. All such issued and
outstanding Parent Common Shares are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. Except as
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contemplated by this Agreement, there are not at the date of this Agreement
any existing options, warrants, calls, subscriptions, convertible
securities or other Rights which obligate Parent or any of its Subsidiaries
to issue, transfer or sell any shares of capital stock of Parent or any of
its Subsidiaries other than (a) Parent's Senior Convertible Discount Notes
due 2004 (which as of the date hereof were convertible into an aggregate of
8,563,691 Parent Common Shares), (b) Parent's Series A Warrants (which as
of the date hereof were exercisable to purchase an aggregate of 4,187,790
Parent Common Shares), (c) Parent's Series B Warrants (which as of the
date hereof were exercisable to purchase an aggregate of 1,047,000 Parent
Common Shares), (d) Parent's Series C Warrants (which as of the date
hereof were exercisable to purchase an aggregate of 9,000,000 Parent Common
Shares), (e) Parent's Series D Warrants (which as of the date hereof were
exercisable to purchase an aggregate of 9,000,000 Parent Common Shares),
(f) 81,600 shares of Common Stock issuable to the U.S. Treasury under the
Joint Plan of Reorganization of Federated Department Stores, Inc., Allied
Stores Corporation and certain of their Subsidiaries, (g) the share
purchase rights issued pursuant to the Rights Agreement, dated as of
December 19, 1994, between Parent and the Bank of New York, as rights agent
(which as of the date hereof were not exercisable), and (h) under the
Parent Stock Plans or awards granted pursuant thereto.
4.4 No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by Parent and Merger Sub do not,
and the consummation by Parent and Merger Sub of the transactions
contemplated hereby will not, (i) conflict with or violate the certificate
of incorporation or by-laws or equivalent organizational documents of
Parent or Merger sub, (ii) subject to making the filings and obtaining the
approvals identified in Section 4.4(b), conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or any of
its Subsidiaries or by which any property or asset of Parent or any of its
Subsidiaries is bound or affected, or (iii) subject to making the filings,
obtaining the approvals and effecting any other matters identified in
Schedule 4.4(a), result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, result in the loss of a material benefit under, or give to others
any right of termination, amendment, acceleration, increased payments or
cancellation of, or result in the creation of a lien or other encumbrance
on any property or asset of Parent or any of its Subsidiaries pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or any
of its Subsidiaries is a party or by which Parent or any of its
Subsidiaries or any property or asset of Parent or any of its Subsidiaries
is bound or affected, except in the case of clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which
would not prevent or delay consummation of any of the transactions
contemplated hereby in any material respect, or otherwise prevent Parent or
Merger Sub from performing its obligations under this Agreement in any
material respect, and would not, individually or in the aggregate, have a
Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance of this Agreement and the
consummation of the transactions contemplated hereby by either of them will
not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entity, except (i) for
(A) applicable requirements, if any, of the Exchange Act, the Securities
Act and Blue Sky Laws, (B) the pre-merger notification requirements of the
HSR Act, (C) the filing of a
A-18
certificate of merger pursuant to the DGCL, (D) such filings and consents
as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by this Agreement,
and (E) applicable requirements, if any, of the Code and state, local and
foreign tax laws, and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of any of the
transactions contemplated hereby in any material respect, or otherwise
prevent Parent or Merger Sub from performing its obligations under this
Agreement in any material respect, and would not, individually or in the
aggregate, have a Parent Material Adverse Effect.
4.5 Compliance. Neither Parent nor any of its Subsidiaries is
----------
in conflict with, or in default or violation of, (a) any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
Subsidiaries or by which any property or asset of Parent or any of its
Subsidiaries is bound or affected or (b) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its Subsidiaries or any
property or asset of Parent or any of its Subsidiaries is bound or
affected, in each case except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have a Parent
Material Adverse Effect. Parent and its Subsidiaries have obtained all
licenses, permits and other authorizations and have taken all actions
required by applicable law or governmental regulations in connection with
their business as now conducted, except where the failure to obtain any
such item or to take any such action would have, individually or in the
aggregate, a Parent Material Adverse Effect.
4.6 SEC Documents. (a) Parent has filed all forms, reports and
-------------
documents required to be filed by it with the SEC since January 28, 1995
(collectively, the "Parent Reports"). As of their respective dates, the
Parent Reports, and any such reports, forms and other documents filed by
Parent with the SEC after the date of this Agreement (i) complied, or will
comply, as to form in all material respects with the applicable
requirements of the Securities Act, the Exchange Act and the rules and
regulations thereunder and (ii) did not, or will not, contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. The
representation in clause (ii) of the preceding sentence will not apply to
any misstatement or omission in any Parent Report filed prior to the date
of this Agreement which was superseded by a subsequent Parent Report filed
prior to the date of this Agreement. No Subsidiary of Parent is required
to file any report, form or other document with the SEC other than Prime
Receivables Corporation.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Parent Reports (including the related
notes and schedules) presents fairly, in all material respects, the
consolidated financial position of Parent and its Subsidiaries as of its
date, and each of the consolidated statements of income, retained earnings
and cash flows included in or incorporated by reference into the Parent
Reports (including any related notes and schedules) presents fairly, in all
material respects, the results of operations, retained earnings or cash
flows, as the case may be, of Parent and its Subsidiaries for the periods
set
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forth therein (subject, in the case of unaudited statements, to normal
year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may
be noted therein.
(c) Neither Parent nor any of its Subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or
reserved against in, a balance sheet of Parent or in the notes thereto,
prepared in accordance with generally accepted accounting principles
consistently applied, except for (i) liabilities or obligations that were
so reserved on, or reflected in (including the notes to), the consolidated
balance sheet of Parent as of January 28, 1995 or April 29, 1995,
(ii) liabilities or obligations arising in the ordinary course of business
since April 29, 1995, and (iii) liabilities or obligations which would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
4.7 Litigation. Except as described in the Parent Reports,
----------
there are no actions, suits or proceedings pending against Parent or its
Subsidiaries or, to the knowledge of the executive officers of Parent,
threatened against Parent or any of its Subsidiaries, at law or in equity,
or before or by any Government Entity that, individually or in the
aggregate, are reasonably likely to have a Parent Material Adverse Effect.
4.8 Absence of Certain Changes. Except as described in the
--------------------------
Parent Reports, since April 29, 1995, there has not been (a) any Parent
Material Adverse Effect, (b) any declaration, setting aside or payment of
any dividend of other distribution with respect to its capital stock, or
(c) any material change in its accounting principles, practices or methods.
4.9 Taxes. Each of Parent and its Subsidiaries has filed all
-----
tax returns and reports required to be filed by it, or requests for
extensions to file such returns or reports have been timely filed and
granted and have not expired, and all tax returns and reports are complete
and accurate in all respects, except to the extent that such failures to
file or be complete and accurate, as applicable, individually or in the
aggregate, would not have a Parent Material Adverse Effect. Parent and
each of its Subsidiaries has paid (or Parent has paid on its behalf) all
taxes shown as due on such tax returns and reports. The most recent
financial statements contained in the Reports reflect adequate reserves for
all taxes payable by Parent and its Subsidiaries for all taxable periods
and portions thereof accrued through the date of such financial statements,
and no deficiencies for any taxes have been proposed, asserted or assessed
against Parent or any of its Subsidiaries that are not adequately reserved
for, except for inadequately reserved taxes and inadequately reserved
deficiencies that would not, individually or in the aggregate, have a
Parent Material Adverse Effect. No requests for waivers of the time to
assess any taxes against Parent or any Parent Subsidiary have been granted
or are pending, except for requests with respect to such taxes that have
been adequately reserved for in the most recent financial statements
contained in the Parent Reports, or, to the extent not adequately reserved,
the assessment of which would not, individually or in the aggregate, have a
Parent Material Adverse Effect.
A-20
4.10 Employee Benefit Plans. Except as described in the Parent
----------------------
Reports or as would not have a Parent Material Adverse Effect, (a) all
employee benefit plans or programs maintained for the benefit of the
current or former employees or directors of Parent or any of its
Subsidiaries that are sponsored, maintained or contributed to by Parent or
any of its Subsidiaries, or with respect to which Parent or any of its
Subsidiaries has any liability, including without limitation any such plan
that is an "employee benefit plan" as defined in Section 3(3) of ERISA, are
in compliance with all applicable requirements of law, including ERISA and
the Code, and (b) neither Parent nor any of its Subsidiaries has any
liabilities or obligations with respect to any such employee benefit plans
or programs, whether accrued, contingent or otherwise, nor to the knowledge
of the executive officers of Parent are any such liabilities or obligations
expected to be incurred. The execution of, and performance of the
transactions contemplated by, this Agreement will not (either alone or upon
the occurrence of any additional or subsequent events) constitute an event
under any benefit plan, program, policy, arrangement or agreement or any
trust, loan or funding arrangement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any employee.
4.11 No Brokers. Neither Parent nor Merger Sub has entered into
----------
any contract, arrangement or understanding with any person or firm which
may result in the obligation of the Company to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
4.12 Merger Sub. Merger Sub was formed solely for the purpose of
----------
engaging in the transactions contemplated hereby. Except for obligations
or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated hereby, Merger Sub has not
incurred any obligations or liabilities or engaged in any business or
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person or entity.
4.13 Issuance of Parent Common Shares. The Parent Common Shares
--------------------------------
required to be issued pursuant to Article 2 will, when issued in accordance
with Article 2, be duly authorized, validly issued, fully paid and
nonassessable, and no stockholder of Parent will have any preemptive right
of subscription or purchase in respect thereof.
5. Covenants
5.1 Alternative Proposals. Prior to the Effective Time, the
---------------------
Company agrees (a) that neither it nor any of its Subsidiaries will, nor
will it or any of its Subsidiaries permit their respective officers,
directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or
any of its Subsidiaries) to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal
or offer (including without limitation any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or
similar transaction involving any purchase of all or any significant
portion of the assets of the
A-21
Company and its Subsidiaries or any equity interest in the Company or any
of its Subsidiaries other than the transactions contemplated hereby and by
the Stock Agreement and transactions permitted under Section 5.2(h) (any
such proposal or offer being hereinafter referred to as an "Alternative
Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any
person relating to an Alternative Proposal, or otherwise facilitate any
effort or attempt to make or implement an Alternative Proposal; and
(b) that it will notify Parent immediately if any such inquiries or
proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued
with, it; provided, however, that nothing contained in this Section 5.1
will prohibit the Board of Directors of the Company from, to the extent
applicable, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Alternative Proposal. Nothing in this Section 5.1 will
(x) permit the Company to terminate this Agreement, (y) permit the Company
to enter into any agreement with respect to an Alternative Proposal for as
long as this Agreement remains in effect (it being agreed that for as long
as this Agreement remains in effect, the Company will not enter into any
agreement with any person that provides for, or in any way facilitates, an
Alternative Proposal), or (z) affect any other obligation of the Company
under this Agreement.
5.2 Interim Operations. Prior to the Effective Time, except as
------------------
contemplated by any other provision of this Agreement, unless Parent has
previously consented in writing thereto, the Company:
(a) Will, and will cause each of its Subsidiaries to, conduct
its operations in the ordinary and normal course, consistent with past
practice;
(b) Will use its reasonable best efforts, and will cause each of
its Subsidiaries to use its reasonable best efforts, to preserve intact
their business organizations and goodwill, keep available the services of
their respective officers and employees and maintain satisfactory
relationships with those persons having business relationships with them;
(c) Will not amend its certificate of incorporation or by-laws
or comparable governing instruments (other than by-law amendments which are
not material to the Company or to the consummation of the transactions
contemplated by this Agreement and as contemplated by Section 1.5);
(d) Will, upon the occurrence of any event or change in
circumstances as a result of which any representation or warranty of the
Company contained in Article 3 would be untrue or incorrect if such
representation or warranty were made immediately following the occurrence
of such event or change in circumstance, promptly (and in any event within
two business days of an executive officer of the Company obtaining
knowledge thereof) notify Parent thereof;
(e) Will promptly deliver to Parent true and correct copies of
any report, statement or schedule filed with the SEC subsequent to the date
of this Agreement;
A-22
(f) Will not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed pursuant to this Agreement, issue any shares of
its capital stock, effect any stock split or otherwise change its
capitalization as it existed on the date hereof, (ii) grant, confer or
award any option, warrant, conversion right or other right not existing on
the date hereof to acquire any shares of its capital stock or grant, confer
or award any bonuses or other forms of cash incentive to any officer,
director or key employee except consistent with past practice or grant or
confer any awards (other than pursuant to any of the foregoing granted
prior to the date hereof and disclosed in the Company Reports filed prior
to the date hereof or in a Schedule hereto), (iii) increase any
compensation under any employment agreement with any of its present or
future officers, directors or employees, except for normal increases for
employees consistent with past practice, grant any severance or termination
pay to, or enter into any employment or severance agreement with any
officer, director or employee or amend any such agreement in any material
respect other than severance arrangements which are consistent with past
practice with respect to employees terminated by the Company, or (iv) adopt
any new employee benefit plan or program (including any stock option, stock
benefit or stock purchase plan) or amend any existing employee benefit plan
or program in any material respect (nothing in this subsection (f) will
prevent the payment or other performance of any award or grant made prior
to the date hereof and disclosed in the Company Reports or pursuant to this
Agreement);
(g) Will not (i) declare, set aside or pay any dividend or make
any other distribution or payment with respect to any shares of its capital
stock or other ownership interests or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or capital
stock of any of its Subsidiaries, or make any commitment for any such
action;
(h) Will not, and will not permit any of its Subsidiaries to,
sell, lease or otherwise dispose of any of its assets (including capital
stock of Subsidiaries) or to acquire any business or assets, except (i) in
the ordinary course of business, in each case for an amount not exceeding
$5,000,000 and (ii) that the Company may sell its store in Westminster,
Colorado to an unaffiliated third party for such cash consideration as the
Board of Directors of the Company determines in good faith to be fair to
the Company;
(i) Will not incur any material amount of indebtedness for
borrowed money or make any loans, advances or capital contributions to, or
investments (other than non-controlling investments in the ordinary course
of business) in, any other person other than a wholly owned Subsidiary of
the Company, or issue or sell any debt securities, other than borrowings
under existing lines of credit in the ordinary course of business;
(j) Will not, except pursuant to and in accordance with the
capital budget previously disclosed to Parent, authorize, commit to or make
capital expenditures;
(k) Will not mortgage or otherwise encumber or subject to any
lien any properties or assets except for such of the foregoing as are in
the normal course of business and would not be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect; and
A-23
(1) Will not make any change to its accounting (including tax
accounting) methods, principles or practices, except as may be required by
generally accepted accounting principles and except, in the case of tax
accounting methods, principles or practices, in the ordinary course of
business of the Company or any of its Subsidiaries.
5.3 Meeting of Stockholders. The Company will take all action
-----------------------
necessary in accordance with applicable law and its certificate of
incorporation and by-laws to convene a meeting of its stockholders as
promptly as practicable to consider and vote upon the adoption of this
Agreement. The Board of Directors of the Company will recommend such
adoption and the Company will each take all lawful action to solicit such
approval, including, without limitation, timely mailing the Proxy
Statement/Prospectus (as defined below); provided, however, that such
recommendation or solicitation is subject to any action (including any
withdrawal or change of its recommendation) taken by, or upon authority of,
the Board of Directors of the Company, as the case may be, in the exercise
of its good faith judgment based upon the advice of outside counsel (notice
of which will be promptly given to Parent and Merger Sub) as to its
fiduciary duties to its stockholders imposed by law.
5.4 Filings, Other Action. Subject to the terms and conditions
---------------------
herein provided, the parties will: (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR
Act; (b) use all reasonable efforts to cooperate with one another in
(i) determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time
from, governmental or regulatory authorities of the United States, the
several states and foreign jurisdictions in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) timely making all such filings and timely
seeking all such consents, approvals, permits or authorizations; and
(c) use all reasonable efforts to take, or cause to be taken, all other
action and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated
by this Agreement. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of parties will take all such
necessary action. In the case of any consents, approvals, permits or
authorizations of any Governmental Entity required for consummation of the
Merger and the other transactions contemplated hereby under the HSR Act or
any federal or state antitrust or similar law ("Antitrust Authorizations"),
the reasonable efforts of Parent will be deemed to include divesting or
otherwise holding separate, or taking such other action (or otherwise
agreeing to do any thereof) with respect to, the Surviving Corporation's
assets and properties necessary to obtain such Antitrust Authorizations,
except to the extent that Parent reasonably determines in good faith that
such actions would, in the aggregate, require Parent to compromise
fundamentally its business interests in consummating the transactions
contemplated by this Agreement.
5.5 Inspection of Records. From the date hereof to the
---------------------
Effective Time, each of the parties will (a) allow all designated officers,
attorneys, accountants and other representatives of the other reasonable
access at all reasonable times to the offices, records and files,
correspondence, audits and properties, as well as to all information
relating to commitments, contracts, titles and financial position, or
otherwise pertaining to the business
A-24
and affairs, of the parties and their respective Subsidiaries, as the case
may be, (b) furnish to the other, the other's counsel, financial advisors,
auditors and other authorized representatives such financial and operating
data and other information as such persons may reasonably request, and
(c) instruct the employees, counsel and financial advisors of the parties,
as the case may be, to cooperate with the other in the other's
investigation of the business of it and its Subsidiaries.
5.6 Publicity. The initial press release relating to this
---------
Agreement will be a joint press release and thereafter the Company and
Parent will, subject to their respective legal obligations (including
requirements of stock exchanges and other similar regulatory bodies),
consult with each other, and use reasonable efforts to agree upon the text
of any press release, before issuing any such press release or otherwise
making public statements with respect to the transactions contemplated
hereby and in making any filings with any Governmental Entity or with any
national securities exchange with respect thereto.
5.7 Registration Statement. Parent and the Company will
----------------------
cooperate and promptly prepare and Parent will file with the SEC as soon as
practicable a Registration Statement on Form S-4 (the "Form S-4") under the
Securities Act, which will contain a proxy statement/prospectus and a form
of proxy in connection with the vote of the Company's stockholders with
respect to the Merger and the offer to such stockholders of the securities
to be issued pursuant to the Merger (the "Proxy Statement/Prospectus").
The respective parties will cause the Form S-4 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Parent will use all
reasonable efforts, and the Company will cooperate with Parent, to have the
Form S-4 declared effective by the SEC as promptly as practicable and to
keep the Form S-4 effective as long as is necessary to consummate the
Merger. Parent will, as promptly as practicable, provide copies of any
written comments received from the SEC with respect to the Form S-4 to the
Company and advise the Company of any verbal comments with respect to the
Form S-4 received from the SEC. Parent will use its reasonable efforts to
obtain, prior to the effective date of the Form S-4, all necessary state
securities law or "Blue Sky" permits or approvals required to carry out the
transactions contemplated by this Agreement and will pay all expenses
incident thereto. Parent agrees that the Proxy Statement/Prospectus and
each amendment or supplement thereto at the time of mailing thereof and at
the time of the respective meetings of stockholders of the Company, or, in
the case of the Form S-4 and each amendment or supplement thereto, at the
time it is filed or becomes effective, will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing will not apply to the extent that any such
untrue statement of a material fact or omission to state a material fact
was made by Parent in reliance upon and in conformity with written
information concerning the Company furnished to Parent by the Company
specifically for use in the Form S-4. The Company agrees that the written
information concerning the Company provided by it for inclusion in the
Proxy Statement/Prospectus and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the meeting of stockholders of
the Company, or, in the case of written information concerning the Company
provided by the Company for inclusion in the Form S-4 or any amendment or
supplement thereto, at the time it is filed or
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becomes effective, will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading. No amendment or supplement to the Form S-4
or the Proxy Statement/Prospectus will be made by Parent or the Company
without the approval of the other party, such approval not to be
unreasonably withheld or delayed. Parent will advise the Company, promptly
after it receives notice thereof, of the time when the Form S-4 has become
effective or any supplement or amendment has been filed, the issuance of
any stop order, the denial or suspension of the qualification of Parent
Common Shares issuable in connection with the Merger for offering or sale
in any jurisdiction, or any request by the SEC for any amendment or
supplement to the Form S-4 or the Proxy Statement/Prospectus or comments
thereon and responses thereto or requests by the SEC for additional
information.
5.8 Listing Application. Parent will promptly prepare and
-------------------
submit to the NYSE a supplemental listing application covering Parent
Common Shares issuable in the Merger, and will use reasonable efforts to
obtain, prior to the Effective Time, approval for the listing of such
Parent Common Shares, subject to official notice of issuance.
5.9 Further Action. Each party hereto will, subject to the
--------------
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further
acts and execute such documents as may be reasonably required to effect the
Merger.
5.10 Affiliate Letters. At least 15 days prior to the Closing
-----------------
Date, the Company will deliver to Parent a list of names and addresses of
those persons who were, in the Company's reasonable judgment, at the record
date for its stockholders' meeting to approve the Merger, "affiliates"
(each such person, an "Affiliate") of the Company within the meaning of
Rule 145 of the rules and regulations promulgated under the Securities Act.
The Company will use all reasonable efforts to deliver or cause to be
delivered to Parent, prior to the Closing Date, from each of the Affiliates
of the Company identified in the foregoing list, an Affiliate Letter in the
form attached hereto as Exhibit C. Parent will be entitled to place
legends as specified in such Affiliate Letters on the certificates
evidencing any Parent Common Stock to be received by such Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop-
transfer instructions to the transfer agent for Parent Common Stock,
consistent with the terms of such Affiliate Letters.
5.11 Expenses. Whether or not the Merger is consummated, all
--------
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby will be paid by the party incurring such
expenses except as expressly provided herein and except that (a) the filing
fee in connection with the HSR Act filing, (b) the filing fee in connection
with the filing of the Form S-4 or Proxy Statement/Prospectus with the SEC,
and (c) the expenses incurred in connection with printing and mailing the
Form S-4 and the Proxy Statement/Prospectus, will be shared equally by the
Company and Parent.
5.12 Insurance; Indemnity. (a) From and after the Effective
--------------------
Time, Parent will cause the Surviving Corporation to indemnify, defend and
hold harmless, to the fullest extent that the Company would be required
under its certificate of incorporation, by-laws and
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applicable law, each person who is now, or has been at any time prior to
the date hereof, an officer or director of the Company (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties"), against
all losses, claims, damages, liabilities, costs or expenses (including
attorneys' fees), judgments, fines, penalties and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to acts or omissions, or alleged
acts or omissions, by them in their capacities as such occurring at or
prior to the Effective Time. In the event of any such claim, action, suit,
proceeding or investigation (an "Action"), any Indemnified Party wishing to
claim indemnification will promptly notify the Surviving Corporation
thereof (provided that failure to so notify the Surviving Corporation will
not affect the obligations of the Surviving Corporation to provide
indemnification except to the extent that the Surviving Corporation shall
have been prejudiced as a result of such failure). With respect to any
Action for which indemnification is requested, the Surviving Corporation
will be entitled to participate therein at its own expense and, except as
otherwise provided below, to the extent that it may wish, the Company may
assume the defense thereof, with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Surviving Corporation to the
Indemnified Party of its election to assume the defense of an Action, the
Surviving Corporation will not be liable to the Indemnified Party for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof, other than as provided below. The
Surviving Corporation will not settle any Action without the Indemnified
Party's written consent (which consent will not be unreasonably withheld).
The Indemnified Party will have the right to employ counsel in any Action,
but the fees and expenses of such counsel incurred after notice from the
Surviving Corporation of its assumption of the defense thereof will be at
the expense of the Indemnified Party, unless (i) the employment of counsel
by the Indemnified Party has been authorized by the Surviving Corporation,
(ii) the Indemnified Party will have reasonably concluded upon the advice
of counsel that there may be a conflict of interest between the Indemnified
Party and the Surviving Corporation in the conduct of the defense of an
Action, or (iii) the Surviving Corporation shall not in fact have employed
counsel to assume the defense of an Action, in each of which cases the
reasonable fees and expenses of counsel selected by the Indemnified Party
will be at the expense of the Surviving Corporation. Notwithstanding the
foregoing, the Surviving Corporation will not be liable for any settlement
effected without its written consent and the Surviving Corporation will not
be obligated pursuant to this Section 5.12(a) to pay the fees and
disbursements of more than one counsel for all Indemnified Parties in any
single Action, except to the extent two or more of such Indemnified Parties
have conflicting interests in the outcome of such action.
(b) Parent will cause the Surviving Corporation to keep in
effect provisions in its certificate of incorporation and by-laws providing
for exculpation of director and officer liability and its indemnification
of the Indemnified Parties to the fullest extent permitted under the DGCL,
which provisions will not be amended except as required by applicable law
or except to make changes permitted by law that would enlarge the
Indemnified Parties' right of indemnification.
(c) For a period of five years after the Effective Time, Parent
will cause to be maintained officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their
capacities as officers and directors, by the Company's existing officers'
and directors' liability insurance policies on terms substantially no less
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advantageous to the Indemnified Parties than such existing insurance;
provided, however, that Parent will not be required in order to maintain or
procure such coverage to pay premiums on an annualized basis in excess of
two times the current annual premium paid by the Company for its existing
overage (the "Cap") (which current annual premium the Company represents
and warrants to be approximately $835,000); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by paying
an annual premium in excess of the Cap, Parent will only be required to
obtain as much coverage as can be obtained by paying premiums on an
annualized basis equal to the Cap.
(d) The provisions of this Section 5.12 will survive the
consummation of the Merger and expressly are intended to benefit each of
the Indemnified Parties.
5.13 Employee Benefits. Notwithstanding anything to the contrary
-----------------
contained herein, from and after the Effective Time, the Surviving
Corporation will have sole discretion over the hiring, promotion,
retention, firing and other terms and conditions of the employment of
employees of the Surviving Corporation. Subject to the immediately
preceding sentence, Parent will provide, or will cause the Surviving
Corporation to provide, for the benefit of employees of the Surviving
Corporation who were employees of the Company immediately prior to the
Effective Time, recognizing all prior service for eligibility and vesting
purposes of the officers, directors or employees with the Company and any
of its Subsidiaries as service thereunder, "employee benefit plans" within
the meaning of Section 3(3) of ERISA (a) until January 1, 1996, that are,
in the aggregate, substantially comparable to the "employee benefit plans"
provided to such individuals by the Company on the date hereof, and
(b) thereafter until the expiration of one year after the Effective Time,
at the election of Parent, that are either (i) in the aggregate,
substantially comparable to the "employee benefit plans" provided to such
individuals by the Company on the date hereof or (ii) in the aggregate,
substantially comparable to the "employee benefit plans" provided to
similarly situated employees of Parent or its Subsidiaries who were not
employees of the Company immediately prior to the Effective Time; provided,
however, that notwithstanding the foregoing (A) nothing herein will be
deemed to require Parent to modify the benefit formulas under any pension
plan of the Company in a manner that increases the aggregate expenses
thereof as of the date hereof in order to comply with the requirements of
ERISA, the Code or the "Tax Reform Act of 1986," (B) employee stock
ownership, stock option and similar equity-based plans, programs and
arrangements of the Company or any of its Subsidiaries are not encompassed
within the meaning of the term "employee benefit plans" hereunder,
(C) nothing herein will obligate Parent or the Surviving Corporation to
continue any particular employee benefit plan for any period after the
Effective Time, and (D) without limiting the generality or effect of
Section 8.3, no employee of the Company or any Subsidiary of the Company
will have any claim or right by reason of this Section 5.13. Parent will
cause the Surviving Corporation to honor (subject to any withholdings under
applicable law) all employment, consulting and severance agreements or
arrangements to which the Company or any of its Subsidiaries is presently a
party, all of which are disclosed in the Company Reports or in
Schedule 5.13.
5.14 Conveyance Taxes. The Company and Parent will cooperate in
----------------
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or
gains, sales, use, transfer, value added,
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stock transfer and stamp taxes, any transfer, recording, registration and
other fees and any similar taxes which become payable in connection with
the transactions contemplated by this Agreement that are required or
permitted to be filed on or before the Effective Time and each party will
pay any such tax or fee which becomes payable by it on or before the
Effective Time.
5.15 Consents. The Company will use all reasonable efforts to
--------
obtain each of the consents identified in Schedule 3.6(a).
5.16 No Extraordinary Dividends by Parent. Prior to the
------------------------------------
Effective Time, Parent will not declare, set aside or pay any extraordinary
dividend or make any other extraordinary distribution or payment with
respect to shares of its capital stock.
5.17 Delivery of Parent Company Shares under the Company POR.
-------------------------------------------------------
Subject to the satisfaction of Section 6.3(g), after the Effective Time,
Parent will contribute or otherwise make available to the Surviving
Corporation Parent Common Shares to enable it to issue, distribute or
release such Parent Common Shares in accordance with the Company POR.
6. Conditions
6.1 Conditions to Each Party's Obligation To Effect the Merger.
----------------------------------------------------------
The respective obligations of each party to effect the Merger will be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) This Agreement and the transactions contemplated hereby
shall have been approved in the manner required by applicable law by the
holders of the issued and outstanding shares of capital stock of the
Company.
(b) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) Neither of the parties hereto shall be subject to any order
or injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the
event any such order or injunction shall have been issued, each party
agrees to use its reasonable best efforts to have any such injunction
lifted.
(d) The Form S-4 shall have become effective and shall be
effective at the Effective Time, and no stop order suspending effectiveness
of the Form S-4 shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be continuing or, to the knowledge of Parent or the
Company, be threatened in writing, and all necessary approvals under state
securities laws relating to the issuance or trading of Parent Common Shares
to be issued to the Company stockholders in connection with the Merger
shall have been received.
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(e) All consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity required in
connection with the execution, delivery and performance of this Agreement
shall have been obtained or made, except for filings in connection with the
Merger and any other documents required to be filed after the Effective
Time and except where the failure to have obtained or made any such
consent, authorization, order, approval, filing or registration would not
have a material adverse effect on the business, financial condition or
results of operations of the Surviving Corporation following the Effective
Time.
(f) Parent Common Shares to be issued to the Company
stockholders in connection with the Merger shall have been approved for
listing on the NYSE, subject only to official notice of issuance.
(g) General Electric Capital Corporation, the Company and Parent
shall have executed the 10th Amendment to the Credit Agreement dated
October 8, 1992 between GECC and the Company containing the terms and
conditions substantially identical to those set forth in the term sheet,
dated August 14, 1995, initialled by each of the parties.
6.2 Conditions to Obligation of Company To Effect the Merger.
--------------------------------------------------------
The obligation of the Company to effect the Merger will be subject to the
fulfillment at or prior to the Closing Date of the following additional
conditions:
(a) Each of Parent and Merger Sub shall have performed in all
material respects its agreements contained in this Agreement required to be
performed by it on or prior to the Closing Date, (i) all of the
representations and warranties of Parent and Merger Sub contained in this
Agreement shall have been true and correct in all material respects as of
the date hereof and (ii) the representations and warranties of Parent and
Merger Sub contained in this Agreement (other than those contained in
Sections 4.5(b), 4.6(c), 4.8(a) and 4.10(b)) shall be true and correct in
all material respects as of the Closing Date, except (A) for changes
specifically permitted by this Agreement and (B) that those representations
and warranties which address matters only as of a particular date shall
remain true and correct in all material respects as of such date, and the
Company shall have received a certificate of the Chairman, the President or
a Vice President of Parent, dated the Closing Date, certifying to such
effect.
(b) From the date of this Agreement through the Effective Time,
there shall not have occurred any material adverse change in the business
or properties of Parent excluding changes resulting from, arising out of or
related to (i) Parent's operations, (ii) Parent's results of operations,
(iii) the department store or retail business generally or (iv) general
economic or financial conditions.
(c) Parent shall have executed a Registration Rights Agreement
substantially in the form of Exhibit D.
6.3 Conditions to Obligation of Parent and Merger Sub to Effect
-----------------------------------------------------------
the Merger. The obligation of Parent and Merger Sub to effect the Merger
----------
will be subject to the
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fulfillment at or prior to the Closing Date (or such other date as may be
specified below) of the following additional conditions:
(a) The Company shall have performed in all material respects
its agreements contained in this Agreement required to be performed on or
prior to the Closing Date, (i) the representations and warranties of the
Company contained in this Agreement shall have been true and correct in all
material respects as of the date hereof and (ii) the representations and
warranties of the Company contained in this Agreement (other than those
contained in Sections 3.7(b), 3.8(c), 3.9(a), 3.10(a) and 3.12(b)) shall be
true and correct in all material respects as of the Closing Date, except
(A) for changes specifically permitted by this Agreement and (B) that those
representations and warranties which address matters only as of a
particular date will remain true and correct in all material respects as of
such date, and Parent and Merger Sub shall have received a certificate of
the Chairman, the President or a Vice President of the Company, dated the
Closing Date, certifying to such effect.
(b) From the date of this Agreement through the Effective Time,
there shall not have occurred any material adverse change in the business
or properties of the Company excluding changes resulting from, arising out
of or related to (i) the Company's operations, (ii) the Company's results
of operations, (iii) the department store or retail business generally or
(iv) general economic or financial conditions.
(c) [Intentionally Left Blank]
(d) The Company or the Board of Directors of the Company or the
other persons or entities described in Schedule 6.3(d), as the case may be,
shall have taken the actions set forth in Schedule 6.3(d).
(e) Parent shall have obtained the consent or waiver set forth
in Schedule 4.4(a) by the fourteenth business day following the date hereof
and the consent or waiver set forth in Schedule 6.4 to the Purchase
Agreement, dated as of the date hereof (the "Prudential Agreement"), among
The Prudential Insurance Company of America ("Prudential"), Federated
Noteholding Corporation II ("FNC") and Parent, provided that this condition
will be deemed to be waived (without any action by the parties) in the
event Parent does not terminate this Agreement within five business days
after the date referred to above.
(f) All conditions to the obligations of FNC to consummate the
transactions contemplated by the Prudential Agreement shall have been duly
satisfied or waived in accordance with the provisions thereof.
(g) Within 30 calendar days after of the date hereof, the
Company shall have delivered to Parent either (i) an order of the
Bankruptcy Court having jurisdiction over the Company POR or (ii) a written
opinion of nationally recognized outside counsel, in either case in form
and substance reasonably satisfactory to Parent, to the effect that the
obligation of the Company to distribute any additional Company Common
Shares pursuant to the Company POR on or after the Effective Time may be
satisfied by the distribution for each such Company Common Share of Parent
Common Shares at the Conversion Rate.
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(h) After the Effective Time, no person will have any right
under any stock option plan (or any option granted thereunder) or other
plan, program or arrangement to acquire any equity securities of the
Company of any of its Subsidiaries.
7. Termination
7.1 Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval of this Agreement by the
stockholders of the Company, by the mutual consent of Parent and the
Company.
7.2 Termination by Either Parent or Company. This Agreement may
---------------------------------------
be terminated and the Merger may be abandoned by action of the Board of
Directors of either Parent or the Company if (a) the Merger shall not have
been consummated by February 29, 1996 (the "Outside Date"), (b) a United
States federal or state court of competent jurisdiction or United States
federal or state governmental, regulatory or administrative agency or
commission issues an order, decree or ruling or takes any other action
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this agreement and such order, decree, ruling
or other action becomes final and non-appealable; provided, that the party
seeking to terminate this Agreement pursuant to this clause (b) has used
all reasonable efforts to remove such injunction, order or decree, or
(c) any condition to such party's obligations to consummate the
transactions contemplated hereby is incapable of being satisfied by the
Outside Date; and provided, in the case of a termination pursuant to clause
(a) or (b) above, that the terminating party has not breached in any manner
that proximately contributes to the failure to consummate the Merger by the
Outside Date.
7.3 Termination by Company. This Agreement may be terminated
----------------------
and the Merger may be abandoned at any time prior to the Effective Time,
before or after the adoption by the stockholders of the Company referred to
in Section 6.1(a), by action of the Board of Directors of the Company, if
(a) there has been a material breach by Parent or Merger Sub of any
representation or warranty contained in this Agreement which is not curable
or, if curable, is not cured by the Outside Date and such breach had or is
reasonably likely to have a Parent Material Adverse Effect, (b) there has
been a material breach of any of the covenants set forth in this Agreement
on the part of Parent, which breach is not curable or, if curable, is not
cured within 60 calendar days after written notice of such breach is given
by the Company to Parent, or (c) the condition set forth in Section 6.1(g)
shall not have been satisfied on or prior to August 17, 1995.
7.4 Termination by Parent and Merger Sub. This Agreement may be
------------------------------------
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval by the stockholders of the
Company referred to in Section 6.1(a), by action of the Boards of Directors
of Parent, if (a) the Board of Directors of the Company shall have
withdrawn or modified in a manner materially adverse to Parent or Merger
Sub its approval or recommendation of this Agreement or the Merger or shall
have recommended an Alternative Proposal to the Company's stockholders,
(b) there has been a material breach by the Company of any representation
or warranty contained in this Agreement which is not
A-32
curable or, if curable, is not cured by the Outside Date and such breach
had or is reasonably likely to have a Company Material Adverse Effect,
(c) there has been a material breach of any of the covenants set forth in
this Agreement on the part of the Company, which breach is not curable or,
if curable, is not cured within five days after written notice of such
breach is given by Parent to the Company, (d) there has been a material
breach by Stockholder of the Stock Agreement, (e) an involuntary case under
the United States Bankruptcy Code or any applicable bankruptcy, insolvency
or other similar law is commenced against the Company or any of its
Subsidiaries, a decree or order of a court of competent jurisdiction for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian
or other officer having similar powers of the Company or any of its
Subsidiaries or over a material portion of their respective assets shall
have been entered or the involuntary appointment of an interim receiver,
trustee or other custodian of the Company or any of its Subsidiaries shall
have occurred and any such event described in this clause (e) shall have
continued neither stayed nor dismissed for 60 days or (f) the Company or
any of its Subsidiaries has an order for relief entered with respect to it
or commences a voluntary case under the United States Bankruptcy Code or
any applicable bankruptcy, insolvency or other similar law, or consents to
the entry of an order for relief in an involuntary case, to the conversion
of an involuntary case to a voluntary case or to the appointment of or
taking possession by a receiver, trustee or other custodian of any part of
the Company's property, or makes any assignment for the benefit of
creditors.
7.5 Effect of Termination and Abandonment. In the event of
-------------------------------------
termination of this Agreement and the abandonment of the Merger pursuant to
this Article 7, all obligations of the parties hereto will terminate,
except the obligations of the parties pursuant to this Section 7.5 and
Section 5.11 and except for the provisions of Sections 8.3, 8.4, 8.6, 8.8,
8.9, 8.12, 8.13 and 8.14. Moreover, in the event of termination of this
Agreement pursuant to Section 7.2, 7.3 or 7.4, nothing herein will
prejudice the ability of the non-breaching party from seeking damages from
any other party for any willful breach of this Agreement, including without
limitation attorneys' fees and the right to pursue any remedy at law or in
equity.
8. General Provisions
8.1 Nonsurvival of Representations, Warranties and Agreements.
---------------------------------------------------------
All representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement will be deemed to the
extent expressly provided herein to be conditions to the Merger and will
not survive the Merger, provided, however, that the agreements contained in
Article 2, Sections 5.12, 5.13 and 5.17 and this Article 8 will survive the
Merger and Sections 5.11 and 7.5 will survive termination.
8.2 Notices. Any notice required to be given hereunder will be
-------
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered
mail (return receipt requested and first-class postage prepaid), addressed
as follows:
If to Parent or Merger Sub: If to the Company:
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Federated Department Stores, Inc. Broadway Stores, Inc.
7 W. Seventh Street 3880 North Mission Road
Cincinnati, Ohio 45202 Los Angeles, California 90031
Attention: Dennis J. Broderick Attention: John C. Haeckel
General Counsel Exec. V.P. and
Fax No.: 513-579-7354 Chief Financial Officer
Fax No.: 213-227-3588
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With copies to: With copies to:
Jones, Day, Reavis & Pogue Cleary, Gottlieb, Steen & Hamiltion
599 Lexington Avenue One Liberty Plaza
New York, New York 10022 New York, New York 10006
Attention: Robert A. Profusek, Esq. Attention: William A. Groll, Esq.
Fax No.: 212-755-7306 Fax No.: 212-225-3999
or to such other address as any party will specify by written notice so
given, and such notice will be deemed to have been delivered as of the date
so telecommunicated, personally delivered or mailed.
8.3 Assignment; Binding Effect. Neither this Agreement nor any
--------------------------
of the rights, interests or obligations hereunder will be assigned by any
of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon and will inure to the benefit
of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary,
except for the provisions of Section 5.12, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
8.4 Entire Agreement. This Agreement, the Exhibits, the
----------------
Schedules and any documents delivered by the parties in connection
herewith, together with the Confidentiality Agreement, dated July 25, 1995,
between Parent and the Company, which will survive the execution and
delivery of this Agreement, constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement will be
binding upon any party hereto unless made in writing and signed by all
parties hereto.
8.5 Amendment. This Agreement may be amended by the parties
---------
hereto, by action taken by their respective Board of Directors, at any time
before or after approval of matters presented in connection with the Merger
by the stockholders of the Company but after any such stockholder approval,
no amendment will be made which by law requires the further approval of
such stockholders without obtaining such further approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of
each of the parties hereto.
8.6 Governing Law. This Agreement will be governed by and
-------------
construed in accordance with the laws of the State of Delaware without
regard to its rules of conflict of laws.
8.7 Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and
delivered will be an original,
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but all such counterparts will together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.8 Headings. Headings of the Articles and Sections of this
--------
Agreement are for the convenience of the parties only, and will be given no
substantive or interpretive effect whatsoever.
8.9 Interpretation. In this Agreement, unless the context
--------------
otherwise requires, words describing the singular number will include the
plural and vice versa, and words denoting any gender will include all
genders and words denoting natural persons will include corporations and
partnerships and vice versa.
8.10 Waivers. Except as provided in this Agreement, no action
-------
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, will be deemed to constitute a
waiver by the party taking such actio of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision
hereunder will not operate or be construed as a waiver of any prior or
subsequent breach of the same or any other provision hereunder.
8.11 Incorporation of Schedules. The Schedules attached hereto
--------------------------
and referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
8.12 Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction will, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to
be unenforceable, the provision will be interpreted to be only so broad as
is enforceable.
8.13 Enforcement of Agreement. The parties hereto agree that
------------------------
irreparable damage would occur in the event that any of the provisions of
this Agreement was not performed in accordance with its specific terms or
was otherwise breached. It is accordingly agreed that the parties will be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in
any Delaware Court, this being in addition to any other remedy to which
they are entitled at law or in equity.
8.14 Prudential Loan. The Company hereby acknowledges that,
---------------
simultaneously with the execution and delivery hereof, Parent and FNC are
entering into the Prudential Agreement with Prudential to acquire all of
Prudential's interest in loans previously made by Prudential to the Company
(the "PRU Loan") and the Company hereby consents to, and waives any
contractual prohibition against, such acquisition, provided that, prior to
such acquisition, (a) the Effective Time has occurred or (b) Company Common
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Shares shall have been purchased by Parent upon exercise of the Option and
the condition set forth in Section 6.1(d) shall have been satisfied.
8.15 Effect of Exercise of Option. In the event that Parent
----------------------------
purchases Company Common Shares upon exercise of the Option:
(a) If requested by Parent, the Company will, promptly following
the purchase of Company Common Shares upon exercise of the Option and from
time to time thereafter, take all action necessary to cause at least a
majority of the number of directors, rounded up to the next whole number,
of the Company to be persons designated by Parent (whether, at the request
of Parent, by increasing the size of the number of directors of the Company
or by seeking the resignation of directors and causing Parent's designees
to be elected to fill the vacancies so created). At such time, the Company
also will take all action permitted by law to cause persons designated by
Parent to constitute at least the same percentage as is on the Company's
Board of Directors of (i) each committee of the Company's Board of
Directors, (ii) the board of directors of each Subsidiary of the Company,
and (iii) each committee, if any, of each such board of directors. The
Company's obligation to cause designees of Parent to be so elected or
appointed as directors of the Company will be subject to Section 14(f) of
the Exchange Act and Rule 14(f)-1 promulgated thereunder. Parent will
supply to the Company in writing and will be solely responsible for any
information with respect to it and its designees, officers, directors and
affiliates required by Section 14(f) and Rule 14f-1, and the Company will
use all reasonable efforts to file as promptly as practicable with the SEC
and transmit to all holders of record of securities of the Company who
would be entitled to vote at a meeting for election of directors such
information as is required under Section 14(f) and Rule 14(f)-1.
Notwithstanding the foregoing, until the Effective Time, the Company will
use all reasonable efforts to assure that the Company's Board of Directors
has at least three directors who are directors on the date hereof (the
"Continuing Directors"); provided further, that, in such event, if the
number of Continuing Directors is reduced below three for any reason
whatsoever, any remaining Continuing Directors (or Continuing Director, if
there is only one remaining) will be entitled to designate three persons to
fill such vacancies who will be deemed to be Continuing Directors for
purposes of this Agreement or, if no Continuing Director then remains, the
other directors will designate three persons to fill such vacancies who are
not shareholders, affiliates or associates of Parent or Purchaser and such
persons will be deemed to be Continuing Directors for purposes of this
Agreement. The Company will use all reasonable efforts to cause the
person(s) so designated by the Continuing Directors to be elected to the
Board of Directors of the Company.
(b) Parent will use all reasonable efforts in accordance with
applicable law and the Company's certificate of incorporation and by-laws
to convene a meeting of the Company's stockholders as promptly as
practicable to consider and vote upon the Merger, including, without
limitation, timely mailing of the Proxy Statement/Prospectus.
(c) Parent will, with respect to all Company Common Shares
acquired by it upon exercise of the Option and any other Company Common
Shares that it owns of record or beneficially on the record date for voting
at the meeting of stockholders called to consider and vote upon the Merger,
vote or cause to be voted such Company Common
A-37
Shares (or execute or cause to be executed written consents with respect
thereto) (i) in favor of the adoption of this Agreement and approval of the
Merger and the other transactions contemplated hereby, (ii) against any
Alternative Proposal, and (iii) in favor of any other matter necessary for
the consummation of the transactions contemplated by this Agreement and
considered and voted upon at such meeting of the Company's stockholders.
(d) Notwithstanding any other provision contained herein to the
contrary, from and after the date of the closing of the exercise of the
Option, the obligations of Parent and Merger Sub to effect the Merger will
be subject only to the fulfillment at or prior to the Closing Date of the
conditions set forth in Section 6.1(a), (c) and (d) and all other
conditions to the obligations of the Parent and Merger Sub to effect the
Merger on the terms and conditions of this Agreement as in effect
immediately prior to the exercise of the Option will be deemed satisfied or
waived.
(e) Notwithstanding any other provision contained herein to the
contrary, from and after the date of the closing of the exercise of the
Option, Parent and Merger Sub will not be entitled to terminate this
Agreement or abandon the Merger unless a United States federal or state
court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission issues an
order, decree or ruling or takes any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
agreement and such order, decree, ruling or other action becomes final and
non-appealable.
(f) Any action by the Company to waive or amend any provision of
this Agreement will require the approval of a majority of the Continuing
Directors.
8.16 Absence of Certain Knowledge. Parent hereby acknowledges
----------------------------
that nothing has come to the attention of the executive officers of Parent
during the course of the due diligence conducted by Parent in connection
with this Agreement which gives such executive officers actual knowledge
that any of the representations or warranties of the Company set forth
herein were not true or correct in any material respect as of the date
hereof; provided, however, that nothing in this Section 8.16 will
constitute a waiver of any right which Parent may have with respect to this
Agreement or the representations and warranties made herein by the Company,
whether at law or in equity, in contract or in tort.
A-38
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year
first written above.
BROADWAY STORES, INC.
By: /s/ David L. Dworkin
-------------------------------------------
David L. Dworkin
President and Chief Executive Officer
FEDERATED DEPARTMENT STORES, INC.
By: /s/ Ronald W. Tysoe
-------------------------------------------
Ronald W. Tysoe
Vice Chairman
NOMO COMPANY, INC.
By: /s/ Dennis J. Broderick
-------------------------------------------
Dennis J. Broderick
Vice President
A-39
APPENDIX B
Investment Banking Group
World Financial Center
North Tower
New York, New York 10281-1324
212 449 1000
Merrill Lynch
August 14, 1995
Board of Directors
Broadway Stores, Inc.
3880 North Mission Road
Los Angeles, CA 90031
Gentlemen:
Broadway Stores, Inc. (the "Company"), Federated Department Stores,
Inc. (the "Acquiror") and Nomo Company, Inc., a wholly owned subsidiary of the
Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which the Company will be merged
with the Acquisition Sub in a transaction (the "Merger") in which each
outstanding share of the Company's common stock, par value $0.01 per share (the
"Shares"), not owned directly or indirectly by the Acquiror or the Company, will
be converted into the right to receive 0.27 shares (the "Exchange Ratio") of the
common stock of the Acquiror, par value $0.01 per share (the "Acquiror Shares"),
and each share of the Company's Series A Exchangeable Preferred Stock, par value
$0.01 per share, will be converted into one one-thousandth of a share of Series
A Exchangeable Preferred Stock, par value $0.01 per share, of the surviving
corporation in the Merger, having the powers, preferences and relative,
participating, optional or other special rights set forth in the Merger
Agreement. In addition, the Acquiror proposes to enter into a Stock Agreement
with Zell/Chilmark Fund, L.P. (the "Stock Agreement"), Federated Noteholding
Corporation II proposes to enter into a Purchase Agreement with The Prudential
Insurance Company of North America and the Acquiror (the "Prudential
Agreement"), and General Electric Capital Corporation proposes to enter into an
Agreement with the Company and the Acquiror (the "GECC Agreement"), each in the
form, or containing the terms in the term sheets, previously delivered to us.
You have asked us whether, in our opinion, the Exchange Ratio is fair
from a financial point of view to the holders of the Shares, other than the
Acquiror and its affiliates.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended January
28, 1995 and the Company's Form 10-Q and the related unaudited
financial information for the quarterly period ending April 29,
1995;
(2) Reviewed the Acquiror's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended January
28, 1995 and the Acquiror's Form 10-Q and the related unaudited
financial information for the quarterly period ending April 29,
1995;
B-1
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Company, furnished to us by the Company for the
fiscal years ending January 28, 1996 and January 28, 1997;
(4) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Acquiror furnished to us by the Acquiror;
(5) Reviewed certain information, including financial forecasts,
relating to the combined business, earnings, cash flow, assets
and prospects of the combined operations of the Acquiror and the
Company furnished to us by the Acquiror;
(6) Conducted discussions with members of senior management of the
Company and the Acquiror concerning their aforementioned
financial forecasts;
(7) Conducted discussions with certain members of the Company's
management and its representatives concerning the Company's views
as to: the anticipated adverse effects on the Company's business,
assets, liabilities, operations and prospects which the Company
believes would occur if the Company were not to enter into the
Merger as a result of, among other things, the Company's current
liquidity shortfall, the Company's anticipated inability to
remedy this liquidity shortfall and the substantial risk of the
Company becoming insolvent and seeking the protection of the
Bankruptcy Court; the anticipated substantial adverse effects on
the holders of the Shares and the Company's present and potential
employees, business partners and lenders that would result from
such insolvency or concerns about the potential for it; and the
benefits which would arise from entering into the Merger,
including the substantial lessening of such liquidity or solvency
concerns;
(8) Reviewed the historical market prices and trading activity for
the Shares and the Acquiror Shares and compared them with those
of certain publicly traded companies which we deemed to be
reasonably similar to the Company and the Acquiror, respectively;
(9) Compared the results of operations of the Company and the
Acquiror with those of certain companies which we deemed to be
reasonably similar to the Company and the Acquiror, respectively;
(10) Compared the proposed financial terms of the transaction
contemplated by the Merger Agreement with the financial terms of
certain other mergers and acquisitions which we deemed to be
relevant;
(11) Considered the pro forma effect of the Merger on the Acquiror's
projected capitalization, coverage ratios and earnings per share;
(12) Assumed that the maximum amount of certain claims against R.H.
Macy & Co. and its subsidiaries pursuant to their Plan of
Reorganization is approximately $336.7 million and that a maximum
of 825,000 Shares will be issuable by the Company for general
unsecured claims pursuant to the Plan of Reorganization of the
Company;
(13) Reviewed a draft of the Merger Agreement dated August 14, 1995;
(14) Reviewed a draft of the Stock Agreement dated August 14, 1995;
(15) Reviewed a draft of the Prudential Agreement dated August 14,
1995;
(16) Reviewed the term sheet for the proposed GECC Agreement; and
B-2
(17) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other
matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company and the Acquiror and we have not independently verified such
information or undertaken an independent appraisal of the assets of the Company
or the Acquiror. With respect to the financial forecasts furnished by the
Company and the Acquiror, we have assumed with your consent that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of the Company's or the Acquiror's management as to the expected future
financial performance of the Company, the Acquiror or their combined operations,
as the case may be. Our opinion is necessarily based upon market, economic and
other conditions as they exist on the date hereof.
In connection with the preparation of this opinion, while we have had
conversations with a limited number of potential purchasers, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all of the
Company.
We have acted as financial advisor to the Company in connection with
the Merger and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the Merger.
We have also, in the past, provided financial advisory and financing services to
the Company and the Acquiror, including acting as underwriter in connection with
a prior equity offering by the Company, and have received fees for the rendering
of such services and are currently providing financial advisory services to the
Acquiror in an unrelated matter for which we expect to receive fees. In
addition, in the ordinary course of our business, we may actively trade the
Shares as well as the Acquiror Shares and other securities of the Company or the
Acquiror for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
On the basis of, and subject to the foregoing, we are of the opinion
that the Exchange Ratio is fair from a financial point of view to the holders of
the Shares, other than the Acquiror and its affiliates.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By /s/ Jack Levy
------------------------------
Managing Director
Investment Banking Group
B-3
APPENDIX C
-----------------------------
Salomon Brothers
----------------------------
August 14, 1995
Board of Directors
Broadway Stores, Inc.
3880 North Mission Road
Los Angeles, CA 90031
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the common stockholders of Broadway Stores,
Inc., a Delaware corporation (the "Company"), of the consideration to be
received by such stockholders in connection with the proposed merger (the
"Merger") of the Company with a wholly owned subsidiary of Federated Department
Stores, Inc., a Delaware corporation ("Federated"), pursuant to the Agreement
and Plan of Merger dated as of August 14, 1995 (the "Merger Agreement"), by and
among Federated, such subsidiary of Federated and the Company. Pursuant to the
Merger Agreement, each issued and outstanding share of common stock of the
Company, par value $.01 per share ("Common Stock"), not owned directly or
indirectly by Federated or the Company, will be converted into 0.27 of a share
of common stock, par value $.01 per share, of Federated (the "Exchange Ratio").
In connection with rendering our opinion, we have: (i) reviewed certain
publicly available information concerning the Company and Federated, including
the Annual Report on Form 10-K of each of the Company and Federated for each of
the years in the three-year period ended January 28, 1995, and the Quarterly
Report on Form 10-Q of each of the Company and Federated for the quarter ended
April 29, 1995; (ii) reviewed financial projections of each of the Company and
Federated furnished to us by their respective management and conducted
discussions with such management regarding such projections; (iii) reviewed
certain publicly available information with respect to certain other companies
that we believe to be comparable in certain respects to the Company and
Federated and the trading markets for such other companies' securities;
(iv) reviewed certain publicly available information concerning the nature and
terms of certain other transactions that we consider relevant to our inquiry;
and (v) reviewed the credit agreement with General Electric Capital Corporation,
the settlement agreement with The Prudential Insurance Company of America and
drafts of the amendments or agreements relating to each of the foregoing
anticipated to be entered into in connection with the Merger. We have also
considered such other information, financial studies, analyses, investigations
and financial, economic and market criteria which we deemed relevant. We have
discussed with certain members of the Company's management and its
representatives the Company's views as to: the anticipated adverse effects on
the Company's business, assets, liabilities, operations and prospects which the
Company believes would occur if the Company were not to enter into the Merger as
a result of, among other things, the Company's current liquidity shortfall, the
Company's anticipated inability to remedy this liquidity shortfall and the
substantial risk of the Company becoming insolvent and seeking the protection of
the Bankruptcy Court; the anticipated substantial adverse effects on the
Company's shareholders and present and potential employees, business partners
and lenders that would result from such insolvency or concerns about the
potential for it; the benefits which would arise from entering into the Merger,
including the substantial lessening of such liquidity or solvency concerns; and
the financial and other information described above and other matters we believe
relevant to our inquiry.
C-1
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. We have not made or obtained or assumed any responsibility for
making or obtaining any independent evaluations or appraisals of any of the
assets (including properties and facilities) or liabilities of the Company or
Federated. With respect to the Company's and Federated's financial projections,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Company's and
Federated's management and we express no opinion with respect to such forecasts
or the assumptions on which they are based.
Our opinion necessarily is based upon conditions as they exist and can be
evaluated on the date hereof, and we assume no responsibility to update or
revise our opinion based upon circumstances or events occurring after the date
hereof. Our opinion does not address the Company's underlying business decision
to effect the Merger or constitute a recommendation to any holder of Common
Stock as to how such holder should vote with respect to the Merger. Our opinion
as expressed below does not imply any conclusion as to the likely trading range
for the common stock of Federated following consummation of the Merger, which
may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities.
As you are aware, we will receive fees from the Company for our services in
connection with rendering this opinion, a significant portion of which are
contingent upon consummation of the Merger. Additionally, we have previously
rendered certain investment banking and financial advisory services to the
Company, including acting as underwriter in connection with two prior public
offerings effected by the Company. We also previously rendered services to
Federated, including acting as Federated's financial advisor in connection with
its previous bankruptcy proceedings. In addition, in the ordinary course of our
business, we may actively trade the equity and equity-linked securities of the
Company and the equity and debt securities of Federated for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
holders of Common Stock (other than Federated and its affiliates).
Very truly yours,
/s/ Salomon Brothers Inc
SALOMON BROTHERS INC
C-2
APPENDIX D
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BROADWAY STORES, INC.
FIRST. The name of the corporation (the "Corporation") is Broadway Stores,
-----
Inc.
SECOND. The address of the Corporation's registered office in the State of
------
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
-----
activity for which corporations may be organized under the Delaware General
Corporation Law ("DGCL").
FOURTH. (a) Authorized Capital Stock. The Company is authorized to issue
------ ------------------------
two classes of capital stock, designated Common Stock and Series A Preferred
Stock. The total number of shares of capital stock that the Company is
authorized to issue is 37,800 shares, consisting of 37,044 shares of Common
Stock, par value $0.01 per share, and 756 shares of Series A Preferred Stock,
par value $0.01 per share.
(b) Preferred Stock.
---------------
Section 1. Dividends and Distributions. Holders of shares of
---------------------------
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose, annual
dividends payable in arrears in cash on September 15 of each year (each such
date being referred to herein as a "Dividend Payment Date"), commencing on the
first Dividend Payment Date after the first issuance of a share or a fraction of
a share of Series A Preferred Stock, in an amount equal to $50.00 per share per
annum (and no more). Dividends not declared on any such Dividend Payment Date
shall not cumulate and the Corporation shall have no obligation with respect
thereto.
Section 2. Voting Rights. The holders of Series A Preferred Stock
-------------
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to one
vote on all matters submitted to a vote of the stockholders of the Corporation.
In
D-1
the event the Corporation shall at any time (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case, the number of votes per share to which holders
of shares of Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth in Section 7 hereof, holders of Series A
Preferred Stock shall have no special, separate, class or series voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 3. Reacquired Shares. Any shares of Series A Preferred
-----------------
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever (including pursuant to exchange by the holder pursuant to Section 6
hereof) shall be retired and cancelled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Series A Preferred Stock.
Section 4. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
$250.00 per share (the "Series A Liquidation Preference").
(B) After payment of the full amount to which they are entitled as
provided by the foregoing provisions of this Section 4, the holders of Series A
Preferred Stock shall not be entitled to any further right or claim to any of
the remaining assets of the Corporation.
Section 5. Optional Redemption.
-------------------
(A) The Corporation, at any time after the Expiration Date of the
warrants (the "Warrants") of Federated Department Stores, Inc. (as such date is
defined in that certain Warrant Agreement (the "Warrant Agreement"), dated as of
_______ __,
D-2
199__, among the Corporation, Federated Department Stores, Inc. ("Warrant
Issuer") and the warrant agent named therein (the "Warrant Agent")), and from
time to time thereafter, may at its option redeem all, or any number less than
all, of the outstanding shares of Series A Preferred Stock. Any redemption of
shares of Series A Preferred Stock shall be effected at a price equal to $250.00
per share, subject to the provision for adjustment hereinafter set forth. In
the event that the Corporation shall at any time (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case, the amount to which holders of shares
of Series A Preferred Stock were otherwise entitled immediately prior to such
event under the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) Notice of any proposed redemption of shares of Series A Preferred
Stock shall be given by the Corporation by mailing a copy of such notice no less
than thirty (30) days nor more than sixty (60) days prior to the date fixed for
such redemption to holders of record of the shares of Series A Preferred Stock
to be redeemed at their respective addresses appearing on the books of the
Corporation. Said notice shall specify the shares called for redemption, the
redemption price and the place at which and the date on which the shares called
for redemption will, upon presentation and surrender of the certificates
evidencing such shares, be redeemed and the redemption price therefor paid. No
failure to deliver or mail such notice, and no defect in the manner of delivery
or mailing such notice or in the notice itself shall, affect the validity of any
redemption. In the case of the redemption of less than all the outstanding
shares of Series A Preferred Stock, such redemption shall be of whole shares
selected by lot among all then Outstanding Series A Preferred Stock in such
manner as may be prescribed by the Board of Directors. From and after the date
fixed in any such notice as the date of redemption of shares of Series A
Preferred Stock, unless default shall be made by the Corporation in providing
monies at the time and place specified for the payment of the redemption price
pursuant to said notice, all dividends on the Series A Preferred Stock thereby
called for redemption shall cease to accrue and all rights of the holders
thereof as stockholders of the Corporation, except the right to receive the
redemption price and except pursuant to Section 6(C), shall cease and terminate.
Section 6. Exchange.
--------
(A) Any holder of record of shares of Series A Preferred Stock may
exchange any or all shares of Series A Preferred Stock, at any time prior to the
close of business on the Exchange Termination Date (as defined below), into a
number
D-3
of Warrants equal to 1,000 times the number of shares of Series A Preferred
Stock, as such Warrants are adjusted or modified from time to time. Any
adjustment or modification to the terms of the Warrants pursuant to the terms of
the Warrant Agreement shall apply to the Warrants issued and issuable in
exchange for Series A Preferred Stock, without regard to whether such
adjustments or modifications take place before or after the date of such
exchange.
(B) If the Warrant Issuer elects, pursuant to Section 9(j) of the
Warrant Agreement, to adjust the number of Warrants issuable thereunder in
substitution for any adjustment in the number of shares of the Warrant Issuer
purchasable upon the exercise of a Warrant, then (i) each share of Series A
Preferred Stock shall be adjusted to equal such number of shares as is
proportional to the number of Warrants issuable immediately after the adjustment
thereto made under Section 9(j), and (ii) any Warrant deliverable upon any
exchange pursuant to this Section 6 shall entitle the holder thereof to the same
rights as any Warrant immediately following any adjustment made under Section
9(j).
(C) In order to exchange shares of Series A Preferred Stock for
Warrants, the holder thereof shall (i) surrender the certificate or certificates
representing such shares of Series A Preferred Stock to the Corporation on any
business day prior to the Exchange Termination Date at the principal office for
the transfer agent for the Series A Preferred Stock designated by the Board of
Directors, accompanied by a written notice to the Corporation at such office
stating the number of shares of Series A Preferred Stock such holder elects to
exchange and, if the Corporation so requests, setting forth the name and address
of the person in whose name certificates for Warrants (and, if all shares of
Series A Preferred Stock represented by a certificate are not to be so
exchanged, new certificates for the shares of Series A Preferred Stock not
exchanged) are to be registered, and (ii) furnish appropriate endorsements and
transfer documents, if requested by the Corporation. For the purposes of this
paragraph (C), each date on which a holder satisfies all the above requirements
shall be referred to as an "Exchange Date" with respect to the shares of Series
A Preferred Stock so exchanged. As soon as practicable after the Exchange Date,
but in no event later than 5 business days following the Exchange Date, the
Corporation shall deliver or cause to be delivered to such holder (or any
transferee thereof) at such office a certificate for the number of Warrants
issuable upon the exchange in accordance with the provisions of this Section 6
(and, if all shares of Series A Preferred Stock represented by a certificate are
not so exchanged, the Corporation shall deliver or cause to be delivered a new
certificate for the shares of Series A Preferred Stock not exchanged). The
person in whose name the certificate is registered shall be treated as a holder
of record with respect to the Warrants issued upon such exchange as of the close
of business on the Exchange Date and the shares of Series A Preferred Stock so
exchanged shall be deemed to have been
D-4
exchanged immediately prior to the close of business on the Exchange Date.
(D) No payment or adjustment shall be made for accrued interest on,
or dividends or other distributions with respect to, the shares of Series A
Preferred Stock exchanged at the time of the exchange, provided that if shares
of Series A Preferred Stock are exchanged subsequent to any record date for the
payment of dividends on the Series A Preferred Stock and on or prior to the
payment date for such dividend, the dividend falling due on such date, if any,
shall be paid to the holder of such shares of Series A Preferred Stock on such
record date.
(E) The "Exchange Termination Date" with respect to a given share of
Series A Preferred Stock means (a) in the case of redemption of such share, the
date fixed for redemption as specified in the notice of redemption with respect
to such shares as provided in paragraph B of Section 5 or (b) the Expiration
Date (as such term is defined in the Warrant Agreement).
Section 7. Amendment. The Certificate of Incorporation of the
---------
Corporation shall not be further amended in any manner which would materially
alter or change the powers or preferences of the Series A Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series A Preferred Stock, voting
separately as a class.
(c) Common Stock. Except as may otherwise be provided in a Preferred
------------
Stock Designation, the holders of Common Stock will be entitled to one vote on
each matter submitted to a vote at a meeting of stockholders for each share of
Common Stock held of record by such holder as of the record date for such
meeting.
FIFTH. In furtherance of, and not in limitation of, the powers conferred
-----
by statute, the Board of Directors of the Corporation (the "Board") is expressly
authorized and empowered to adopt, amend, or repeal the By-Laws of the
Corporation, without any action on the part of the stockholders, but the
stockholders may make additional By-Laws and may amend or repeal any By-Law
whether adopted by them or otherwise. The Corporation may in its By-Laws confer
powers upon the Board in addition to the foregoing and in addition to the powers
and authorities expressly conferred upon the Board by applicable law.
SIXTH. To the full extent permitted by the DGCL or any other applicable
-----
law currently or hereafter in effect, no Director of the Corporation will be
personally liable to the Corporation or its stockholders for or with respect to
any acts or omissions in the performance of his or her duties as a Director of
the Corporation. Any repeal or modification of this Article Sixth will not
adversely affect any right or protection of a Director of the Corporation
existing immediately prior to such repeal or modification.
D-5
SEVENTH. Each person who is or was or had agreed to become a Director or
-------
officer of the Corporation, or each such person who is or was serving or who had
agreed to serve at the request of the Board or an officer of the Corporation as
an employee or agent of the Corporation or as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other entity
(including the heirs, executors, administrators, or estate of such person) will
be indemnified by the Corporation to the full extent permitted by the DGCL or
any other applicable law as currently or hereafter in effect. The right of
indemnification provided in this Article Seventh will not be exclusive of any
other rights to which any person seeking indemnification may otherwise be
entitled, and will be applicable to matters otherwise within its scope whether
or not such matters arose or arise before or after the adoption of this Article
Seventh. Without limiting the generality or the effect of the foregoing, the
Corporation may adopt By-Laws, or enter into one or more agreements with any
person, which provide for indemnification greater or different than that
provided in this Article Seventh. Any amendment, or repeal of, or adoption of
any provision inconsistent with, this Article Seventh will not adversely affect
any right or protection existing hereunder immediately prior to such amendment,
repeal, or adoption.
D-6
APPENDIX E
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AMENDED AND RESTATED BY-LAWS
OF
BROADWAY STORES, INC.
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E-1
AMENDED AND RESTATED BY-LAWS
OF
BROADWAY STORES, INC.
TABLE OF CONTENTS
Page
----
STOCKHOLDERS' MEETINGS
1. Time and Place of Meetings . . . . . . . . . . . . . . . . . . . . E-4
2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . E-4
3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . E-4
4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . E-4
5. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-4
6. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-5
DIRECTORS
7. Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-5
8. Number and Term of Office . . . . . . . . . . . . . . . . . . . . E-5
9. Vacancies and New Directorships . . . . . . . . . . . . . . . . . E-5
10. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . E-6
11. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . E-6
12. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-6
13. Written Action . . . . . . . . . . . . . . . . . . . . . . . . . . E-6
14. Participation in Meetings by
Conference . . . . . . . . . . . . . . . . . . . . . . . . . . . E-6
15. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-6
16. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . E-7
17. Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-7
NOTICES
18. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-7
19. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-7
OFFICERS
20. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-7
21. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . E-8
22. Succession . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-8
23. Authority and Duties . . . . . . . . . . . . . . . . . . . . . . . E-8
24. Execution of Documents and Action with
Respect to Securities of Other Corporations . . . . . . . . . . E-8
STOCK
25. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . E-8
26. Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-8
E-2
INDEMNIFICATION
27. Damages and Expenses . . . . . . . . . . . . . . . . . . . . . . . E-9
28. Insurance, Contracts, and Funding . . . . . . . . . . . . . . . . E-15
GENERAL
29. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . E-15
30. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-15
31. Reliance upon Books, Reports, and Records . . . . . . . . . . . . E-15
32. Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . E-15
33. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-15
34. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . E-15
E-3
STOCKHOLDERS' MEETINGS
----------------------
1. Time and Place of Meetings. All meetings of the stockholders for the
--------------------------
election of Directors or for any other purpose will be held at such time and
place, within or without the State of Delaware, as may be designated by the
Board or, in the absence of a designation by the Board, the Chairman, the
President, or the Secretary and stated in the notice of meeting.
2. Annual Meeting. An annual meeting of the stockholders will be held at
--------------
such date and time as may be designated from time to time by the Board, at which
meeting the stockholders will elect by a plurality vote the Directors to succeed
those whose terms expire and will transact such other business as may properly
be brought before the meeting.
3. Special Meetings. Special meetings of the stockholders, for any
----------------
purpose or purposes, unless otherwise prescribed by law or by the Certificate of
Incorporation, may be called by the Chairman or the President and will be called
by the President or the Secretary at the request in writing of stockholders
owning a majority in interest of the entire capital stock of the Company issued
and outstanding and entitled to vote. Any such request must be sent to the
President and the Secretary and must state the purpose or purposes of the
proposed meeting.
4. Notice of Meetings. Written notice of every meeting of the
------------------
stockholders, stating the place, date, and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
will be given not less than 10 nor more than 60 calendar days before the date of
the meeting to each stockholder of record entitled to vote at such meeting,
except as otherwise provided herein or by law. When a meeting is adjourned to
another place, date or time, written notice need not be given of the adjourned
meeting if the place, date, and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the adjournment is
-------- -------
for more than 30 calendar days, or if after the adjournment a new record date is
fixed for the adjourned meeting, written notice of the place, date and time of
the adjourned meeting must be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
5. Quorum. The holders of a majority of the stock issued and outstanding
------
and entitled to vote thereat, present in person or represented by proxy, will
constitute a quorum at all meetings of the stockholders for the transaction of
business thereat. If, however, such quorum is not present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, will have the power to adjourn the meeting
from time to time, without
E-4
notice other than announcement at the meeting, until a quorum is present or
represented.
6. Voting. Except as otherwise provided by law or by the Certificate of
------
Incorporation, each stockholder will be entitled at every meeting of the
stockholders to one vote for each share of stock having voting power standing in
the name of such stockholder on the books of the Company on the record date for
the meeting and such votes may be cast either in person or by written proxy.
Every proxy must be duly executed and filed with the Secretary. A stockholder
may revoke any proxy that is not irrevocable by attending the meeting and voting
in person or by filing an instrument in writing revoking the proxy or another
duly executed proxy bearing a later date with the Secretary. The vote upon any
question brought before a meeting of the stockholders may be by voice vote,
unless otherwise required by these By-Laws or unless the holders of a majority
of the outstanding shares of all classes of stock entitled to vote thereon
present in person or by proxy at such meeting otherwise determine. When a
quorum is present at any meeting, the vote of the holders of a majority of the
stock which has voting power present in person or represented by proxy and which
has actually voted will decide any question properly brought before such
meeting, unless the question is one upon which by express provision of law, the
Certificate of Incorporation, or these By-Laws, a different vote is required, in
which case such express provision will govern and control the decision of such
question.
DIRECTORS
---------
7. Function. The business and affairs of the Company will be managed
--------
under the direction of the Board.
8. Number and Term of Office. The Board will consist of one or more
-------------------------
members. The number of Directors will be fixed by resolution of the Board or by
the stockholders at the annual meeting or a special meeting. The Directors will
be elected at the annual meeting of the stockholders, except as provided in
By-Law 9, and each Director elected will hold office until his or her successor
is elected and qualified, except as required by law. Any decrease in the
authorized number of Directors will not be effective until the expiration of the
term of the Directors then in office, unless, at the time of such decrease,
there are vacancies on the Board which are being eliminated by such decrease.
9. Vacancies and New Directorships. Vacancies and newly created
-------------------------------
directorships resulting from any increase in the authorized number of Directors
which occur between annual meetings of the stockholders may be filled by a
majority of the Directors then in office, though less than a quorum, or by a
sole remaining Director, and the Directors so elected will hold office until the
next annual meeting of the stockholders and until their successors are elected
and qualified, except as required by law.
E-5
10. Regular Meetings. Regular meetings of the Board may be held
----------------
immediately after the annual meeting of the stockholders and at such other time
and place as may from time to time be determined by the Board. Notice of
regular meetings of the Board need not be given.
11. Special Meetings. Special meetings of the Board may be called by the
----------------
Chairman or the President on one day's notice to each Director by whom such
notice is not waived, given either personally or by mail, telephone, telegram,
telex, facsimile, or similar medium of communication.
12. Quorum. At all meetings of the Board, a majority of the total number
------
of Directors then in office will constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum will be the act of the Board. If a quorum is not
present at any meeting of the Board, the Directors present thereat may adjourn
the meeting from time to time to another place, time, or date, without notice
other than announcement at the meeting, until a quorum is present.
13. Written Action. Any action required or permitted to be taken at any
--------------
meeting of the Board or of any committee thereof may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes or proceedings
of the Board or committee.
14. Participation in Meetings by Telephone Conference. Members of the
-------------------------------------------------
Board, or any committee designated by the Board, may participate in a meeting of
the Board, or any such committee, by means of telephone conference or similar
means by which all persons participating in the meeting can hear each other, and
such participation in a meeting will constitute presence in person at the
meeting.
15. Committees. The Board, by resolution passed by a majority of the
----------
Board, may designate one or more committees, each committee to consist of one or
more Directors and each to have such lawfully delegable powers and duties as the
Board may confer. Each such committee will serve at the pleasure of the Board.
The Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Except as otherwise provided by law, any such committee, to the
extent provided in the resolution of the Board, will have and may exercise all
the powers and authority of the Board in the direction of the management of the
business and affairs of the Company. Any committee or committees so designated
by the Board will have such name or names as may be determined from time to time
by resolution adopted by the Board. Unless otherwise prescribed by the Board, a
majority of the members of the committee will constitute a quorum for the
transaction of business, and the act of a majority of the members present at a
E-6
meeting at which there is a quorum will be the act of such committee. Each
committee will prescribe its own rules for calling and holding meetings and its
method of procedure, subject to any rules prescribed by the Board, and will keep
a written record of all actions taken by it.
16. Compensation. The Board may establish such compensation for, and
------------
reimbursement of the expenses of, Directors for attendance at meetings of the
Board or committees, or for other services by Directors to the Company, as the
Board may determine.
17. Rules. The Board may adopt rules and regulations for the conduct of
-----
its meetings and the management of the affairs of the Company.
NOTICES
-------
18. Generally. Whenever by law or under the provisions of the Certificate
---------
of Incorporation or these By-Laws, notice is required to be given to any
Director or stockholder, it will not be construed to require personal notice,
but such notice may be given in writing, by mail, addressed to such Director or
stockholder, at his address as it appears on the records of the Company, with
postage thereon prepaid, and such notice is deemed to be given at the time when
the same is deposited in the United States mail. Notice to Directors may also
be given by telephone, telegram, telex, facsimile, or similar medium of
communication or as may otherwise be permitted by these By-Laws.
19. Waivers. Whenever any notice is required to be given by law or under
-------
the provisions of the Certificate of Incorporation or these By-Laws, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time of the event for which notice is to be given,
will be deemed equivalent to such notice. Attendance of a person at a meeting
will constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
OFFICERS
--------
20. Generally. The officers of the Company will be elected by the Board
---------
and will consist of a President, a Secretary, and a Treasurer. The Board may
also choose any or all of the following: a Chairman, one or more Vice Chairmen,
one or more Vice Presidents, and such other officers as the Board may from time
to time determine. Notwithstanding the foregoing, by specific action the Board
may authorize the Chairman to appoint any person to any office other than
Chairman, President, Secretary, or Treasurer. Any number of offices may be held
by the same person.
E-7
21. Compensation. The compensation of all officers and agents of the
------------
Company who are also Directors of the Company will be fixed by the Board or by a
committee of the Board. The Board may fix, or delegate the power to fix, the
compensation of other officers and agents of the Company to an officer of the
Company.
22. Succession. The officers of the Company will hold office until their
----------
successors are elected and qualified. Any officer may be removed at any time by
the affirmative vote of a majority of the Directors. Any vacancy occurring in
any office of the Company may be filled by the Board.
23. Authority and Duties. Each of the officers of the Company will have
--------------------
such authority and will perform such duties as are customarily incident to
their respective offices or as may be specified from time to time by the Board.
24. Execution of Documents and Action with Respect to Securities of Other
---------------------------------------------------------------------
Corporations. The President will have, and is hereby given, full power and
------------
authority, except as otherwise required by law or directed by the Board, (a) to
execute, on behalf of the Company, all duly authorized contracts, agreements,
deeds, conveyances, or other obligations of the Company, applications, consents,
proxies, and other powers of attorney, and other documents and instruments and
(b) to vote and otherwise act on behalf of the Company, in person or by proxy,
at any meeting of stockholders (or with respect to any action of such
stockholders) of any other corporation in which the Company may hold securities
and otherwise to exercise any and all rights and powers which the Company may
possess by reason of its ownership of securities of such other corporation. In
addition, the President may delegate to other officers, employees, and agents of
the Company the power and authority to take any action which the President is
authorized to take under this By-Law 24, with such limitations as the President
may specify; such authority so delegated by the President may not be
re-delegated by the person to whom such execution authority has been delegated.
STOCK
-----
25. Certificates. Certificates representing shares of stock of the Company
------------
will be in such form as is determined by the Board, subject to applicable legal
requirements. Each such certificate will be numbered and its issuance recorded
in the books of the Company, and such certificate will exhibit the holder's name
and the number of shares and will be signed by, or in the name of, the Company
by the Chairman or the President and the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer. Any or all of the signatures and the
seal of the Company, if any, upon such certificates may be facsimiles, engraved,
or printed.
26. Transfers. Upon surrender to the Company of a certificate for shares
---------
duly endorsed or accompanied by proper
E-8
evidence of succession, assignment, or authority to transfer, it will be the
duty of the Company to issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
INDEMNIFICATION
---------------
27. Damages and Expenses. (a) Without limiting the generality or effect of
--------------------
Article Seventh of the Certificate of Incorporation, the Company will to the
fullest extent permitted by applicable law as then in effect indemnify any
person (an "Indemnitee") who is or was involved in any manner (including without
limitation as a party or a witness) or is threatened to be made so involved in
any threatened, pending, or completed investigation, claim, action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (including
without limitation any action, suit, or proceeding by or in the right of the
Company to procure a judgment in its favor) (a "Proceeding") by reason of the
fact that such person is or was or had agreed to be a Director, officer,
employee, or agent of the Company, or is or was serving at the request of the
Board or an officer of the Company as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other entity, whether
or not for profit (including the heirs, executors, administrators, or estate of
such person), or anything done or not done by such person in any such capacity,
against all expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such Proceeding. Such indemnification will be a contract right and will
include the right to receive payment in advance of any expenses incurred by an
Indemnitee in connection with such Proceeding, consistent with the provisions of
applicable law as then in effect.
(b) The right of indemnification provided in this By-Law 27 will not be
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled, and will be applicable to Proceedings commenced or
continuing after the adoption of this By-Law 27, whether arising from acts or
omissions occurring before or after such adoption.
(c) In furtherance, but not in limitation of the foregoing provisions, the
following procedures, presumptions, and remedies will apply with respect to
advancement of expenses and the right to indemnification under this By-Law 27:
(i) All reasonable expenses incurred by or on behalf of an
Indemnitee in connection with any Proceeding will be advanced to the
Indemnitee by the Company within 30 calendar days after the receipt by the
Company of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements
E-9
will reasonably evidence the expenses incurred by the Indemnitee and, if and
to the extent required by law at the time of such advance, will include or
be accompanied by an undertaking by or on behalf of the Indemnitee to repay
such amounts advanced as to which it may ultimately be determined that the
Indemnitee is not entitled. If such an undertaking is required by law at
the time of an advance, no security will be required for such undertaking
and such undertaking will be accepted without reference to the recipient's
financial ability to make repayment.
(ii) To obtain indemnification under this By-Law 27, the Indemnitee
will submit to the Secretary a written request, including such documentation
supporting the claim as is reasonably available to the Indemnitee and is
reasonably necessary to determine whether and to what extent the Indemnitee
is entitled to indemnification (the "Supporting Documentation"). The
determination of the Indemnitee's entitlement to indemnification will be
made not less than 60 calendar days after receipt by the Company of the
written request for indemnification together with the Supporting
Documentation. The Secretary will promptly upon receipt of such a request
for indemnification advise the Board in writing that the Indemnitee has
requested indemnification. The Indemnitee's entitlement to indemnification
under this By-Law 27 will be determined in one of the following ways: (A) by
a majority vote of the Disinterested Directors (as hereinafter defined), if
they constitute a quorum of the Board, or, in the case of an Indemnitee that
is not a present or former officer of the Company, by any committee of the
Board or committee of officers or agents of the Company designated for such
purpose by a majority of the Board of Directors; (B) by a written opinion of
Independent Counsel if (1) a Change of Control has occurred and the
Indemnitee so requests or (2) in the case of an Indemnitee that is a
present or former officer of the Company, a quorum of the Board consisting
of Disinterested Directors is not obtainable or, even if obtainable, a
majority of such Disinterested Directors so directs; (C) by the stockholders
(but only if a majority of the Disinterested Directors, if they constitute a
quorum of the Board, presents the issue of entitlement to indemnification to
the stockholders for their determination); or (D) as provided in
subparagraph (iii) below. In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to clause (B)
above, a majority of the Disinterested Directors will select the Independent
Counsel, but only an Independent Counsel to which the Indemnitee does not
reasonably object; provided, however, that if a Change of Control has
-------- -------
occurred, the Indemnitee will select such Independent Counsel, but only an
Independent Counsel to which the Board does not reasonably object.
(iii) Except as otherwise expressly provided in this By-Law 27, the
Indemnitee will be presumed to be entitled to indemnification under this
By-Law 27 upon submission of a
E-10
request for indemnification together with the Supporting Documentation in
accordance with subparagraph (c)(ii) above, and thereafter the Company will
have the burden of proof to overcome that presumption in reaching a contrary
determination. In any event, if the person or persons empowered under
subparagraph (c)(ii) to determine entitlement to indemnification has not
been appointed or has not made a determination within 60 calendar days after
receipt by the Company of the request therefor together with the Supporting
Documentation, the Indemnitee will be deemed to be entitled to
indemnification and the Indemnitee will be entitled to such indemnification
unless (A) the Indemnitee misrepresented or failed to disclose a material
fact in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. The
termination of any Proceeding described in paragraph (a) of this By-Law 27,
or of any claim, issue, or matter therein, by judgment, order, settlement,
or conviction, or upon a plea of nolo contendere or its equivalent, will
---- ----------
not, of itself, adversely affect the right of the Indemnitee to
indemnification or create a presumption that the Indemnitee did not act in
good faith and in a manner which the Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company or, with respect to any
criminal Proceeding, that the Indemnitee had reasonable cause to believe
that his conduct was unlawful.
(iv) (A) In the event that a determination is made pursuant to
subparagraph (c)(ii) that the Indemnitee is not entitled to indemnification
under this By-Law 27, (1) the Indemnitee will be entitled to seek an
adjudication of his entitlement to such indemnification either, at the
Indemnitee's sole option, in (x) an appropriate court of the State of
Delaware or any other court of competent jurisdiction or (y) an arbitration
to be conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association, (2) any such judicial proceeding or arbitration
will be de novo and the Indemnitee will not be prejudiced by reason of such
-- ----
adverse determination, and (3) in any such judicial proceeding or
arbitration the Company will have the burden of proving that the Indemnitee
is not entitled to indemnification under this By-Law 27.
(B) If a determination is made or deemed to have been made, pursuant
to subparagraph (c)(ii) or (iii) of this By-Law 27 that the Indemnitee is
entitled to indemnification, the Company will be obligated to pay the
amounts constituting such indemnification within five business days after
such determination has been made or deemed to have been made and will be
conclusively bound by such determination unless (1) the Indemnitee
misrepresented or failed to disclose a material fact in making the request
for indemnification or in the Supporting Documentation or (2) such
indemnification is prohibited by law. In the event that advancement of
expenses is not timely made pursuant to subparagraph (c)(i) of this
E-11
By-Law 27 or payment of indemnification is not made within five business
days after a determination of entitlement to indemnification has been made
or deemed to have been made pursuant to subparagraph (c)(ii) or (iii) of
this By-Law 27, the Indemnitee will be entitled to seek judicial enforcement
of the Company's obligation to pay to the Indemnitee such advancement of
expenses or indemnification. Notwithstanding the foregoing, the Company may
bring an action, in an appropriate court in the State of Delaware or any
other court of competent jurisdiction, contesting the right of the
Indemnitee to receive indemnification hereunder due to the occurrence of any
event described in subclause (1) or (2) of this clause (B) (a "Disqualifying
Event"); provided, however, that in any such action the Company will have
-------- -------
the burden of proving the occurrence of such Disqualifying Event.
(C) The Company will be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to the provisions of this
subparagraph (c)(iv) that the procedures and presumptions of this By-Law 27
are not valid, binding, and enforceable and will stipulate in any such court
or before any such arbitrator that the Company is bound by all the
provisions of this By-Law 27.
(D) In the event that the Indemnitee, pursuant to the provisions of
this subparagraph (c)(iv), seeks a judicial adjudication of, or an award in
arbitration to, enforce his rights under, or to recover damages for breach
of, this By-Law 27, the Indemnitee will be entitled to recover from the
Company, and will be indemnified by the Company against, any expenses
actually and reasonably incurred by the Indemnitee if the Indemnitee
prevails in such judicial adjudication or arbitration. If it is determined
in such judicial adjudication or arbitration that the Indemnitee is entitled
to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by the Indemnitee in connection with
such judicial adjudication or arbitration will be prorated accordingly.
(v) For purposes of this paragraph (c):
(A) "Change in Control" means the occurrence of any of the
following events:
(1) The Company or Federated Department Stores, Inc.
("Federated"), is merged, consolidated, or reorganized into or
with another corporation or other legal entity, and as a result of
such merger, consolidation, or reorganization less than a majority
of the combined voting power of the then-outstanding securities of
such corporation or entity immediately after such transaction are
held in the aggregate by the holders of the then-outstanding
securities entitled to vote generally in the election of directors
("Voting
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Stock") of the Company or Federated, as the case may be,
immediately prior to such transaction;
(2) The Company or Federated sells or otherwise transfers all or
substantially all of its assets to another corporation or other
legal entity and, as a result of such sale or transfer, less than
a majority of the combined voting power of the then-outstanding
securities of such other corporation or entity immediately after
such sale or transfer is held in the aggregate by the holders of
Voting Stock of the Company or Federated, as the case may be,
immediately prior to such sale or transfer;
(3) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form, or report or item therein), each as
promulgated pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), disclosing that any person (as the
term "person" is used in Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act) of
securities representing 30% or more of the combined voting power
of the Voting Stock of the Company or Federated;
(4) The Company or Federated files a report or proxy statement
with the Securities and Exchange Commission pursuant to the
Exchange Act disclosing in response to Form 8-K or Schedule 14A
(or any successor schedule, form, or report or item therein) that
a change in control of the Company or Federated has occurred or
will occur in the future pursuant to any then-existing contract or
transaction; or
(5) If, during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors
or the directors of Federated cease for any reason to constitute
at least a majority thereof; provided, however, that for purposes
-------- -------
of this clause (5) each Director or director of Federated who is
first elected, or first nominated for election by the Company's or
Federated's stockholders, as the case may be, by a vote of at
least two-thirds of the Directors or the directors of Federated,
as the case may be (or a committee of the Directors or the
directors of Federated), then still in office who were Directors
or directors of Federated, as the case may be, at the beginning of
any such period will be deemed to
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have been a Director or a director of Federated, as the case may
be, at the beginning of such period.
Notwithstanding the foregoing provisions of clauses (3) or (4) of the
paragraph (c)(v)(A), unless otherwise determined in a specific case by
majority vote of the Board, a "Change in Control" will not be deemed to
have occurred for purposes of such clauses (3) or (4) solely because
(x) the Company or Federated, (y) an entity in which the Company or
Federated, directly or indirectly, beneficially owns 50% or more of the
voting securities (a "Subsidiary"), or (z) any employee stock ownership
plan or any other employee benefit plan of the Company or any
Subsidiary either files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D, Schedule 14D-1,
Form 8-K, or Schedule 14A (or any successor schedule, form, or report
or item therein) under the Exchange Act disclosing beneficial ownership
by it of shares of Voting Stock of the Company or Federated, as the
case may be, whether in excess of 30% or otherwise, or because the
Company or Federated reports that a change in control of the Company or
Federated has occurred or will occur in the future by reason of such
beneficial ownership.
(B) "Disinterested Director" means a Director of the Company who is
not or was not a party to the Proceeding in respect of which indemnification
is sought by the Indemnitee.
(C) "Independent Counsel" means a law firm or a member of a law firm
that neither presently is, nor in the past five years has been, retained to
represent (1) the Company or the Indemnitee in any matter material to either
such party or (2) any other party to the Proceeding giving rise to a claim
for indemnification under this By-Law 27. Notwithstanding the foregoing,
the term "Independent Counsel" will not include any person who, under the
applicable standards of professional conduct then prevailing under the law
of the State of Delaware, would be precluded from representing either the
Company or the Indemnitee in an action to determine the Indemnitee's rights
under this By-Law 27.
(d) If any provision or provisions of this By-Law 27 are held to be
invalid, illegal, or unenforceable for any reason whatsoever: (i) the validity,
legality, and enforceability of the remaining provisions of this By-Law 27
(including without limitation all portions of any paragraph of this By-Law 27
containing any such provision held to be invalid, illegal, or unenforceable,
that are not themselves invalid, illegal, or unenforceable) will not in any way
be affected or impaired thereby and (ii) to the fullest extent possible, the
provisions of this By-Law 27 (including without limitation all portions of any
paragraph of this By-Law 27 containing any such provision held to be invalid,
illegal, or unenforceable, that are not themselves invalid, illegal, or
unenforceable) will be construed
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so as to give effect to the intent manifested by the provision held invalid,
illegal, or unenforceable.
28. Insurance, Contracts, and Funding. The Company may purchase and
---------------------------------
maintain insurance to protect itself and any Indemnitee against any expenses,
judgments, fines, and amounts paid in settlement or incurred by any Indemnitee
in connection with any Proceeding referred to in By-Law 27 or otherwise, to the
fullest extent permitted by applicable law as then in effect. The Company may
enter into contracts with any person entitled to indemnification under By-Law 27
or otherwise, and may create a trust fund, grant a security interest, or use
other means (including without limitation a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in By-Law 27.
GENERAL
-------
29. Fiscal Year. The fiscal year of the Company will be fixed from time to
-----------
time by the Board.
30. Seal. The Board may adopt a corporate seal and use the same by causing
----
it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
31. Reliance upon Books, Reports, and Records. Each Director, each member
-----------------------------------------
of a committee designated by the Board, and each officer of the Company will, in
the performance of his or her duties, be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports, or statements presented to the Company by any of the Company's officers
or employees, or committees of the Board, or by any other person or entity as to
matters the Director, committee member, or officer believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company.
32. Time Periods. In applying any provision of these By-Laws that requires
------------
that an act be done or not be done a specified number of days prior to an event
or that an act be done during a period of a specified number of days prior to an
event, calendar days will be used, the day of the doing of the act will be
excluded and the day of the event will be included.
33. Amendments. These By-Laws may be amended or repealed, or new By-Laws
----------
may be adopted, by the stockholders or by the Board.
34. Certain Defined Terms. Terms used herein with initial capital letters
---------------------
that are defined in the Certificate of Incorporation are used herein as so
defined.
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APPENDIX F
Sec. 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise compiled with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) or (g) of Sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to Sec.Sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof:
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Sec. 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Sec. 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which
F-2
demands for appraisal have been received and the aggregate number of holders of
such shares. Such written statement shall be mailed to the stockholder within
10 days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding,
F-3
including, without limitation, reasonable attorney's fees and the fees and
expenses of experts, to be charged pro rata against the value of all the shares
entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Federated's Certificate of Incorporation (the "Certificate")
provides, as do the charters of many other publicly held
companies, that the personal liability of directors of Federated
to Federated is eliminated to the maximum extent permitted by
Delaware law. The Certificate and Federated By-Laws provide for
the indemnification of the directors, officers, employees, and
agents of Federated and its subsidiaries to the full extent that
may be permitted by Delaware law from time to time and, in the
case of the By-Laws, for various procedures relating thereto.
Certain provisions of the Certificate protect Federated's
directors against personal liability for monetary damages
resulting from breaches of their fiduciary duty of care, except
as set forth below. Under Delaware law, absent these provisions,
directors could be held liable for gross negligence in the
performance of their duty of care, but not for simple negligence.
The Certificate absolves directors of liability for negligence in
the performance of their duties, including gross negligence.
However, Federated's directors remain liable for breaches of
their duty of loyalty to Federated and its stockholders, as well
as for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law and
transactions from which a director derives improper personal
benefit. The Certificate also does not absolve directors of
liability under section 174 of the Delaware General Corporation
Law, which makes directors personally liable for unlawful
dividends or unlawful stock repurchases or redemptions in certain
circumstances and expressly sets forth a negligence standard with
respect to such liability.
Under Delaware law, directors, officers, employees, and
other individuals may be indemnified against expenses (including
attorneys' fees), judgments, fines, and amounts paid in
settlement in connection with specified actions, suits, or
proceedings, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the
corporation -- a "derivative action") if they acted in good faith
and in a manner they reasonably believed to be in or not opposed
to the best interests of Federated and, with respect to any
criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful. A similar standard of care is
applicable in the case of a derivative action, except that
indemnification only extends to expenses (including attorneys'
fees) incurred in connection with defense or settlement of such
an action and Delaware law requires court approval before there
can be any indemnification of expenses where the person seeking
indemnification has been found liable to Federated.
The Certificate provides, among other things, that each
person who was or is made a party to, or is threatened to be made
a party to, or is involved in, any action, suit, or proceeding by
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reason of the fact that he or she is or was a director or officer
of Federated (or was serving at the request of Federated as a
director, officer, employee, or agent for another entity), will
be indemnified and held harmless by Federated to the full extent
authorized by Delaware law against all expense, liability, or
loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts to be paid in settlement)
reasonably incurred by such person in connection therewith. The
rights conferred thereby will be deemed to be contract rights and
will include the right to be paid by Federated for the expenses
incurred in defending the proceedings specified above in advance
of their final disposition.
Federated is a party to indemnification agreements with each
of its directors and officers. These indemnification agreements
provide for, among other things, (i) the indemnification by
Federated of the indemnitees thereunder to the extent described
above, (ii) the advancement of attorneys' fees and other
expenses, and (iii) the establishment, upon approval by the
Board, of trusts or other funding mechanisms to fund Federated's
indemnification obligations thereunder.
Item 21. Exhibits
2.1-- Agreement and Plan of Merger, dated as of August 14,
1995 (included as Appendix A to the Proxy Statement/
Prospectus forming a part of this Registration Statement)
The Registrant agrees to furnish supplementally a
copy of any omitted schedule to the SEC upon request
4.1--Rights Agreement, dated as of December 19, 1994, between
Federated and The Bank of New York, as Rights Agent
(incorporated by reference to Exhibit 4.3 to Federated
Annual Report on Form 10-K (file No. 1-13536) for the fiscal
year ended January 28, 1995)
4.2--Form of Warrant Agreement*
5.1--Opinion of Jones, Day, Reavis & Pogue*
23.1--Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
23.2--Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
II-2
23.3--Consent of Salomon Brothers Inc
23.4--Consent of KPMG Peat Marwick LLP
23.5--Consent of Price Waterhouse LLP
24.1--Powers of Attorney
______________
* To be filed by amendment.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made of the securities registered hereby, a post-
effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii)to reflect in the prospectus any facts or events
arising after the effective date of this 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 this
Registration Statement; and
(iii)to include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment
will be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time will 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.
(b) The undersigned registrant undertakes that, for purposes
of determining any liability under the Securities Act, each
filing of Federated's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement will be deemed to be a
II-3
new Registration Statement relating to the securities offered
herein, and the offering of such securities at that time will be
deemed to be the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph (1) immediately preceding, or
(ii) that purports to meet the requirements of section 10(a)(3)
of the Securities Act and is used in connection with an offering
of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration Statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, 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.
(d) Insofar as indemnification for liabilities arising under
the Securities Act 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 SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the 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 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 by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond
to requests for information that is incorporated by reference
into the Proxy Statement/Prospectus pursuant to Items 4, 10(b),
11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the
II-4
effective date of this Registration Statement through the date of
responding to the request.
(f) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration
Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cincinnati, State of Ohio on August
24, 1995.
FEDERATED DEPARTMENT STORES, INC.
By /s/ Dennis J. Broderick
-----------------------------
Dennis J. Broderick
Senior Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities indicated on August 24, 1995.
Signature Title
--------- -----
* Chairman of the Board and Chief Executive Officer
------------------------------------------------ (principal executive officer) and Director
Allen I. Questrom
* Vice Chairman and Chief Financial Officer
------------------------------------------------ (principal financial officer) and Director
Ronald W. Tysoe
* Senior Vice President and Controller
------------------------------------------------ (principal accounting officer)
John E. Brown
* Director
------------------------------------------------
Robert A. Charpie
* Director
------------------------------------------------
Lyle Everingham
* Director
------------------------------------------------
Meyer Feldberg
* Director
------------------------------------------------
George V. Grune
* Director
------------------------------------------------
Gertrude G. Michelson
* Director
------------------------------------------------
Joseph Neubauer
* Director
------------------------------------------------
Laurence A. Tisch
* Director
------------------------------------------------
Paul W. Van Orden
* Director
------------------------------------------------
Karl M. von der Heyden
* Director
------------------------------------------------
Marna C. Whittington
* Director
------------------------------------------------
James M. Zimmerman
The undersigned, by signing his name hereto, does sign and
execute this Registration Statement pursuant to the Powers of
Attorney executed by the above-named persons.
/s/ Dennis J. Broderick
-----------------------------
Dennis J. Broderick
Attorney-in-Fact
II-6
INDEX TO EXHIBITS
2.1 -- Agreement and Plan of Merger, dated as of August 14, 1995 (included as Appendix A to
the Proxy Statement/Prospectus forming a part of this Registration Statement)
The Registrant agrees to furnish supplementally a copy of any omitted schedule
to the SEC upon request
4.1 -- Rights Agreement, dated as of December 19, 1994, between Federated and The Bank of
New York, as Rights Agent (incorporated by reference to Exhibit 4.3 to Federated
Annual Report on Form 10-K (file No. 1-13536) for the fiscal year ended January 28,
1995)
4.2 -- Form of Warrant Agreement*
5.1 -- Opinion of Jones, Day, Reavis & Pogue*
23.1 -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
23.2 -- Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.3 -- Consent of Salomon Brothers Inc
23.4 -- Consent of KPMG Peat Marwick LLP
23.5 -- Consent of Price Waterhouse LLP
24.1 -- Powers of Attorney
______________
* To be filed by amendment.
II-7
EX-23.2
2
Exhibit 23.2
Investment Banking Group
World Financial Center
North Tower
New York, New York 10281-1324
Merrill Lynch
August 22, 1995
We hereby consent to the use of our opinion letter dated August 14, 1995 to
the Board of Directors of Broadway Stores, Inc. included as Appendix B to the
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of a wholly owned subsidiary of
Federated Department Stores, Inc. with and into Broadway Stores, Inc. and to the
references to such opinion in such Proxy Statement/Prospectus under the caption
"Opinions of Broadway's Financial Advisors". In giving such consent, we do not
admit and we hereby disclaim that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By /s/ Susan Field
---------------------------------
Director
EX-23.3
3
Exhibit 23.3
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of Appendix C containing our
opinion letter dated August 14, 1995 to the Board of Directors of
Broadway Stores, Inc. ("Broadway") in the Proxy
Statement/Prospectus constituting a part of the Registration
Statement on Form S-4 relating to the proposed Federated/Broadway
Merger (as defined therein) and to the references to our firm in
such Proxy Statement/Prospectus. In giving this consent, we do
not admit and we disclaim that we are experts with respect to any
part of such Registration Statement within the meaning of the
term "expert" as used in, or that we come within the category of
persons whose consent is required under the Securities Act of
1933, as amended, or the rules and regulations of the Securities
and Exchange Commission promulgated thereunder.
SALOMON BROTHERS INC
By: /s/ Michael Carr
--------------------------
Managing Director
Date: August 21, 1995
------------------------
EX-23.4
4
Exhibit 23.4
Consent of Independent Auditors
-------------------------------
The Board of Directors
Federated Department Stores, Inc.
We consent to the use of our audit report dated February 28, 1995 on
the consolidated financial statements of Federated Department Stores, Inc.
and subsidiaries as of January 28, 1995 and January 29, 1994, and for each
of the fifty-two week periods ended January 28, 1995, January 29, 1994 and
January 30, 1993 incorporated herein by reference and to the reference to our
firm under the heading "Experts" in the Proxy Statement/Prospectus.
KPMG Peat Marwick LLP
Cincinnati Ohio,
August 18, 1995
EX-23.5
5
Exhibit 23.5
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on
Form S-4 of Federated Department Stores, Inc. of our reports
dated March 13, 1995 and March 12, 1993 appearing on pages 33 and
34 of Broadway Stores, Inc.'s Annual Report on Form 10-K for the
52-week period ended January 28, 1995. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
Price Waterhouse LLP
Los Angeles, California
August 21, 1995
EX-24.1
6
Exhibit 24.1
POWER OF ATTORNEY
-----------------
The undersigned, each a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitute and
appoint Ronald W. Tysoe, Dennis J. Broderick, Padma T. Cariappa, Robert A.
Profusek, J. Lawrence Manning, Jr., Mark E. Betzen, and Wendy Dann Adato, or any
of them, our true and lawful attorneys-in-fact and agents, each with full power
of substitution and resubstitution, to do any and all acts and things in our
name and behalf in our capacities as director and/or officer of the Company and
to execute any and all instruments for us and in our name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1933, as amended, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with a Registration Statement
on Form S-4 relating to the offering of Common Stock, par value $.01 per share,
of the Company pursuant to that certain Merger Agreement among the Company,
Broadway Stores, Inc., and Nomo Company, Inc., including without limitation,
power and authority to sign for us, in our name in the capacities indicated
above, such Registration Statement and any and all amendments (including post-
effective amendments) thereto, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or our substitute or substitutes, or any one of us, shall do or cause to
be done by virtue hereof.
Dated: August 21, 1995
/s/ John E. Brown /s/ Robert A. Charpie
------------------------------- -------------------------------
John E. Brown Robert A. Charpie
/s/ Lyle Everingham /s/ Meyer Feldberg
------------------------------- -------------------------------
Lyle Everingham Meyer Feldberg
/s/ Earl G. Graves /s/ George V. Grune
------------------------------- -------------------------------
Earl G. Graves George V. Grune
/s/ Gertrude G. Michelson /s/ Joseph Neubauer
------------------------------- -------------------------------
Gertrude G. Michelson Joseph Neubauer
/s/ Allen I. Questrom /s/ Ronald W. Tysoe
------------------------------- -------------------------------
Allen I. Questrom Ronald W. Tysoe
/s/ Laurence A. Tisch /s/ Paul W. Van Orden
------------------------------- -------------------------------
Laurence A. Tisch Paul W. Van Orden
/s/ Karl M. von der Heyden /s/ Marna C. Whittington
------------------------------- -------------------------------
Karl M. von der Heyden Marna C. Whittington
/s/ James M. Zimmerman
-------------------------------
James M. Zimmerman