As filed with the Securities and Exchange Commission on May 20, 1996
Registration No. 333-2426
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
SAKS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5311 52-1685667
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
</TABLE>
------------
12 EAST 49TH STREET
NEW YORK, NEW YORK 10017
(212) 940-4048
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------
JOAN F. KREY
GENERAL COUNSEL
SAKS HOLDINGS, INC.
12 EAST 49TH STREET
NEW YORK, NEW YORK 10017
(212) 940-4048
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
Copies to:
[S] [C]
CHARLES K. MARQUIS PATRICIA A. CERUZZI
STEVEN R. FINLEY SULLIVAN & CROMWELL
GIBSON, DUNN & CRUTCHER LLP 250 PARK AVENUE
200 PARK AVENUE NEW YORK, NEW YORK 10177
NEW YORK, NEW YORK 10166 (212) 558-4000
(212) 351-4000
------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE PROPOSED MAXIMUM AMOUNT OF
REGISTERED AGGREGATE OFFERING PRICE(1)(2) REGISTRATION FEE(3)
<S> <C> <C>
Common Stock, $.01 par value......................... $451,562,500 $ 9,720
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) The shares of Common Stock are being registered for the purpose of sales
outside the United States.
(3) A registration fee of $146,000 previously was paid in connection with the
initial filing of the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 20, 1996
[SAKS LOGO]
16,000,000 SHARES
SAKS HOLDINGS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
Of the 16,000,000 shares of Common Stock offered, 13,750,000 shares are being
offered by the Underwriters and 2,250,000 shares are being sold by Saks Holdings
directly to SFA Capital Limited, an indirect wholly-owned subsidiary of
Investcorp S.A. The Underwriters will not participate in, or receive any
discount or commission on, the sale of the Common Stock to Investcorp S.A. or
such affiliates.
Of the 13,750,000 shares of Common Stock offered by the Underwriters,
11,000,000 shares are being offered hereby in the United States and 2,750,000
shares are being offered in a concurrent international offering outside the
United States. The initial public offering price and the aggregate underwriting
discount per share will be identical for both offerings. Of the 13,750,000
shares being offered by the Underwriters, 450,000 shares will be reserved for
sale to officers and employees of Investcorp S.A. and its subsidiaries and to
directors, officers and employees of Saks. See "Underwriting".
All the shares of Common Stock offered hereby are being sold by Saks
Holdings. Prior to the offerings, there has been no public market for the Common
Stock of Saks Holdings. It is currently estimated that the initial public
offering price per share will be between $23 and $25. For factors to be
considered in determining the initial public offering price, see "Underwriting".
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "SKS", subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN RISKS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE><CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) SAKS HOLDINGS(1)(3)
----------------- ------------ -------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total(1)(4)........................ $ $ $
</TABLE>
------------
(1) The 2,250,000 shares being sold by Saks Holdings directly to SFA Capital
Limited, an indirect wholly-owned subsidiary of Investcorp S.A., and the
450,000 shares reserved for sale to officers and employees of Investcorp
S.A. or its subsidiaries and to directors, officers and employees of Saks
will be sold at $
per share, the initial public offering price less the underwriting discount.
(2) Saks Holdings has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $5,200,000 payable by Saks Holdings.
(4) Saks Holdings has granted the Underwriters options for 30 days to purchase
up to an additional 2,062,500 shares of Common Stock at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such options are exercised in full, the total initial
public offering price, underwriting discount and proceeds to Saks Holdings
will be $ , $ and $ , respectively. See
"Underwriting".
-------------------
Goldman, Sachs & Co. is acting as book running lead manager for the
offerings. Goldman, Sachs & Co., CS First Boston Corporation, Morgan Stanley &
Co. Incorporated and Salomon Brothers Inc are acting as co-lead managers. The
shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about May
, 1996 against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
-------------------
The date of this Prospectus is May , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[Photo of Saks' Fifth Avenue Store]
Saks Holdings intends to furnish to its stockholders annual reports
containing audited consolidated financial statements and quarterly reports
containing unaudited interim financial information for the first three quarters
of each fiscal year of Saks Holdings.
------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THE OFFERINGS, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULE 10B-6,
10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE>
------------------------
Front Gatefold
"More than a store Saks Fifth Avenue is a brand marked by..."
"A Landmark Foundation"
[Photo of Saks' Fifth Avenue Store]
"A Nation Wide Presence"
[United States Map Showing Sak's Store Locations]
"Worldwide Recognition"
[Photo of Saks' Fifth Avenue Store]
"Signature Style" "Legendary Service"
"A Well-Defined Image" "A Reputation for Quality"
"An Upscale Profile"
[Assorted Photos from Marketing Materials]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. As used in this Prospectus, "Saks
Holdings" refers to Saks Holdings, Inc. and "Saks" refers to Saks & Company, a
wholly-owned subsidiary of Saks Holdings, which does business as Saks Fifth
Avenue. The terms "fiscal year" and "fiscal" refer to Saks Holdings' fiscal
year, which is the 52- or 53-week period ending on the Saturday closest to
January 31 of the following calendar year (e.g., a reference to "fiscal 1995" is
a reference to the fiscal year ended February 3, 1996). Unless the context
otherwise requires, the information contained herein gives effect to (i) a
five-for-one split of the Common Stock effected on April 26, 1996 in the form of
a stock dividend to all stockholders of record on April 26, 1996 and (ii) the
conversion of all outstanding Class A Shares, Class B Shares, Class C Shares and
Class D Shares of Saks Holdings into an equivalent number of shares of Common
Stock effective as of the closing of the offerings. In addition, unless the
context otherwise requires, the information contained in this Prospectus assumes
that the Underwriters' over-allotment options are not exercised. See
"Underwriting".
THE COMPANY
GENERAL
Saks Fifth Avenue is recognized worldwide as a premier fashion retailer,
offering the finest quality and latest style in women's and men's apparel.
Supported by a strong commitment to personalized customer service, Saks
primarily sells better, bridge and designer apparel, shoes, accessories,
jewelry, cosmetics and fragrances for women and men, as well as gift merchandise
and children's apparel. Capitalizing on its 70-year history as a fashion
authenticator and the prominence of its landmark Fifth Avenue store in New York
City, Saks Fifth Avenue has developed one of the most recognized retailing
franchises in the world.
Saks is experiencing significant momentum in its financial performance,
reflecting the success of new business strategies developed and implemented in
1994 and the significant investments in stores, inventories, staff and systems
made since 1990. In fiscal 1995, Saks recorded net sales of $1.69 billion, an
18.9% increase over fiscal 1994. Comparable sales increased 10.6% in fiscal
1995. Primarily due to certain impairment and special charges and increased
interest costs, Saks Holdings' net loss in fiscal 1995 increased to $64.1
million from $10.6 million in fiscal 1994.
Saks' net sales are generated through three retail formats: 45 full-line and
resort stores; 19 Off 5th outlet stores; and Folio catalogs. The full-line and
resort store operations are conducted from an exceptional portfolio of mostly
owned stores in premier retail locations, including Fifth Avenue in New York
City, Wilshire Boulevard in Beverly Hills, Michigan Avenue in Chicago and Union
Square in San Francisco. Saks' rapidly growing Off 5th outlet store division
sells high quality, upscale branded fashion apparel at exceptional prices. Saks'
Folio catalogs offer fashionable women's apparel, accessories and home
furnishings and gifts.
HISTORY
Saks Fifth Avenue was founded in 1867 and was incorporated in New York as
Saks & Company in 1902. Opened in New York City in September 1924 by Horace Saks
and Bernard Gimbel, the landmark Fifth Avenue store offered exclusive
merchandise from around the world. In 1973, Saks & Company was acquired by a
subsidiary of B.A.T. Industries PLC ("B.A.T.") through its acquisition of Gimbel
Bros., Inc. In July 1990, affiliates of Investcorp S.A. ("Investcorp") and a
group of international investors acquired Saks from B.A.T. (the "1990
Acquisition").
BUSINESS STRATEGY
After the 1990 Acquisition, Investcorp recruited a new executive management
team to correct recognized weaknesses and develop a new business strategy
designed to capitalize on the
3
<PAGE>
strength of the Saks franchise. By early 1994, management had implemented
several key initiatives and developed and began implementing comprehensive,
integrated merchandising, service and marketing strategies to position its core
retail business for future growth and to extend the Saks franchise.
These initiatives and strategies resulted in improvements in Saks' financial
performance. From fiscal 1991 to fiscal 1995, Saks' net sales grew from $1.27
billion to $1.69 billion, a 32.9% increase. During this period gross margin as a
percentage of net sales increased from 27.3% to 30.7%, and selling, general and
administrative expenses as a percentage of net sales decreased from 30.5% to
26.0%. In addition, from fiscal 1991 to fiscal 1995, Saks' interest expense,
net, decreased from $126.2 million to $94.2 million and Saks' net loss decreased
from $180.5 million to $64.1 million. Operating income increased by $78.9
million from a loss of $42.8 million in fiscal 1991 to income of $36.1 million
in fiscal 1995. Operating income is net of management fees paid to Investcorp
International Inc. ("III") in both fiscal 1991 and fiscal 1995 and in fiscal
1995 is net of special charges of $36.4 million. Management fees to III will be
discontinued in fiscal 1996. Operating income excluding these fees and the
special charges increased by $120.3 million to $79.5 million during this period.
Management believes that Saks' current momentum, as reflected by its recent
comparable sales performance relative to the industry, is directly attributable
to implementation of its strategies during fiscal 1994 and fiscal 1995. Saks'
comparable sales performance* is set forth below:
FISCAL FISCAL
1994 1995
------ ------
First quarter............................................. 4.1% 10.2%
Second quarter............................................ 5.3 11.3
Third quarter............................................. 5.9 9.9
Fourth quarter............................................ 6.6 11.0
------------
* Represents the percentage increase in (i) net sales of stores (excluding major
store expansions) open in both reporting periods for the portion of such
periods open and (ii) Folio net sales. In fiscal 1995, comparable sales
excludes the impact of the 53rd week.
Management believes that the ongoing execution and implementation of these
strategies will continue to drive performance. A summary of these strategies is
set forth below.
TOP CUSTOMER FOCUS
Based on extensive market research, Saks has identified certain top
customers who generate a significant share of Saks' sales. The large number of
customers who comprise this group change over time and are geographically
dispersed. Management believes that Saks can capture a substantially greater
share of apparel and related expenditures by these customers and has developed
and implemented customer affinity programs designed to capitalize on the
purchasing habits of top customers by increasing the frequency and productivity
of customer contact, increasing cross-selling activities and enhancing customer
loyalty. These programs include proactive customer clienteling programs, the
Saks First Program and the Fifth Avenue Club.
DIFFERENTIATED MERCHANDISE ASSORTMENTS
In 1994, Saks began to specifically target the merchandise categories that,
based on extensive research, were determined to be most important to its top
customers. Saks is developing dominant assortments in these key merchandise
categories by increasing inventory investments, upgrading the quality and
congruency of merchandise assortments and by adding important vendors and
brands. Saks' overall merchandising strategy is to offer congruent and balanced
assortments of differentiated, upscale limited-distribution merchandise.
STORE INTENSIFICATION
Management is improving the productivity of its store portfolio through a
comprehensive and integrated store intensification program. Saks initially
concentrated its efforts and resources on
4
<PAGE>
those stores that represented the highest potential for increased sales and
profit margins. Pursuant to this strategy, since the beginning of fiscal 1993
Saks has made significant investments in 14 high potential stores, including
$109 million in gross capital expenditures, $43 million in increased inventory
levels, $21 million in additional annual store payroll costs and $4 million in
increased annual localized marketing spending. As a result, net sales in these
stores increased 29.5% from $698 million in fiscal 1992 to $904 million in
fiscal 1995. Saks is expanding its store intensification program to additional
stores in 1996 and 1997.
STORE EXPANSION
Saks continuously evaluates opportunities for profitable expansion of its
store base. Management believes that the current retail environment,
characterized by an accelerated pace of store rationalizations, downsizings and
bankruptcies, as well as the re-tenanting of major malls, offers many attractive
opportunities for Saks to continue to expand its store portfolio.
FULL-LINE STORES. Saks currently operates 40 full-line stores and, over the
next three years, plans to open three new full-line stores (including a new
store in Orlando, Florida in 1996) and two replacement stores and to complete
nine remodels.
RESORT STORES. Saks broadens its reach to the affluent tourist and permanent
and seasonal residents of resort markets through its resort stores. In addition
to the five stores currently open, Saks plans to open four new 30,000 to 50,000
gross square foot resort stores during the next three years.
MAIN STREET STORES. Saks is testing a 35,000 square foot main street store
format designed for the local shopping areas of affluent suburban markets. The
first main street store is scheduled to open in Greenwich, Connecticut in the
third quarter of fiscal 1996.
ACQUISITIONS. Management believes that the current retail environment will
continue to offer selected opportunities to increase Saks' presence in important
markets. For example, Saks intensified its presence on the west coast and in the
southwest by acquiring four former I. Magnin stores in February 1995.
FRANCHISE EXTENSION STRATEGIES
Management believes that the Saks Fifth Avenue franchise is extendable over
multiple formats and has developed the following specific growth strategies:
OFF 5TH. Through its Off 5th division, Saks extends its customer reach by
offering high quality, upscale branded fashion apparel in an outlet store
setting at 40% to 70% off original and comparable retail prices. Off 5th
provides attractive financial returns and an economically superior form of
inventory liquidation for Saks' retail stores. Saks currently operates 19 Off
5th stores and expects to open approximately 14 additional stores in fiscal
1996.
FOLIO. Saks extends its reach to direct response customers through its Folio
catalogs which offer fashionable women's apparel, accessories, home furnishings
and gifts and unique selections of Saks' private label merchandise. Folio mailed
29 million catalogs in fiscal 1995, an increase of 26% over fiscal 1994.
Management plans to increase Folio's sales through further development of its
customer list, increased circulation and the development of new catalogs,
including home and gift and outlet catalogs, both domestically and in
international markets.
CAPITAL EXPENDITURES
Saks is committed to expanding and improving its store portfolio. Since the
beginning of fiscal 1993, Saks has made capital expenditures of approximately
$148 million on new stores, remodels, replacements and expansions and plans to
make additional such capital expenditures of approximately $270 million over the
next three fiscal years. Management believes that cash generated from Saks'
operations, funds available under Saks' credit facility and funds available from
lease financing and developer contributions will be sufficient to satisfy Saks'
cash requirements over this
5
<PAGE>
period. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Capital Expenditures".
Saks Holdings is headquartered at 12 East 49th Street, New York, New York
10017, next to the flagship Saks Fifth Avenue store which occupies the entire
block on Fifth Avenue between 49th and 50th Streets in New York City, directly
across from Rockefeller Center. Its telephone number is (212) 940-4048. Saks is
a wholly-owned subsidiary of Saks Holdings.
THE OFFERINGS
<TABLE>
<S> <C>
U.S. Offering................................ 11,000,000 shares
International Offering....................... 2,750,000 shares
Investcorp Offering.......................... 2,250,000 shares
Total...................................... 16,000,000 shares
Common Stock to be outstanding after the
Offerings.................................... 60,966,605 shares
Use of proceeds.............................. Saks Holdings intends to contribute the
estimated net proceeds of $356 million to
Saks to enable Saks to reduce its
outstanding borrowings under Saks' credit
facility. See "Use of Proceeds".
Proposed NYSE symbol......................... SKS
</TABLE>
The 11,000,000 shares of Common Stock initially being offered in the United
States (the "U.S. Offering"), the 2,750,000 shares of Common Stock concurrently
being offered outside the United States (the "International Offering") and the
2,250,000 shares being sold directly by the Company to SFA Capital Limited, an
indirect wholly-owned subsidiary of Investcorp S.A. (the "Investcorp Offering"),
collectively are referred to in this Prospectus as the "Offerings".
RISK FACTORS
See "Risk Factors" beginning on page 9 for a description of certain risks
relevant to an investment in the Common Stock.
RECENT DEVELOPMENTS
On May 20, 1996, Saks reported its results of operations for the thirteen
week period ended May 4, 1996. Net sales increased 20.8% to $464.5 million for
the period, compared to $384.6 million for the thirteen weeks ended April 29,
1995. Comparable sales increased by 15.8%. Operating income for the period was
$21.3 million, compared to $3.9 million for the comparable period in fiscal
1995. Results for the comparable period in fiscal 1995 reflect impairment and
special charges of $8.9 million related to the integration of four former I.
Magnin store locations. Excluding these charges, operating income for the period
increased $8.4 million, or 66%, from the comparable period in fiscal 1995. Net
loss for the period was $3.0 million, compared to $16.5 million for the
comparable period in fiscal 1995.
THIRTEEN WEEKS ENDED
-----------------------------
APRIL 29, 1995 MAY 4, 1996
-------------- -----------
(IN MILLIONS)
Net sales..................................... $384.6 $ 464.5
Impairment and special charges................ (8.9) --
Operating income.............................. 3.9 21.3
Net income (loss)............................. (16.6) (3.0)
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data presented below have been
derived from the audited Consolidated Financial Statements for each of the five
fiscal years in the period ended February 3, 1996, and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Consolidated Financial Statements and Notes
thereto and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $1,269,383 $1,343,496 $1,395,536 $1,418,163 $1,686,787
Cost of sales, including buying and
occupancy............................... (922,682) (933,115) (975,360) (979,650) (1,168,692)
---------- ---------- ---------- ---------- ----------
Gross margin........................... 346,701 410,381 420,176 438,513 518,095
Selling, general and administrative
expenses................................ (387,521) (396,010) (394,828) (370,441) (438,603)
Management fees (1)..................... (2,000) (2,000) (2,000) (2,000) (7,000)
Impairment and special charges (2)...... -- -- (177,731) -- (36,415)
---------- ---------- ---------- ---------- ----------
Operating income (loss)................ (42,820) 12,371 (154,383) 66,072 36,077
Interest expense, net................... (126,164) (89,458) (73,822) (76,155) (94,181)
---------- ---------- ---------- ---------- ----------
Income (loss) from operations before
income taxes and extraordinary
charge.................................. (168,984) (77,087) (228,205) (10,083) (58,104)
Income taxes (3)........................ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
charge.................................. (168,984) (77,087) (228,205) (10,083) (58,104)
Extraordinary charge (4)................ (11,488) (8,376) (27,640) (535) (5,991)
---------- ---------- ---------- ---------- ----------
Net income (loss)...................... $ (180,472) $ (85,463) $ (255,845) $ (10,618) $ (64,095)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per share before
extraordinary charge.................... $ (5.63) $ (1.93) $ (5.07) $ (.22) $ (1.29)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per share............ $ (6.02) $ (2.14) $ (5.68) $ (.24) $ (1.43)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average number of shares
outstanding............................. 30,000 40,015 45,030 45,010 44,955
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 3, 1996
------------------------------
ACTUAL AS ADJUSTED (5)
---------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Inventories.................................................... $ 339,723 $ 339,723
Property and equipment......................................... 780,264 780,264
Total assets................................................... 1,366,187 1,402,685
Total debt (6)................................................. 975,942 659,256
Stockholders' equity........................................... 83,175 436,360
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
-------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT SALES PER SQUARE FOOT DATA)
OTHER DATA:
<S> <C> <C> <C> <C> <C>
Change in comparable sales (7)............ (1.9%) 3.4% 1.7% 5.6% 10.6%
Retail sales per average square foot (8):
Full-line and resort..................... $ 251 $ 258 $ 264 $ 288 $ 311
Off 5th.................................. $ 411 $ 452 $ 440 $ 362 $ 352
Gross margin rate......................... 27.3% 30.5% 30.1% 30.9% 30.7%
Selling, general and administrative
expense rate.............................. 30.5% 29.5% 28.3% 26.1% 26.0%
EBIT (9).................................. $(40,820) $ 14,371 $ 25,348 $ 68,072 $ 79,492
Depreciation and amortization............. $ 87,737 $ 89,035 $ 86,812 $ 67,974 $ 66,766
Capital expenditures...................... $ 50,387 $ 67,521 $ 49,752 $ 71,713 $ 87,028
Number of stores:
Full-line and resort--beginning of
period............... 47 48 49 49 45
--opened................. 1 1 -- 1 2
--closed................. -- -- -- (5) (2)
-------- --------- -------- -------- --------
--end of period.......... 48 49 49 45 45
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
Off 5th --beginning of period.... 1 1 3 4 8
--opened................. -- 2 1 4 11
-------- --------- -------- -------- --------
--end of period.......... 1 3 4 8 19
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
End of period gross square feet:
Full-line and resort..................... 4,888 4,918 4,959 4,549 4,806
Off 5th.................................. 26 83 114 227 456
CASH FLOW DATA (10):
Net cash provided by (used in) operating
activities................................ $ 69,377 $ (27,470) $ 15,583 $ 53,791 $ (6,105)
Net cash provided by (used in) investing
activities................................ $ 11,228 $ 42,590 $(30,254) $ (1,746) $(57,072)
Net cash provided by (used in) financing
activities................................ $(78,166) $ (13,206) $ 15,098 $(47,906) $ 60,176
</TABLE>
------------
(1) Management fees represent amounts paid or payable to III, an affiliate of
Investcorp. Such fees relate to advisory services on matters that include
review of operating performance, treasury activities and other strategic
planning and real estate alternatives. Such management fees will not be
paid following the Offerings.
(2) Impairment and special charges represent costs associated with (i)
adjustments to long-lived assets, an early retirement program and store
closings and space reductions in fiscal 1993 and (ii) distribution center
exit costs, integration of former I. Magnin locations and write-off of
capitalized EDP software in fiscal 1995. See Note 3 to Consolidated
Financial Statements.
(3) At February 3, 1996 Saks had a net operating loss carryforward of $728
million which may be used to reduce taxes payable on future taxable income.
The carryforward begins to expire in 2005 if not used in full. See Note 9
to Consolidated Financial Statements.
(4) The extraordinary charge in each year relates to early extinguishment of
debt. See Note 5 to Consolidated Financial Statements.
(5) Adjusted to give effect to (i) the sale of 16,000,000 shares of Common
Stock in the Offerings and the application of the net proceeds therefrom to
repay $317 million of debt and (ii) the write-off of $2.6 million of
deferred financing costs resulting from repayment of term loans outstanding
under Saks' credit facility.
(6) Includes obligations under capital leases. See Note 10 to Consolidated
Financial Statements.
(7) Comparable sales represents (i) net sales of stores (excluding major store
expansions) open in both reporting periods for the portion of such period
open and (ii) Folio net sales. In fiscal 1995, comparable sales excludes
the impact of the 53rd week.
(8) Sales per average square foot in each fiscal year represent net sales for
such full fiscal year divided by the average of total gross square feet of
store buildings. The number for fiscal 1994 excludes net sales and square
feet for stores identified in the store closing and downsizing program.
(9) EBIT represents earnings before interest expense, net, income taxes,
management fees and impairment and special charges. Saks Holdings has
included information concerning EBIT because management believes that it is
a widely used comparative measure for Saks Holdings' peer group and that,
net of depreciation and amortization, it is useful information regarding a
company's ability to service and incur debt. EBIT should not be considered
in isolation or as a substitute for net income, cash flows, operating
income or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity.
(10) For more information regarding cash flow data, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources" and the Consolidated Financial Statements included
elsewhere in this Prospectus.
8
<PAGE>
RISK FACTORS
Prospective purchasers of shares of Common Stock should consider carefully
the following risk factors relating to the Offerings and the business of Saks
Holdings, together with the information and financial data set forth elsewhere
in this Prospectus, prior to making an investment decision.
RELIANCE ON FIFTH AVENUE STORE
Saks' flagship Fifth Avenue store in New York City accounted for
approximately 22% of consolidated net sales in fiscal 1995 and plays a
significant role in marketing the Saks Fifth Avenue name. The loss of, or any
significant impairment to the operations of, the Fifth Avenue store could have a
material adverse effect on Saks' results of operations and financial condition.
See "Business--Full-Line and Resort Stores".
INDEBTEDNESS AND LIQUIDITY
Saks Holdings is a holding company with no business operations of its own.
Saks Holdings' only material asset is the outstanding capital stock of Saks.
Saks had outstanding indebtedness of $975.9 million at February 3, 1996,
bearing interest at a weighted average rate of 8.6%. Any default by Saks with
respect to its outstanding indebtedness, or any inability on the part of Saks to
obtain necessary liquidity, would have a material adverse effect on Saks
Holdings' results of operations and financial condition. As of February 3, 1996,
after giving effect to the consummation of the Offerings and the application of
the net proceeds therefrom (at an assumed initial public offering price of $24
per share, the midpoint of the range of initial public offering prices set forth
on the cover page of this Prospectus, and after deducting the underwriting
discount and estimated expenses of the Offerings), the consolidated indebtedness
of Saks would have been approximately $659.3 million. Such indebtedness would
have had an average interest rate of 9.1% and Saks would have had interest
expense, net, of $66.3 million during fiscal 1995. Although the application of
the net proceeds from the Offerings will result in a permanent reduction of the
principal amount of the term loans outstanding under Saks' credit facility, it
will not reduce amounts available to Saks under its revolving credit facility.
The revolving credit facility permits Saks to borrow funds for working capital
and capital expenditure purposes, including store acquisitions. See "Use of
Proceeds" and "Description of Certain Indebtedness". The level of consolidated
indebtedness of Saks could have important consequences to the holders of Common
Stock, including the following: (i) a substantial portion of Saks' cash flow
from operations must be dedicated to the payment of principal of and interest on
its indebtedness and will not be available for other purposes; (ii) the ability
of Saks to obtain financing in the future for working capital needs, capital
expenditures, acquisitions, investments, general corporate purposes or other
purposes may be materially limited or impaired; and (iii) Saks' level of
indebtedness may reduce its flexibility to respond to changing business and
economic conditions. See "Description of Certain Indebtedness".
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offerings will experience immediate and
substantial dilution in the net tangible book value of their Common Stock. The
current net tangible book value per share is $(1.09). At an assumed initial
public offering price of $24 per share, the mid-point of the range of the
initial public offering prices set forth on the cover page of this Prospectus,
current stockholders would experience an increase in net tangible book value per
share of $6.12 and purchasers of shares in the Offerings would experience
dilution in net tangible book value of $18.97 per share. See "Dilution".
9
<PAGE>
NO DIVIDENDS
Saks Holdings currently does not intend to pay any cash dividends on the
Common Stock. Saks Holdings is a holding company with no business operations of
its own. Saks Holdings therefore is dependent upon payments, dividends and
distributions from Saks for funds to pay its expenses and to pay future cash
dividends or distributions, if any, to holders of the Common Stock. Saks
currently intends to retain any earnings for support of its working capital,
repayment of indebtedness, capital expenditures and general corporate purposes.
Saks has no current intention of paying dividends or making other distributions
to Saks Holdings in excess of amounts necessary to pay Saks Holdings' operating
expenses and taxes. Saks' credit facility and subordinated debt contain
restrictions on Saks' ability to pay dividends or make other distributions to
Saks Holdings. Saks' credit facility and subordinated note indenture provide
that Saks may not declare any dividends or make any other payments or
distributions to Saks Holdings except for amounts necessary (i) to pay Saks
Holdings' operating expenses up to $4 million per fiscal year and (ii) to pay
Saks Holdings' taxes. See "Dividend Policy" and "Description of Certain
Indebtedness-- Credit Agreement" and "Description of Certain
Indebtedness--Subordinated Debt".
RECENT LOSSES
Saks Holdings incurred net losses of $180.5 million, $85.5 million, $255.8
million, $10.6 million and $64.1 million, respectively, during the five year
period from fiscal 1991 through fiscal 1995. Saks also incurred operating losses
in fiscal 1991 and 1993. Saks' interest expense, net, was $126.2 million in
fiscal 1991, $89.5 million in fiscal 1992, $73.8 million in fiscal 1993, $76.2
million in fiscal 1994 and $94.2 million in fiscal 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations". There
can be no assurance that Saks will attain profitability or achieve continued
growth in operating performance.
RELOCATION OF DISTRIBUTION FACILITY
Saks plans to relocate its primary distribution center from Yonkers, New
York to a new facility in Aberdeen, Maryland, which is scheduled to open in
early 1997. The Aberdeen distribution center may be operated simultaneously with
the Yonkers distribution center for up to six months as the new facility is
brought on-line, after which time the Yonkers distribution center will be
closed. Any significant disruptions in inventory delivery, storage or
distribution during transition to the new facility could have a material adverse
effect on Saks' ability to receive inventory, deliver inventory to its stores or
locate and ship its Folio merchandise, which in turn could negatively affect
Saks' financial condition and results of operations. See "Business--Distribution
Facilities".
INTRODUCTION OF NEW MIS SYSTEM
Saks has made and continues to make substantial investments in information
systems designed to support its business strategy. Saks' capital expenditures on
information systems in fiscal 1993, fiscal 1994 and fiscal 1995 aggregated $21
million, and Saks plans additional capital expenditures of approximately $43
million over the next three fiscal years on such systems. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources". These new information systems are scheduled to
be implemented by early 1997. The new information systems will be operated
simultaneously with Saks' present information systems for up to six months as
the new systems are brought on-line, after which time use of the existing
information systems will be terminated. Any significant disruptions in the use
of Saks' information systems resulting from the transition to the new system
could have an adverse effect on Saks' ability to conduct its operations and may
adversely affect financial condition and results of operations. See
"Business--Management Information Systems" and "Business--Business Strategy".
10
<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon consummation of the Offerings, existing stockholders, some of whom are
affiliates of Investcorp and others of whom frequently co-invest with
Investcorp, may be deemed to be the beneficial owners of approximately 78% of
the outstanding shares of Common Stock. Until such time, if ever, that there is
a significant decrease in the percentage of outstanding shares held by such
stockholders, these stockholders will be able to control Saks Holdings through
their ability to determine the outcome of votes of stockholders regarding, among
other things, election of directors and approval of significant transactions. In
particular, Investcorp, as the beneficial owner of 17.28% of the Common Stock of
Saks Holdings after the Offerings and with representatives on the board of
directors of Saks Holdings, may be able to exert influence over the operations
of Saks Holdings and Saks. In addition, executive officers, directors and senior
management of Saks Holdings and Saks will own an aggregate of approximately
3,016,190 shares, or 4.7%, of Common Stock after the Offerings on a
fully-diluted basis, giving effect to the exercise of all outstanding options
held by such officers, directors and management. See "Principal Stockholders".
DEPENDENCE ON KEY PERSONNEL
The recent growth and development of Saks has been largely dependent upon
the services of Philip Miller, Chairman of Saks, Brian Kendrick, Vice Chairman
of Saks, and Rose Marie Bravo, President of Saks. The loss of Mr. Miller's, Mr.
Kendrick's or Ms. Bravo's services could have a material adverse effect on Saks.
Neither Saks Holdings nor Saks maintains any key-man or similar insurance
policies. See "Management".
SENSITIVITY TO ECONOMIC CONDITIONS; CHANGING CONSUMER PREFERENCES
The retail apparel business is dependent upon the level of consumer
spending, which may be adversely affected by an economic downturn or a decline
in consumer confidence. An economic downturn, particularly in the Northeast and
other regions from which Saks derives a significant portion of its net sales,
could have a material adverse effect on Saks' results of operations and
financial condition. In addition, Saks' success depends in part upon its ability
to anticipate and respond to changing consumer preferences and fashion trends in
a timely manner. Although Saks attempts to stay abreast of emerging lifestyle
and consumer preferences affecting its merchandise, any sustained failure by
Saks to identify and respond to such trends would have a material adverse effect
on Saks' business, results of operations and financial condition.
SEASONALITY
The retail apparel industry is seasonal in nature, with a high proportion of
sales and operating income generated in November and December. During fiscal
1994 and fiscal 1995, the fourth quarter provided approximately 31% and 32%,
respectively, of Saks' net sales and the majority of its operating income. As a
result, Saks' operating results depend significantly on the holiday selling
season. Operating results usually are weakest in the second quarter of Saks'
fiscal year. Working capital requirements fluctuate during the year, increasing
substantially in October and November in anticipation of the holiday selling
season as significantly higher inventory levels are necessary. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Seasonality and Quarterly Fluctuations".
COMPETITION
All aspects of the retail industry, including attracting customers, securing
merchandise and locating appropriate retail sites, are highly competitive. Saks
competes for customers in this industry primarily with large specialty apparel
retailers, better department stores, national apparel chains, designer boutiques
and individual specialty apparel stores. Many of these competitors are larger
and have significantly greater financial resources than Saks. See
"Business--Competition".
11
<PAGE>
EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY PROVISIONS
Saks Holdings' Board of Directors is authorized, subject to certain
limitations prescribed by law, to issue up to 10 million shares of preferred
stock in one or more classes or series and to fix the designations, powers,
preferences, rights, qualifications, limitations or restrictions, including
voting rights, of those shares without any further vote or action by
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of Saks
Holdings. Saks Holdings has no current plans to issue shares of preferred stock.
Saks' credit facility and subordinated indebtedness contain provisions that,
under certain circumstances, will cause such indebtedness to become due upon the
occurrence of a change of control of Saks. See "Description of Certain
Indebtedness--Credit Agreement" and "--Subordinated Debt". These provisions
could have the effect of making it more difficult for a third party to acquire
control of Saks Holdings. See "Description of Capital Stock--Preferred Stock".
Saks Holdings is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock--Certain Provisions of Delaware Law".
ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offerings. The initial public
offering price will be determined by negotiations between Saks and the
representatives of the Underwriters, and may bear no relationship to the market
price of the Common Stock after the Offerings. See "Underwriting". Subsequent to
the Offerings, prices for the Common Stock will be determined by the market and
may be influenced by a number of factors, including the depth and liquidity of
the market for the Common Stock, investor perceptions of Saks and other apparel
retailers and general economic and other conditions.
SUBSTANTIAL AMOUNT OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offerings, 60,966,605 shares of Common Stock will
be outstanding. The 16,000,000 shares sold in the Offerings will be freely
transferable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), except for shares acquired in the Offerings by
"affiliates" of Saks Holdings as that term is defined in Rule 144 under the
Securities Act. The remaining 44,966,605 outstanding shares of Common Stock are
deemed to be "restricted securities" as that term is defined in Rule 144, all of
which are eligible for sale in the public market in compliance with Rule 144.
Subject to certain exceptions, Saks Holdings and certain stockholders of Saks
Holdings (who in the aggregate hold 44,966,605 shares of Common Stock) have
agreed with the representatives of the Underwriters that they will not offer,
issue, pledge, sell, transfer or otherwise dispose of any shares of Common Stock
or securities convertible into or exercisable or exchangeable for shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of the representatives of the Underwriters. See
"Principal Stockholders" and "Underwriting".
At the expiration of the 180-day period described above, or earlier with the
written consent of the representatives of the Underwriters, the holders of
36,415,650 shares of Common Stock will have the right to sell shares of Common
Stock without regard to the volume or the other limitations of Rule 144 under
the Securities Act.
12
<PAGE>
Saks Holdings intends to file a registration statement on Form S-8 under the
Securities Act to register the sale of the 6,209,045 shares of Common Stock
reserved for issuance under its Senior Management Stock Incentive Plan and 1996
Management Stock Incentive Plan. As a result, any shares issued upon exercise of
stock options granted under such plans will be available, subject to special
rules for affiliates, for resale in the public market after the effective date
of such registration statement, subject to applicable lock-up arrangements. See
"Management--Stock Incentive Plans".
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares of Common Stock for future
sale would have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market
following the Offerings, or the perception that such sales could occur, could
have an adverse effect on prevailing market prices for the Common Stock. See
"Shares Eligible for Future Sale" and "Underwriting".
DIVIDEND POLICY
Saks Holdings currently does not intend to pay any cash dividends on the
Common Stock.
Saks Holdings is a holding company with no business operations of its own.
Saks Holdings therefore is dependent upon payments, dividends and distributions
from Saks for funds to pay dividends to stockholders of Saks Holdings. Saks
currently intends to retain any earnings for support of its working capital,
repayment of indebtedness, capital expenditures and other general corporate
purposes. Saks has no current intention of paying dividends or making other
distributions to Saks Holdings in excess of amounts necessary to pay Saks
Holdings' operating expenses and taxes. Saks' credit facility and subordinated
debt contain restrictions on Saks' ability to pay dividends or make payments or
other distributions to Saks Holdings. See "Risk Factors--No Dividends",
"Description of Certain Indebtedness--Credit Agreement" and "Description of
Certain Indebtedness--Subordinated Debt".
USE OF PROCEEDS
The net proceeds to Saks Holdings from the sale of the 16,000,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of $24
per share, the midpoint of the range of initial public offering prices set forth
on the cover page of this Prospectus, and after deducting the underwriting
discount and estimated expenses of the Offerings) are estimated to be $356
million. Saks Holdings intends to contribute substantially all of the net
proceeds to Saks to enable Saks to (i) prepay outstanding term loans under the
credit facility in an amount equal to one-third of such net proceeds and (ii)
reduce its outstanding balance under the revolving credit facility in an amount
equal to two-thirds of such net proceeds. Although the application of the net
proceeds will result in a permanent reduction of the principal amount of the
term loans, it will not reduce amounts available to Saks under the revolving
credit facility. The revolving credit facility permits Saks to borrow funds for
working capital and capital expenditure purposes, including store acquisitions.
Saks from time to time may consider store acquisitions as part of its business
strategy, although Saks currently does not have any understandings or agreements
with respect to potential acquisitions. For information on interest rates and
terms of the credit facility, see "Description of Certain Indebtedness--Credit
Agreement" and Note 5 to Consolidated Financial Statements.
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Saks
Holdings at February 3, 1996 and as adjusted as of such date to give effect to
the issuance and sale of the 16,000,000 shares of Common Stock offered hereby
(at an assumed initial public offering price of $24 per share, the midpoint of
the range of initial public offering prices set forth on the cover page of this
Prospectus, and after deducting the underwriting discount and estimated expenses
of the Offerings) and the application of the net proceeds therefrom. This table
should be read in conjunction with the Consolidated Financial Statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 3, 1996
------------------------
AS
ACTUAL ADJUSTED
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current maturities).................... $ 31,235 $ 21,909
---------- ----------
---------- ----------
Long-term debt
Senior credit facility (1)...................................... $ 459,398 $ 152,038
Subordinated debt (1)........................................... 50,000 50,000
REMIC certificates (1).......................................... 330,841 330,841
Obligations under capital leases (2)............................ 104,468 104,468
---------- ----------
Total long-term debt.......................................... $ 944,707 $ 637,347
---------- ----------
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share; 10 million shares
authorized, no shares issued and outstanding...................... -- --
Common Stock, par value $.01 per share; 150 million shares
authorized, 45,089,000 issued and 44,957,680 shares
outstanding (60,958,000 shares outstanding as adjusted) (3)(4).... 450 610
Additional paid-in capital (4).................................. 922,424 1,278,024
Accumulated deficit (5)......................................... (839,117) (841,692)
Treasury stock, at cost (4)..................................... (582) (582)
---------- ----------
Total stockholders' equity.................................... 83,175 436,360
---------- ----------
Total capitalization.......................................... $1,059,117 $1,095,616
---------- ----------
---------- ----------
</TABLE>
------------
(1) See Note 5 to Consolidated Financial Statements.
(2) See Note 10 to Consolidated Financial Statements.
(3) Does not include 8,925 shares sold to employees in February 1996. See Note 7
to Consolidated Financial Statements.
(4) See Notes 6 and 15 to Consolidated Financial Statements.
(5) Reflects the write-off of $2.6 million deferred financing costs resulting
from the repayment of the term loans under the credit facility with the net
proceeds of the Offerings.
14
<PAGE>
DILUTION
The net tangible book value of Saks Holdings at February 3, 1996 was $(48.8)
million, or $(1.09) per share of Common Stock. Net tangible book value per share
represents the amount of tangible assets of Saks Holdings, less total
liabilities, divided by the number of outstanding shares of Common Stock.
Without taking into account any other changes in net tangible book value after
February 3, 1996, other than to give effect to the sale by Saks Holdings of
16,000,000 shares of Common Stock offered hereby (at an assumed initial public
offering price of $24 per share, the midpoint of the range of initial public
offering prices set forth on the cover page of this Prospectus, and after
deducting underwriting discount and estimated expenses of the Offerings), and
the application of the estimated net proceeds therefrom, the pro forma net
tangible book value of Saks Holdings at February 3, 1996 would have been $307.0
million, or $5.03 per share. This represents an immediate increase in net
tangible book value of $6.12 per share of Common Stock to existing stockholders
and an immediate dilution of approximately $18.97 per share to new investors
purchasing shares in the Offerings. The following table illustrates the per
share book value dilution to new investors:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share........................... $ 24
Net tangible book value per share before the Offerings.................. $(1.09)
Increase per share attributable to the Offerings........................ 6.12
Pro forma net tangible book value per share after the Offerings........... 5.03
------
Net tangible book value dilution per share to new investors(1)............ $18.97
------
------
</TABLE>
------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share after the Offerings from the assumed initial public offering price per
share of Common Stock.
The following table sets forth as of February 3, 1996 the number of shares
of Common Stock purchased from Saks Holdings and outstanding on February 3,
1996, the total consideration paid to Saks Holdings and the average price paid
per share of Common Stock (at an assumed initial public offering price of $24
per share, the midpoint of the range of initial public offering prices set forth
on the cover page of this Prospectus).
<TABLE>
<CAPTION>
CONSIDERATION PAID TO
COMMON SHARES SAKS HOLDINGS
PURCHASED ------------------------ AVERAGE
----------------- AMOUNT PRICE PER
NUMBER PERCENT (IN MILLIONS) PERCENT SHARE
------ ------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 44,958 74% $ 899 70% $ 20.00
New investors....................... 16,000 26 384 30 24.00
------ ------- ------------- -------
Total............................... 60,958 100% $ 1,283 100%
------ ------- ------------- -------
------ ------- ------------- -------
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below have been derived
from the audited Consolidated Financial Statements for each of the five years in
the period ended February 3, 1996, and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the Consolidated Financial Statements and Notes thereto and the
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $1,269,383 $1,343,496 $1,395,536 $1,418,163 $1,686,787
Cost of sales, including buying and
occupancy............................ (922,682) (933,115) (975,360) (979,650) (1,168,692)
---------- ---------- ---------- ---------- ----------
Gross margin........................ 346,701 410,381 420,176 438,513 518,095
Selling, general and administrative
expenses............................. (387,521) (396,010) (394,828) (370,441) (438,603)
Management fees (1).................. (2,000) (2,000) (2,000) (2,000) (7,000)
Impairment and special charges (2)... -- -- (177,731) -- (36,415)
---------- ---------- ---------- ---------- ----------
Operating income (loss).............. (42,820) 12,371 (154,383) 66,072 36,077
Interest expense, net................ (126,164) (89,458) (73,822) (76,155) (94,181)
---------- ---------- ---------- ---------- ----------
Income (loss) from operations before
income taxes and extraordinary
charge............................... (168,984) (77,087) (228,205) (10,083) (58,104)
Income taxes (3)..................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
charge............................... (168,984) (77,087) (228,205) (10,083) (58,104)
Extraordinary charge (4)............. (11,488) (8,376) (27,640) (535) (5,991)
---------- ---------- ---------- ---------- ----------
Net income (loss)................... $ (180,472) $ (85,463) $ (255,845) $ (10,618) $ (64,095)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per share before
extraordinary charge................. $ (5.63) $ (1.93) $ (5.07) $ (.22) $ (1.29)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per share.......... $ (6.02) $ (2.14) $ (5.68) $ (.24) $ (1.43)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average number of shares
outstanding.......................... 30,000 40,015 45,030 45,010 44,955
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3,
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Inventories................... $ 198,646 $ 236,130 $ 253,242 $ 271,875 $ 339,723
Total assets.................. 2,541,748 1,470,998 1,305,929 1,289,197 1,366,187
Total debt (5)................ 1,146,050 861,666 891,468 874,448 975,942
Stockholders' equity.......... 197,074 411,401 159,059 147,194 83,175
</TABLE>
16
<PAGE>
<TABLE><CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
--------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT SALES PER
SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Change in comparable sales (6)............ (1.9%) 3.4% 1.7% 5.6% 10.6%
Retail sales per average square foot (7):
Full-line and resort..................... $ 251 $ 258 $ 264 $ 288 $ 311
Off 5th.................................. $ 411 $ 452 $ 440 $ 362 $ 352
Gross margin rate......................... 27.3% 30.5% 30.1% 30.9% 30.7%
Selling, general and administrative
expense rate.............................. 30.5% 29.5% 28.3% 26.1% 26.0%
EBIT (8).................................. $ (40,820) $ 14,371 $ 25,348 $ 68,072 $ 79,492
Depreciation and amortization............. $ 87,737 $ 89,035 $ 86,812 $ 67,974 $ 66,766
Capital expenditures...................... $ 50,387 $ 67,521 $ 49,752 $ 71,713 $ 87,028
Number of stores:
Full-line and resort--beginning of
period............... 47 48 49 49 45
--opened................. 1 1 -- 1 2
--closed................. -- -- -- (5) (2)
--------- --------- -------- -------- --------
--end of period.......... 48 49 49 45 45
========= ========= ======== ======== ========
Off 5th --beginning of period.... 1 1 3 4 8
--opened................. -- 2 1 4 11
--------- --------- -------- -------- --------
--end of period.......... 1 3 4 8 19
========= ========= ======== ======== ========
End of period gross square feet:
Full-line and resort..................... 4,888 4,918 4,791 4,549 4,806
Off 5th.................................. 26 83 114 227 456
CASH FLOW DATA (9):
Net cash provided by (used in) operating
activities................................ $ 69,377 $ (27,470) $ 15,583 $ 53,791 $ (6,105)
Net cash provided by (used in) investing
activities................................ $ 11,228 $ 42,590 $(30,254) $ (1,746) $(57,072)
Net cash provided by (used in) financing
activities................................ $ (78,166) $ (13,206) $ 15,098 $(47,906) $ 60,176
</TABLE>
------------
(1) Management fees represent amounts paid or payable to III. Such fees relate
to advisory services on matters that include review of operating
performance, treasury activities and other strategic planning and real
estate alternatives. Such management fees will not be paid following the
Offerings.
(2) Impairment and special charges represent costs associated with (i)
adjustments to long-lived assets, an early retirement program and store
closings and space reductions in fiscal 1993 and (ii) distribution center
exit costs, integration of former I. Magnin locations and write-off of
capitalized EDP software in fiscal 1995. See Note 3 to Consolidated
Financial Statements.
(3) At February 3, 1996 Saks had a net operating loss carryforward of $728
million which may be used to reduce taxes payable on future taxable income.
The carryforward begins to expire in 2005 if not used in full. See Note 9
to Consolidated Financial Statements.
(4) The extraordinary charge in each year relates to early extinguishment of
debt. See Note 5 to Consolidated Financial Statements.
(5) Includes obligations under capital leases. See Note 10 to Consolidated
Financial Statements.
(6) Comparable sales represents (i) net sales of stores (excluding major store
expansions) open in both reporting periods for the portion of such period
open and (ii) Folio net sales. In fiscal 1995, comparable sales excludes
the impact of the 53rd week.
(7) Sales per average square foot in each fiscal year represents net sales for
such fiscal year divided by the average of total gross square feet of store
buildings. The number for the year ended January 28, 1995 excludes net
sales and square feet for stores identified in the store closing and
downsizing program.
(8) EBIT represents earnings before interest expense, net, income taxes,
management fees and impairment and special charges. Saks Holdings has
included information concerning EBIT because management believes that it is
a widely used comparative measure for Saks Holdings' peer group and that,
net of depreciation and amortization, it is useful information regarding a
company's ability to service and incur debt. EBIT should not be considered
in isolation or as a substitute for net income, cash flows, operating
income or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity.
(9) For more information regarding cash flow data, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources" and the Consolidated Financial Statements included
elsewhere in this Prospectus.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
OVERVIEW
After the 1990 Acquisition, Investcorp recruited a new executive management
team to correct recognized weaknesses and develop a new business strategy
designed to capitalize on the strength of the Saks franchise. New management
began to implement several key initiatives, including: (i) rebuilding Saks'
senior corporate, merchandising and store management teams; (ii) creating a more
efficient cost structure; (iii) upgrading and differentiating merchandise
assortments; (iv) improving the quality of the store portfolio through
expansions and renovations and by closing underperforming stores; (v) investing
in incremental growth formats including the Off 5th outlet store and Folio
catalog businesses; and (vi) developing management information systems to
support these activities. By early 1994, management had implemented these
important initiatives and developed and began implementing comprehensive,
integrated merchandising, service and marketing strategies to position its core
retail business for future growth and extend the Saks franchise.
These initiatives and strategies resulted in improvements in Saks' financial
performance. From fiscal 1991 to fiscal 1995, Saks' net sales increased by
$417.4 million, or 32.9%, to $1,686.8 million from $1,269.4 million. During this
period gross margin increased from 27.3% to 30.7%, and selling, general and
administrative expenses as a percentage of net sales decreased from 30.5% to
26.0%. In addition, from fiscal 1991 to fiscal 1995, Saks' interest expense,
net, decreased from $126.2 million to $94.2 million and Saks' net loss decreased
from $180.5 million to $64.1 million. Operating income increased by $78.9
million from a loss of $42.8 million in fiscal 1991 to income of $36.1 million
in fiscal 1995. Operating income is net of management fees paid to III in both
fiscal 1991 and fiscal 1995 and in fiscal 1995 is net of special charges of
$36.4 million. Management fees to III will be discontinued in fiscal 1996.
Operating income excluding these fees and the special charges increased by
$120.3 million during this period to $79.5 million. These results were achieved
in a retail environment generally characterized by weak consumer spending and
intensifying competition. Management believes that Saks' current momentum, as
demonstrated in its recent comparable sales performance, is directly
attributable to the implementation of these merchandising, service and marketing
strategies during fiscal 1994 and fiscal 1995. Saks' comparable sales
performance is set forth below.
CHANGE IN COMPARABLE SALES*
<TABLE>
<CAPTION>
FISCAL FISCAL
1994 1995
------ ------
<S> <C> <C>
First quarter............................................................ 4.1% 10.2%
Second quarter........................................................... 5.3 11.3
Third quarter............................................................ 5.9 9.9
Fourth quarter........................................................... 6.6 11.0
</TABLE>
------------
* Represents the percentage increase in (i) net sales of stores (excluding major
store expansions) open in both reporting periods for the portion of such
periods open, and (ii) Folio net sales. In fiscal 1995, comparable sales
excludes the impact of the 53rd week.
RECENT DEVELOPMENTS
On May 20, 1996, Saks reported its results of operations for the thirteen
week period ended May 4, 1996. Net sales increased 20.8% to $464.5 million for
the period, compared to $384.6 million for the thirteen weeks ended April 29,
1995. Comparable sales increased by 15.8%. Operating income for the period was
$21.3 million, compared to $3.9 million for the comparable
18
<PAGE>
period in fiscal 1995. Results for the comparable period in fiscal 1995 reflect
impairment and special charges of $8.9 million related to the integration of
four former I. Magnin store locations. Excluding these charges, operating income
for the period increased $8.4 million, or 66%, from the comparable period in
fiscal 1995. Net loss for the period was $3.0 million, compared to $16.5 million
for the comparable period in fiscal 1995.
THIRTEEN WEEKS ENDED
-----------------------------
APRIL 29, 1995 MAY 4, 1996
-------------- -----------
(IN MILLIONS)
Net sales................................... $384.6 $ 464.5
Impairment and special charges.............. (8.9) --
Operating income............................ 3.9 21.3
Net income (loss)........................... (16.6) (3.0)
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial data
expressed as a percent of total net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993(1) 1994(1) 1995(1)
------- ------- -------
<S> <C> <C> <C>
Net sales................................................ 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy............ (69.9) (69.1) (69.3)
------- ------- -------
Gross margin......................................... 30.1 30.9 30.7
Selling, general and administrative expenses............. (28.3) (26.1) (26.0)
Management fees.......................................... (0.1) (0.1) (0.4)
Impairment and special charges........................... (12.7) (0.0) (2.2)
------- ------- -------
Operating income (loss).............................. (11.0) 4.7 2.1
Interest expense, net.................................... (5.3) (5.4) (5.6)
------- ------- -------
Income (loss) from operations before income taxes and
extraordinary charge............................... (16.3) (0.7) (3.5)
Income taxes............................................. 0.0 0.0 0.0
Extraordinary charge..................................... (2.0) 0.0 (0.3)
------- ------- -------
Net income (loss).................................... (18.3)% (0.7)% (3.8)%
------- ------- -------
------- ------- -------
</TABLE>
------------
(1) Fiscal 1995 consisted of 53 weeks. Fiscal 1993 and fiscal 1994 each
consisted of 52 weeks.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. Net sales for fiscal 1995 increased by $268.6 million, or 18.9%,
to $1,686.8 million from $1,418.2 million in fiscal 1994. Comparable sales
increased by 10.6%. Full-line and resort store net sales increased $193.7
million, or 14.9%, from $1,302.3 million to $1,496.0 million with significant
increases resulting from Saks' west coast intensification through the
acquisition of four former I. Magnin stores and its strategic focus on its top
customer segments, target merchandise categories and high-potential stores. All
of Saks' geographic regions experienced increased net sales. The net sales of
Off 5th outlet stores increased by $50.8 million, or 88.8%, from $57.2 million
to $108.0 million primarily as a result of the addition of 11 new stores. Folio
catalog net sales increased by $24.1 million, or 41.9%, from $58.7 million to
$82.8 million reflecting increased mailings, new catalog titles and an increase
in the average order in fiscal 1995 compared to fiscal 1994.
COST OF SALES. Cost of sales includes the cost of merchandise sold and
buying and occupancy costs. Cost of sales increased from $979.7 million, or
69.1% of net sales, in fiscal 1994 to $1,168.7 million, or 69.3% of net sales in
fiscal 1995. This increase as a percentage of net sales resulted from the
increased penetration of lower margin Off 5th sales, which increased the cost of
sales rate by .7%, partially offset by slightly higher retail and Folio gross
margins, which decreased the cost of sales rate by .2%, and improved leverage of
buying and occupancy costs, which decreased the
19
<PAGE>
cost of sales rate by .3%. The change in mix of merchandise assortments featured
in full-line and resort stores did not have a significant impact on cost of
sales. The inclusion of leased department sales in net sales and the portion of
such sales remitted to the leased department operator in cost of sales increased
the cost of sales rate by .6% and .7% in fiscal 1994 and fiscal 1995,
respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $370.4 million, or 26.1% of net sales, in
fiscal 1994 to $438.6 million, or 26.0% of net sales, in fiscal 1995. This
decrease as a percentage of net sales was achieved as a result of lower
depreciation and amortization and improved store expense leverage, which
decreased the selling, general and administrative expense rate by 1.7%, offset
in part by slightly lower finance charge income net of securitization costs and
higher bad debt charges, which increased the selling, general and administrative
expense rate by .6%, as well as investments in Saks' central organization
(management information systems, merchandising, training and communications and
planning) to better position Saks for future growth, which increased the
selling, general and administrative expense rate by 1.0%. Selling, general and
administrative expenses are net of gross finance charge income of $56.6 million
and $69.1 million in fiscal 1994 and fiscal 1995, respectively. Finance charge
income net of accounts receivable securitization costs was $34.4 million and
$37.1 million in fiscal 1994 and fiscal 1995, respectively.
MANAGEMENT FEES. Management fees paid to III, an affiliate of Investcorp,
increased from $2 million in fiscal 1994 to $7 million in fiscal 1995. This
increase reflected the payment of fees for additional advisory services relating
to strategic planning and real estate alternatives rendered in fiscal 1995. No
consulting, management and advisory fees will be paid pursuant to these
arrangements following the Offerings.
IMPAIRMENT AND SPECIAL CHARGES. Impairment and special charges of $36.4
million were recorded in fiscal 1995. These charges consist of $19.0 million
relating to exit costs associated with the Yonkers distribution facility
(write-down to net realizable value, severance and occupancy costs following
exit), $8.9 million of costs to integrate four former I. Magnin store locations
and $8.5 million to write-down capitalized EDP software which became obsolete.
The anticipated costs of relocating distribution activities to the Aberdeen
distribution facility have not been accrued and are not expected to materially
impact future results. Additionally, Saks will receive incentive payments from
various government agencies which are expected to approximate these costs.
OPERATING INCOME. Operating income decreased to $36.1 million in fiscal 1995
from $66.1 million in fiscal 1994. This decrease was a result of the $5 million
increase in management fees and the $36.4 million of special charges discussed
above. Excluding these items, operating income increased to $77.5 million in
fiscal 1995, an increase of $11.4 million or 17.3%.
INTEREST EXPENSE. Interest expense increased by $18.0 million in fiscal 1995
to $94.2 million from $76.2 million in fiscal 1994. The increase resulted
primarily from a general increase in short-term interest rates and increased
costs associated with the refinancing in May 1995 of Euronotes with REMIC
certificates, as well as increased borrowing levels to support Saks' working
capital growth and capital expenditures.
FISCAL 1994 COMPARED TO FISCAL 1993
NET SALES. Net sales for fiscal 1994 were $1,418.2 million, an increase of
$22.6 million, or 1.6%, from net sales of $1,395.5 million in fiscal 1993.
Comparable sales increased 5.6%. Full-line and resort store net sales increased
by $2.7 million. This increase resulted from significant net sales gains at the
New York Fifth Avenue store and recently remodeled stores offset by the closure
of five stores and by weak net sales in the Florida markets. The net sales of
Off 5th stores increased by $14.3 million, or 33.3% from $42.9 million to $57.2
million, primarily as a result of opening four stores. Folio catalog net sales
increased by $6.7 million, or 13.0%, from $51.6 million to $58.3 million.
20
<PAGE>
COST OF SALES. Cost of sales increased from $975.4 million, or 69.9% of net
sales, in fiscal 1993 to $979.7 million, or 69.1% of net sales, in fiscal 1994.
This decrease as a percentage of net sales was primarily due to lower net
markdowns, which decreased the cost of sales rate by .5%, and improved leverage
of buying and occupancy costs, which decreased the cost of sales rate by .5%,
and occurred despite an increase in penetration of lower margin Off 5th sales,
which increased the cost of sales rate by .2%. The inclusion of leased
department sales in net sales and the portion of such sales remitted to the
leased department operator in cost of sales increased the cost of sales rate by
.6% and .6% in fiscal 1993 and fiscal 1994, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $394.8 million, or 28.3% of net sales, in
fiscal 1993 to $370.4 million, or 26.1% of net sales, in fiscal 1994. The
decrease as a percentage of net sales is primarily due to lower depreciation and
amortization in fiscal 1994 resulting from the impairment and special charges
recorded in fiscal 1993. Additionally, selling, general and administrative
expenses in fiscal 1994 versus fiscal 1993 were reduced by higher finance charge
income net of accounts receivable securitization costs and bad debt charges,
which decreased the selling, general and administrative expense rate by .5%. The
higher finance charge income resulted from higher receivable balances associated
with the change in payment terms on Saks' proprietary credit card program.
Selling, general and administrative expenses are net of gross finance charge
income of $45.8 million and $56.6 million in fiscal 1993 and fiscal 1994,
respectively. Finance charge income net of accounts receivable securitization
costs was $30.4 million and $34.4 million in fiscal 1993 and fiscal 1994,
respectively.
MANAGEMENT FEES. Saks paid management fees of $2 million to III in both
fiscal 1993 and fiscal 1994. Such fees relate to advisory services on matters
that include review of operating performance, treasury activities and other
strategic planning and real estate alternatives.
IMPAIRMENT AND SPECIAL CHARGES. Impairment and special charges of $177.7
million were recorded in fiscal 1993. These charges consist of $118.0 million to
reduce the carrying value of property and equipment, goodwill and intangible
assets, $40.2 million relating to store closings and downsizings (write-down of
property and equipment to net realizable value, lease related costs, inventory
liquidations and severance) and $19.5 million related to an early retirement
program.
OPERATING INCOME. Operating income increased to $66.1 million in fiscal 1994
from an operating loss of $154.4 million in fiscal 1993. This increase was
partially a result of the $177.7 million impairment and special charge recorded
in fiscal 1993. Excluding this charge, fiscal 1994 operating income increased by
$42.8 million, or 183.7%, from $23.3 million in fiscal 1993.
INTEREST EXPENSE. Interest expense for fiscal 1994 increased by $2.3 million
to $76.2 million from $73.8 million in fiscal 1993 due primarily to higher
interest rates on Saks' floating rate debt, which increase was partially offset
by the refinancing and repayment of certain high cost debt.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Saks' business is highly seasonal, with a substantial percentage of net
sales and operating income occurring in the fourth quarter, which includes the
holiday selling season. Saks incurred a net loss in the first three quarters of
both fiscal 1994 and fiscal 1995. Seasonality also affects
21
<PAGE>
Saks' working capital requirements and cash flow as inventories peak in October
and November in anticipation of the holiday selling season. The following table
illustrates this seasonality:
<TABLE>
<CAPTION>
PERCENTAGE NET INCOME
NET SALES OF FULL YEAR (LOSS) (1)
------------- ------------ -------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
FISCAL 1995
First quarter..................................... $ 384.6 23% $ (16.6)
Second quarter.................................... 353.2 21 (39.8)
Third quarter..................................... 408.0 24 (35.3)
Fourth quarter.................................... 541.0 32 27.6
FISCAL 1994
First quarter..................................... $ 333.6 24% $ (9.3)
Second quarter.................................... 298.5 21 (26.3)
Third quarter..................................... 343.4 24 (5.4)
Fourth quarter.................................... 442.7 31 30.4
</TABLE>
------------
(1) Saks recorded special charges of $8.9 million and $27.5 million in the first
and third quarters, respectively, of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Saks' principal sources of liquidity are cash on hand, cash from operations,
borrowings under its credit facility and sale of its accounts receivable through
its securitization agreements.
Saks' net cash provided by (used in) operating activities was $15.6, $53.8
and $(6.1) million in fiscal 1993, fiscal 1994 and fiscal 1995, respectively.
The increase in cash flow from operating activities in fiscal 1994 is primarily
due to increased operating income. The decrease in cash flow from operating
activities in fiscal 1995 is primarily due to Saks' investment in additional
inventory to drive its merchandise and west coast intensification programs and
reduced net income.
Saks' net cash used in investing activities was $30.3, $1.7 and $57.1
million in fiscal 1993, fiscal 1994 and fiscal 1995, respectively. The decrease
in fiscal 1994 is primarily due to the sale and leaseback of one of Saks' store
locations and the sale of subordinated certificates under Saks accounts
receivable securitization program. The increase in fiscal 1995 results primarily
from increased capital expenditures, net of construction allowances, to fund the
remodeling of former I. Magnin stores and the opening of 11 Off 5th stores. In
fiscal 1995, Saks engaged in fewer asset sales.
Saks' net cash (used in) provided by financing activities was $15.1, $(47.9)
and $60.2 million in fiscal 1993, fiscal 1994 and fiscal 1995, respectively. The
decrease in fiscal 1994 resulted from repayments of debt. The increase in fiscal
1995 is primarily due to increased term loan borrowings to support the
acquisition and remodeling of four former I. Magnin stores and working capital
growth. In addition, in fiscal 1995, Saks incurred greater financing costs in
connection with its increased borrowings under the credit facility and the
refinancing of its real estate borrowings.
FINANCING FACILITIES
Saks has a credit facility with a syndicate of banks and financial
institutions. See "Description of Certain Indebtedness--Credit Agreement". The
facility consists of a $322 million two-tiered revolving loan and a two-tiered
term loan. At February 3, 1996, there was approximately $60 million outstanding
under the Tranche A loan and approximately $224 million outstanding under the
Tranche B Loan. Tranche A has scheduled repayments which began in 1993 and end
in 1998 and Tranche B has scheduled repayments which begin in 1997 and end in
the year 2000. The credit facility contains restrictive covenants which include,
among others, limitations on capital expenditures, limitations on indebtedness,
and specified minimum levels of consolidated net worth and minimum consolidated
operating profit levels as well as maintaining specified levels of interest
22
<PAGE>
coverage, all as defined in the credit facility, and which restrict payment of
dividends on capital stock.
Saks may borrow up to $20 million in aggregate principal amount of swingline
loans which bear interest, as of the closing of the Offerings, at the Alternate
Base Rate (as defined in the credit facility) plus an applicable margin ranging
from 0.0% to 1.0% depending on the Interest Coverage Ratio (as defined in the
credit facility). All other loans under the credit facility bear interest, as of
the closing of the Offerings, at a rate equal to, at Saks' option, (a) the
Alternate Base Rate plus a percentage ranging from 0.0% to 1.5% depending on the
Interest Coverage Ratio or (b) the Eurodollar Rate (as defined in the credit
facility) plus a percentage ranging from 1.0% to 2.5% depending on the Interest
Coverage Ratio. Eurodollar Rate loans can have maturities of one-, two-, three-
or six-month periods. Interest is payable on these loans at the maturity dates,
except for six-month period loans, which provide for interest to be payable
quarterly. Interest on Alternate Base Rate loans is payable quarterly.
RECEIVABLES SECURITIZATION
Saks also has an accounts receivable securitization program. The program
includes a $225 million floating rate Euronote series, a $413 million floating
rate medium term note series and a $121 million variable principal amount
series. The floating rate Euronote series matures in November 1996. The medium
term note series and the variable principal amount series mature in April 1999.
See "Description of Certain Indebtedness" for a further description of Saks'
indebtedness.
DERIVATIVES ACTIVITY
Saks utilizes interest rate caps to manage its interest rate exposure. See
Note 11 to Consolidated Financial Statements. Saks' policy is to use financial
derivatives only to reduce risk in conjunction with specific business
transactions.
LOSS CARRYFORWARDS
At February 3, 1996 Saks had a net operating loss carryforward of $728
million which is available to offset taxes otherwise payable on Saks' future
taxable income. The carryforwards begin to expire, unless used, in fiscal 2005.
CAPITAL EXPENDITURES
Saks plans to make capital expenditures of approximately $150 million in
fiscal 1996 and to make additional capital expenditures of approximately $225
million in fiscal 1997 and fiscal 1998. These expenditures include amounts
relating to its store intensification, store expansion and franchise extension
strategies, as well as operations including MIS systems. Management believes
that cash generated from Saks' operations, funds available under Saks' credit
facility and funds available from lease financing and developer contributions
will be sufficient to satisfy Saks' cash requirements in each of the periods.
Management believes that cash generated from operations will be sufficient to
fund expenses and working capital requirements for its top customer focus and
store intensification strategies, as well as store operations.
A new distribution center in Aberdeen, Maryland currently is under
construction and is expected to be completed in early 1997. Saks will receive
incentive payments from various government agencies which are expected to
approximate the costs of relocating its processing activities to the new
facility. Saks will occupy the facility pursuant to a lease, with the net
present value of future rental payments equal to $21 million. Saks expects to
sell its Yonkers facility after exiting it in early 1997. Saks recorded a charge
in fiscal 1995 to reduce the carrying value of the Yonkers facility to its net
realizable value. If Saks or a purchaser is successful in obtaining rezoning for
the use of the property, a gain on sale could be realized. Management is unable
to determine if rezoning will occur.
EFFECTS OF INFLATION
Management does not believe inflation had a material impact on the financial
statements for the periods presented.
23
<PAGE>
BUSINESS
GENERAL
OVERVIEW
Saks Fifth Avenue is recognized worldwide as a premier fashion retailer
offering the finest quality and latest style in women's and men's apparel.
Supported by a strong commitment to personalized customer service, Saks
primarily sells better, bridge and designer apparel, shoes, accessories,
jewelry, cosmetics and fragrances for women and men, as well as gift merchandise
and children's apparel. Capitalizing on its 70-year history as a fashion
authenticator and the prominence of its landmark Fifth Avenue store in New York
City, Saks Fifth Avenue has developed one of the most recognized retailing
franchises in the world.
Saks is experiencing significant momentum in its financial performance,
reflecting the success of new business strategies developed and implemented in
1994 and the significant investments in stores, inventories, staff and systems
made since 1990. In fiscal 1995, Saks recorded net sales of $1.69 billion, an
18.9% increase over fiscal 1994. Comparable sales increased 10.6% in fiscal
1995. Primarily due to certain impairment and special charges and increased
interest costs, Saks Holdings' net loss in fiscal 1995 increased to $64.1
million from $10.6 million in fiscal 1994.
Saks' net sales are generated through three retail formats: 45 full-line and
resort stores; 19 Off 5th outlet stores; and Folio catalogs. The full-line and
resort store operations are conducted from an exceptional portfolio of mostly
owned stores in premier retail locations, including Fifth Avenue in New York
City, Wilshire Boulevard in Beverly Hills, Michigan Avenue in Chicago and Union
Square in San Francisco. Saks' rapidly growing Off 5th outlet store division
sells high quality, upscale branded fashion apparel at exceptional prices. Saks'
Folio catalogs offer fashionable women's apparel, accessories and home
furnishings and gifts. The following table provides net sales and percent of
total sales information for each of these formats.
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1994 FISCAL 1995
------------------ ------------------ ------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
-------- ------- -------- ------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Full-line and resort stores.......... $1,231.2 88% $1,288.5 91% $1,486.0 88%
Off 5th outlet stores................ 42.9 3 57.2 4 108.0 6
Folio catalog........................ 51.6 4 58.3 4 82.8 5
Closed stores........................ 69.8 5 14.2 1 10.0 1
-------- ------- -------- ------- -------- -------
Total............................ $1,395.5 100% 1,418.2 100% 1,686.8 100%
-------- ------- -------- ------- -------- -------
-------- ------- -------- ------- -------- -------
</TABLE>
HISTORY
Saks Fifth Avenue was founded in 1867 and was incorporated in New York as
Saks & Company in 1902. Opened in New York City in September 1924 by Horace Saks
and Bernard Gimbel, the landmark Fifth Avenue store offered exclusive
merchandise from around the world. In 1926, Adam Gimbel, son of Bernard, became
President of Saks and set out to create a Saks Fifth Avenue network of
high-fashion retail stores throughout the United States as a division of Gimbel
Bros. Inc. By the time Adam Gimbel retired in 1969, Saks & Company owned and
operated 28 stores in 16 states. In 1973, Saks & Company was acquired by B.A.T.
through its acquisition of Gimbel Bros., Inc. In July 1990, affiliates of
Investcorp and a group of international investors acquired Saks from B.A.T.
24
<PAGE>
INDUSTRY
Industry sources indicate that the market for better, bridge and designer
apparel and other luxury goods is substantial. Saks is positioned to capitalize
on the following trends affecting this market:
DEMOGRAPHICS. The female population aged 45 to 54, which includes Saks' core
customers, is expected to be the fastest growing population segment over the
next five years. The population aged 45 to 54 has the highest average household
income among all demographic groups.
LUXURY GOODS. Management believes that certain luxury goods brands have
experienced substantial sales growth in the last few years. Because bridge and
designer merchandise, generally considered luxury goods, comprises a significant
portion of Saks' merchandise assortments, Saks is positioned to benefit from any
continuation of this trend.
RETAIL ENVIRONMENT. The current retail environment is characterized by (i)
the continuing consolidation of department store and national apparel chains,
(ii) a de-emphasis by department stores on bridge and designer merchandise,
(iii) bankruptcies and restructurings of several competing providers of upscale
merchandise and (iv) the re-tenanting of many major malls. Management believes
that this environment will present significant opportunities for acquisitions
and other market share gains.
BUSINESS STRATEGY
After the 1990 Acquisition, Investcorp recruited a new executive management
team to correct recognized weaknesses and develop a new business strategy
designed to capitalize on the strength of the Saks franchise. New management
began to implement several key initiatives, including: (i) rebuilding Saks'
senior corporate, merchandising and store management teams; (ii) creating a more
efficient cost structure; (iii) upgrading and differentiating merchandise
assortments; (iv) improving the quality of the store portfolio through
expansions and renovations and by closing underperforming stores; (v) investing
in incremental growth formats including the Off 5th outlet store and Folio
catalog businesses; and (vi) developing management information systems to
support these activities. By early 1994, management had implemented these
important initiatives and developed and began implementing comprehensive,
integrated merchandising, service and marketing strategies to position its core
retail business for future growth and to extend the Saks franchise.
These initiatives and strategies resulted in improvements in Saks' financial
performance. From fiscal 1991 to fiscal 1995, Saks' net sales grew from $1.27
billion to $1.69 billion, a 32.9% increase. During this period gross margin as a
percentage of net sales increased from 27.3% to 30.7%, and selling, general and
administrative expenses as a percentage of net sales decreased from 30.5% to
26.0%. In addition, from fiscal 1991 to fiscal 1995, Saks' interest expense,
net, decreased from $126.2 million to $94.2 million and Saks' net loss decreased
from $180.5 million to $64.1 million. Operating income increased by $78.9
million from a loss of $42.8 million in fiscal 1991 to income of $36.1 million
in fiscal 1995. Operating income is net of management fees paid to III in both
fiscal 1991 and fiscal 1995 and in fiscal 1995 is net of special charges of
$36.4 million. Management fees to III will be discontinued in fiscal 1996.
Operating income excluding these fees and the special charges increased by
$120.3 million to $79.5 million during this period. Management believes that
Saks' current momentum, as reflected by its recent comparable sales performance
relative to the industry, is directly attributable to the implementation of its
strategies during fiscal 1994 and fiscal 1995.
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Saks' comparable sales performance* is set forth below:
FISCAL FISCAL
1994 1995
------ ------
First quarter............................................. 4.1% 10.2%
Second quarter............................................ 5.3 11.3
Third quarter............................................. 5.9 9.9
Fourth quarter............................................ 6.6 11.0
------------
* Represents the percentage increase in (i) net sales of stores (excluding major
store expansions) open in both reporting periods for the portion of such
periods open and (ii) Folio net sales. In fiscal 1995, comparable sales
excludes the impact of the 53rd week.
Management believes that the ongoing execution and implementation of these
strategies will continue to drive performance. A summary of these strategies is
set forth below.
TOP CUSTOMER FOCUS
Based on extensive market research, Saks has identified certain top
customers who generate a significant share of Saks' sales. The large number of
customers who comprise this group change over time and are geographically
dispersed. Management believes that Saks can capture a substantially greater
share of apparel and related expenditures by these customers and has developed
and implemented customer affinity programs designed to capitalize on the
purchasing habits of top customers by increasing the frequency and productivity
of customer contact, increasing cross-selling activities and enhancing customer
loyalty. These programs include proactive customer clienteling programs, the
Saks First Program and the Fifth Avenue Club.
DIFFERENTIATED MERCHANDISE ASSORTMENTS
In 1994, Saks began to specifically target the merchandise categories that,
based on extensive research, were determined to be most important to its top
customers. Saks is developing dominant assortments in these key merchandise
categories by increasing inventory investments, upgrading the quality and
congruency of merchandise assortments and by adding important vendors and
brands. Saks' overall merchandising strategy is to offer congruent and balanced
assortments of differentiated, upscale limited-distribution merchandise. Saks
achieves differentiation through disciplined merchandise purchasing, development
of high visibility vendor relationships, dominant designer assortments and
exclusive product offerings, Saks' private label apparel collections and the
continual editing of its merchandise to reflect the forefront of fashion. In
addition, Saks customizes its merchandise assortments at the store level to take
advantage of differences in store size, local competitive offerings, fashion
tastes, seasonality and lifestyles.
STORE INTENSIFICATION
Management is improving the productivity of its store portfolio through a
comprehensive and integrated store intensification program. Saks initially
concentrated its efforts and resources on those stores that represented the
highest potential for increased sales and profit margins. Pursuant to this
strategy, since the beginning of fiscal 1993 Saks has made significant
investments in 14 high potential stores, including $109 million in gross capital
expenditures, $43 million in increased inventory levels, $21 million in
additional annual store payroll costs and $4 million in increased annual
localized marketing spending. As a result, net sales in these stores increased
29.5% from $698 million in fiscal 1992 to $904 million in fiscal 1995. Saks is
expanding its store intensification program to additional stores in 1996 and
1997.
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<PAGE>
STORE EXPANSION
Saks continuously evaluates opportunities for profitable expansion of its
store base. Management believes that the current retail environment,
characterized by an accelerated pace of store rationalizations, downsizings and
bankruptcies, as well as the re-tenanting of major malls, offers many attractive
opportunities for Saks to continue to expand its store portfolio.
FULL-LINE STORES. Saks currently operates 40 full-line stores and, over the
next three years, plans to open three new full-line stores (including a new
store in Orlando, Florida in 1996) and two replacement stores, and to complete
nine remodels.
RESORT STORES. Saks broadens its reach to the affluent tourist and permanent
and seasonal residents of resort markets through its resort stores. In addition
to the five stores currently open, Saks plans to open four new 30,000 to 50,000
gross square foot resort stores during the next three years.
MAIN STREET STORES. Saks is testing a 35,000 square foot main street store
format designed for the local shopping areas of affluent suburban markets. The
first main street store is scheduled to open in Greenwich, Connecticut in the
third quarter of fiscal 1996.
ACQUISITIONS. Management believes that the current retail environment will
continue to offer selected opportunities to increase Saks' presence in important
markets. For example, Saks intensified its presence on the west coast and in the
southwest by acquiring four former I. Magnin stores in February 1995.
FRANCHISE EXTENSION STRATEGIES
Management believes that the Saks Fifth Avenue franchise is extendible over
multiple formats and has developed the following specific growth strategies:
OFF 5TH. Through its Off 5th division, Saks extends its customer reach by
offering high quality, upscale branded fashion apparel in an outlet store
setting at 40% to 70% off original and comparable retail prices. Off 5th
provides attractive financial returns and an economically superior form of
inventory liquidation for Saks' retail stores. Saks currently operates 19 Off
5th stores and expects to open approximately 14 additional stores in fiscal
1996.
FOLIO. Saks extends its reach to direct response customers through its Folio
catalogs which offer fashionable women's apparel, accessories, home furnishings
and gifts and unique selections of Saks' private label merchandise. Folio mailed
29 million catalogs in fiscal 1995, an increase of 26% over fiscal 1994.
Management plans to increase Folio's sales through further development of its
customer list, increased circulation and the development of new catalogs,
including home and gift and outlet catalogs, both domestically and in
international markets.
INTERNATIONAL. Although Saks currently does not have significant sales
abroad, management believes that Saks' worldwide reputation and international
customer base offer attractive opportunities for future international growth.
Saks is exploring outreach programs in Japan, with selected catalog mailings and
the sale of Saks' private label merchandise to an established Japanese
department store, and in Latin America, through trunk shows and special events.
None of Saks' current intentions with respect to international expansion would
involve any material capital expenditures.
CAPITAL EXPENDITURES
Saks is committed to expanding and improving its store portfolio. Since the
beginning of fiscal 1993, Saks has made capital expenditures of approximately
$148 million on new stores, remodels, replacements and expansions and plans to
make additional such capital expenditures of approximately $270 million over the
next three years. Management believes that cash generated from Saks' operations,
funds available from Saks' credit facility and funds available from lease
financing
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<PAGE>
and developer contributions will be sufficient to satisfy Saks' cash
requirements over this period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources".
FULL-LINE AND RESORT STORES
GENERAL
Saks operates a nationwide portfolio of 40 full-line stores and five resort
stores under the Saks Fifth Avenue name. The store portfolio includes premier
retail locations such as Fifth Avenue in New York City, Wilshire Boulevard in
Beverly Hills, Michigan Avenue in Chicago and Union Square in San Francisco. In
fiscal 1995, the percentage of total full-line and resort store net sales by
region were 41% in the Northeast, 20% in the Midwest, 15% in the Southeast and
24% in the West. Saks enjoys strong competitive positions in a number of the
most important retail markets in the United States, including New York City,
Florida and California.
Unlike many of its competitors, Saks owns, rather than leases, a large
portion of its retail gross square footage, including its landmark Fifth Avenue
store. The following table sets forth certain information regarding Saks' real
estate portfolio.
PERCENT OF
TOTAL GROSS
SQUARE FOOTAGE
--------------
Own building and own land............................... 30%
Own building and lease land............................. 48
Lease building and lease land........................... 22
FULL-LINE STORES. Saks' 40 full-line stores are located in major markets in
the United States and range from 60,000 to 646,000 gross square feet. Since the
beginning of 1990, Saks has opened four new stores, replaced three stores,
expanded and remodeled 11 stores and closed four stores. Over the next three
years, Saks plans to open three new full-line stores (including a new store in
Orlando, Florida in 1996) and two replacement stores and to complete nine
remodels.
As part of a strategy to enhance its presence in California, in February
1995 Saks acquired four former I. Magnin store locations in Beverly Hills, San
Diego, Phoenix and Carmel. Saks converted three of these stores to its format
within two months, and the Beverly Hills store within six months, of
acquisition. This transaction resulted in additions to Saks' Beverly Hills and
Carmel stores, replacement of its Phoenix store and a new store in San Diego. In
addition to adding 234,000 gross square feet of store space, the I. Magnin
transaction permitted Saks to gain access to exclusive merchandise arrangements
previously unavailable to Saks in that part of the United States. Prior to the
acquisition, Saks had closed four underperforming stores located in non-
strategic areas of this market. Management believes that the current retail
environment will provide other opportunities for expansion through acquisition.
RESORT STORES. Saks' resort stores are located in markets characterized by
affluent vacationers and permanent and seasonal residents. The resort store
format allows Saks to capture sales from customers who are increasingly
migrating to resort areas during parts of the year. Saks' resort stores average
34,000 gross square feet. Since the 1990 Acquisition, Saks has opened one new
store, expanded and remodeled two stores and closed one store. In addition to
the five resort stores currently in operation, Saks plans to open four new
resort stores in the next three years.
MAIN STREET STORES. Saks is testing a 35,000 square foot main street format
store designed for the local shopping areas of affluent suburban markets. The
first of these main street stores is scheduled to open in Greenwich, Connecticut
in the third quarter of fiscal 1996. If successful, this format will be tested
in similar communities.
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<PAGE>
CAPITAL INVESTMENT. Management has committed substantial capital to upgrade
the size and shopping environment of many of its stores. Since the 1990
Acquisition, Saks has spent in excess of $183 million on new stores, remodels,
replacements and expansions. These investments have yielded strong financial
returns. As a result of these investments, approximately 60% of Saks' selling
space is either new or remodeled since the 1990 Acquisition.
Management continually evaluates the performance of Saks' assets. During
fiscal 1993, through a strategic review of Saks' existing stores and asset base,
management developed a plan to close underperforming stores and redeploy their
assets. Accordingly, in fiscal 1994 Saks closed three full-line stores, one
resort store, its 17 specialty stores (2,000 to 4,000 square foot mall shops
operated under designer names) and Saks' service center in New York City. In
fiscal 1995 Saks closed its full-line store in Owings Mills, Maryland and
announced the relocation of its primary distribution center from Yonkers, New
York to a new, state-of-the-art facility in Aberdeen, Maryland. See
"Distribution Facilities".
The evolution over the past five years of Saks' full-line and resort store
portfolio is set forth below:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
TOTAL STORES:
Beginning of year.................................. 47 48 49 49 45
Closures........................................... 0 0 0 (5) (2)
Openings........................................... 1 1 0 1 2
------ ------ ------ ------ ------
End of year........................................ 48 49 49 45 45
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL SQUARE FOOTAGE (in thousands):
Beginning of year.................................. 4,813 4,888 4,918 4,959 4,549
Closures........................................... -- -- -- (523) (154)
Openings........................................... 75 30 -- 106 272
Expansions......................................... -- -- 41 7 139
------ ------ ------ ------ ------
End of year........................................ 4,888 4,918 4,959 4,549 4,806
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
Saks' store management is comprised of a general manager and an assistant
general manager of administration in charge of operations and human resources
and a manager of sales and service training. In larger stores, management is
augmented by one or more assistant general managers for merchandising, an
assistant general manager of operations and a human resources director. General
managers are accountable for sales training, service standards, customer
relationships, merchandising, operations and profitability of their stores. A
typical Saks store also has ten to 15 department managers, depending on the
store size, who have responsibility for customer development, sales associate
management, specific merchandise areas, and approximately five managers
overseeing support functions including shipping, receiving and security.
MERCHANDISING
Over its 70 year history, Saks Fifth Avenue has developed a reputation as a
leading fashion authenticator. Saks' position is strengthened by its
relationships with internationally acclaimed fashion design houses such as
Giorgio Armani, Bill Blass, Chanel, Escada, Salvatore Ferragamo, Gucci, Donna
Karan, Calvin Klein, Ralph Lauren, Judith Leiber, Prada, Oscar de la Renta, Jil
Sander, St. John, Yves St. Laurent, Ellen Tracy, Emanuel Ungaro and Ermenegildo
Zegna. These design houses establish trends and create product from which Saks
develops its merchandise mix. In turn, Saks enhances the image of these vendors
by presenting their merchandise in elegant shopping environments and, in many
cases, in-store shops. Management believes that Saks is a
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<PAGE>
significant, if not the largest, customer of many of these vendors. As a result,
Saks is advantageously positioned to obtain exclusive merchandise assortments,
new product introductions and financial incentives from these vendors.
Saks' merchandise strategy is to offer congruent and balanced assortments of
differentiated, upscale merchandise. Saks offers a predominantly better, bridge
and designer assortment of fashionable apparel, shoes, accessories, cosmetics
and fragrances for women and men, as well as gift merchandise and children's
apparel. Within these merchandise categories, Saks focuses on vendors and
merchandise offerings that are distinctive and differentiated and that
contribute to profit growth. The following table sets forth the percentage of
retail sales by merchandise category for fiscal 1995:
PERCENTAGE OF
FISCAL 1995
MERCHANDISE CATEGORY RETAIL SALES
---------------------------------------------------------- -------------
Women's designer apparel.................................. 14%
Women's sportswear........................................ 32
Men's apparel............................................. 16
Shoes, jewelry, handbags and other accessories............ 22
Fragrances and cosmetics.................................. 14
Other..................................................... 2
Saks achieves differentiation through its focus on upscale merchandise, its
preferred vendor relationships which provide access to product that is sold
exclusively through Saks, Saks' private label collections, special size apparel
offerings and the continual editing of its merchandise to reflect the forefront
of fashion. Saks has exited lower price point and broadly distributed
merchandise categories where it cannot differentiate its assortments. In fiscal
1995, Saks no longer offered certain vendors' merchandise which, in fiscal 1992,
comprised net sales of $85 million.
Capitalizing on its status as a leading fashion authenticator, Saks has
created a private label business, with a differentiated product offering and
relatively lower price points, that allows it to serve a broader customer base
interested in fashion. Saks offers private label apparel in most merchandise
categories. Saks' merchandising staff, with the assistance of freelance
designers, creates exclusive designs and oversees production through contract
manufacturers. Saks' leading private labels are Saks Fifth Avenue Collections
(women's bridge sportswear), Real Clothes (casual/active sportswear for women),
The Works (career coordinates for women) and Saks Fifth Avenue Mens Collection
(sportswear and furnishings for men). Saks continually seeks opportunities to
expand its private label business. Recent additions include the Como Sport for
Cobra Golf line of golf apparel for men and women. Private label merchandise
comprised 8% of consolidated net sales in fiscal 1995.
In order to extend its customer base and to differentiate its merchandise,
Saks has devoted considerable efforts to the development of its special size
apparel categories: petites and, for the larger woman, "Salon Z". Saks has
invested in inventory and selling space, and has prompted a number of its
vendors to create designs for its Salon Z merchandise that are consistent with
Saks' strategy of offering distinctive, high quality fashion merchandise. These
special size categories comprised 5% of consolidated net sales in fiscal 1995.
Net sales of these categories in fiscal 1995 increased 24% from fiscal 1994.
Although Saks draws its customers from a broad group, women in the 40 to 55
year old age bracket comprise a core component of Saks' customer base. In 1994,
Saks began to specifically target the merchandise categories that, based on
extensive research, were determined to be most important to these top customers.
Saks is increasingly developing dominant assortments in these
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<PAGE>
categories by increasing inventory allocation, upgrading the quality and
congruency of merchandise and increasing the number of important vendors and
brands.
In developing Saks' merchandise assortments, management monitors the
relationship between merchandise mix and profitability. Saks balances a complex
mix of merchandise at different price points and profitability levels, using
appropriate quantities of designer apparel to build image, create merchandise
excitement and drive sales of higher margin merchandise in order to increase
profits.
Management believes that the success of Saks' resort stores is driven to a
significant degree by Saks' ability to tailor assortments to local climate,
preferences and social events. Similarly, Saks anticipates selling merchandise
assortments in its main street stores that are customized to local market
conditions.
To support its merchandising strategy, Saks has increased capital
expenditures, inventory and marketing support to improve merchandise assortments
and presentation and to increase customer awareness. In addition, Saks has
modified its training and incentive compensation programs to improve product
knowledge and selling efforts and cross-selling among merchandise categories.
At the end of fiscal 1995, Saks employed approximately 275 people in its
merchandising and buying offices. Saks' largest supplier in fiscal 1995
accounted for less than 4% of total merchandise purchases. Saks believes that
the loss of any one of its vendors would not have a material adverse effect on
Saks' business.
MERCHANDISE PLANNING AND MONITORING
In 1995, Saks completed a comprehensive review of its merchandise planning
process. The review evaluated Saks' existing organization and processes as well
as retail industry best practices. Saks redesigned its planning process and
organization and established the framework of a store-level merchandise planning
process to drive sales and gross margin performance by store. The key elements
of the process include the development and maintenance of store profiles which
identify, among other things, important store characteristics such as customer
demographics, physical plant, competitive environment, seasonality and local
events. This information is used by the buying and planning organizations to
tailor merchandise assortments and flows by store.
The planning process involves the interactive development of total company
merchandise plans by department and merchandise groups as well as on a
store-by-store basis. The planning organization is structured to work as a
partnership with the merchandise buying organization with a ratio of one planner
for every two buyers. The merchants are focused on top-side merchandise issues
including merchandising guidelines, strategic vendor alliances, assortment
planning, shopping the market, negotiating with vendors and meeting financial
targets. The planners are focused on development of store specific congruent
merchandise assortments and meeting financial targets. The planners also
function as the "controllers" for buying responsibilities and monitor the
ongoing execution of the plan and open-to-buy on a by-store basis throughout the
season. This process includes semi-monthly review of results and forecasts with
senior merchants, store management and finance groups. Management believes that
the new planning process is essential to improving sales and gross margin and
Saks' productivity of its inventory investment.
CUSTOMER AFFINITY PROGRAMS
Management believes its strong customer service and marketing abilities,
supported by its sophisticated client data base, are key competitive advantages.
Saks is enhancing the quality of its customer service through improved
recruiting and training of sales associates, implementation of performance-based
compensation policies, increased accountability for performance of both sales
associates and managers, increased clienteling and data base marketing
activities and increased selling payroll.
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<PAGE>
In keeping with its top customer focus, management developed several
programs designed to increase sales to its top customers. These initiatives have
resulted in increased average dollar amounts spent by these customers at Saks
each year and retention of such customers from year to year.
CUSTOMER CLIENTELING. Through its customer clienteling program, Saks' top
customers are identified for each store and individually assigned to sales
associates who have been trained in sophisticated sales, service and
relationship-building techniques. Saks currently is implementing The Link, its
state-of-the-art automated client book, to assist sales associates in their
clienteling efforts through better understanding of the purchasing behavior and
merchandise preferences of their customers. Management expects that this system
will enable sales associates to further personalize selling efforts and thereby
generate increased sales per customer.
SAKS FIRST PROGRAM. To foster customer loyalty and increase sales, in late
1994 Saks improved the benefits of its Saks First Program, an affinity program
directed to customers who charge in excess of $2,000 annually on their Saks
credit card. Saks First customers are rewarded with points convertible into Saks
gift certificates based on spending levels. Saks First customers also receive
fashion newsletters, invitations to one-of-a-kind special events, such as
fashion shows, movie premiers and celebrity dining, and advance notice of sale
events.
THE FIFTH AVENUE CLUB. Fifth Avenue Club membership offers participants
service-intensive private shopping environments within Saks' stores.
Historically, the Fifth Avenue Club has accounted for a significant portion of
Saks' full price designer sales. Based upon performance in selected markets,
management believes that the Fifth Avenue Club is underpenetrated in the
majority of its stores. In order to enhance the attractiveness of, and
participation in, the Fifth Avenue Club, management recently increased marketing
support to broaden customer awareness, improved the quality and quantity of club
staff, upgraded club facilities and heightened accountability on the part of
store general managers for the program.
MARKETING
Saks' marketing program supports its focus on top customers, target
merchandise groups and high potential stores while maintaining a high profile,
consistently visible image on both national and local levels. These programs are
designed to reinforce Saks' position as one of the world's premier fashion
retailers, to increase awareness of Saks' merchandise range and customer service
standards and to reaffirm Saks' cachet and reputation.
All marketing activities, including advertising, in-store special events and
window display, are developed and managed by Saks' in-house marketing and visual
departments on a centralized basis. Although Saks markets through a variety of
media, including direct mail, newspaper, public relations, magazines, radio and
television, customer outreach programs and other means, Saks focuses its efforts
on those media that effectively reaffirm Saks' position as a leading fashion
authenticator and efficiently reach Saks' top customer group. Saks actively
pursues vendor co-operative advertising, substantially increasing the
advertising resources available to Saks. Saks promotes its image as a fashion
leader primarily through regular advertisements in authoritative fashion and
life-style magazines, such as Vogue, W, Gourmet and Town and Country, store
events hosted by designers such as Calvin Klein, Isaac Mizrahi and Oscar de la
Renta, and sponsorship of fashion oriented charity events. Saks continually
evaluates and adjusts its marketing programs to efficiently drive sales.
OFF 5TH STORES
Through its Off 5th division, Saks extends its customer reach by offering
high quality branded fashion apparel in an outlet store setting at prices that
are 40% to 70% off original and comparable
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<PAGE>
retail prices. Off 5th opened its first store in Franklin Mills, Pennsylvania in
1990 to provide a more efficient means of liquidating end-of-season merchandise
from Saks' retail stores. The concept gained immediate consumer acceptance due
to Off 5th's exceptional prices, high quality fashion merchandise and pleasant
shopping environment in combination with the Saks Fifth Avenue name. Based upon
this initial success, management continued to develop Off 5th's supporting
infrastructure, and Saks today operates 19 Off 5th stores in 14 states.
Off 5th occupies a unique market position with its multi-brand assortment of
exceptionally priced, high quality fashion merchandise, including better, bridge
and designer apparel. Management believes that Off 5th possesses the following
important competitive advantages: (i) access to end-of-season merchandise from
Saks' retail stores; (ii) Saks' strong vendor relationships that provide access
to high quality merchandise; (iii) vendor willingness to clear overstocks with,
and extend production runs for, Off 5th; and (iv) the broad aspirational appeal
to customers of the Saks Fifth Avenue brand name. In addition, Off 5th offers an
economically superior form of inventory liquidation for Saks' retail stores.
Off 5th's merchandise strategy is to offer women's and men's apparel
consistent with the level of quality and fashion found in Saks' retail stores.
In fiscal 1995, Off 5th purchased approximately 40% of its inventory from Saks
with the balance purchased directly from vendors. Management expects to purchase
a greater percentage of its merchandise directly from vendors as the number of
Off 5th stores increases.
Located primarily in outlet malls, Off 5th stores average approximately
23,000 square feet. Management believes that the stores maintain fixturing,
visual presentation and service standards superior to those generally associated
with outlet stores.
Off 5th generates attractive economic returns resulting from its relatively
high sales productivity, favorable lease economics (due to Off 5th's status as a
desirable anchor tenant), and low corporate overhead (as Off 5th shares in the
economies of scale of Saks' corporate and logistics structures). Management
plans to substantially increase its store base by opening new stores in selected
outlet malls and off-price centers throughout the United States. Saks expects to
open approximately 14 Off 5th stores in fiscal 1996. Information regarding Off
5th's historical growth is set forth below.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales (in millions)........................ $ 10.6 $ 27.9 $ 42.9 $ 57.2 $108.0
Net sales per average square foot.............. $ 411 $ 452 $ 440 $ 362 $ 352
Number of stores at period end................. 1 3 4 8 19
</TABLE>
FOLIO CATALOGS
Saks offers designer fashion brands and unique selections of Saks Fifth
Avenue private label merchandise to direct response customers through its Folio
catalogs. Folio enjoys a strong position in the relatively underserved catalog
market for upscale designer merchandise. Folio's merchandise is of a quality and
fashion consistent with that carried in Saks' retail stores, with an emphasis on
classic styling.
Folio began operations in 1972 when it mailed its first holiday catalog. For
the next 20 years, Folio operated as both a marketing vehicle for Saks' retail
stores and a direct response business. In 1993 management began to establish
Folio as an independent operating division with a catalog format and merchandise
offerings tailored to the direct response customer. In 1994, Folio recruited its
own merchandise and marketing staff. In 1995, Folio installed a new
state-of-the-art customized
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<PAGE>
catalog management information system. Also in 1995, Folio successfully
introduced two new merchandise concepts, Folio Designs For The Home, a catalog
offering upscale home and gift merchandise, and Folio Outlet By Mail, an
off-price catalog marketing upscale branded fashion merchandise at a discount.
In addition, Folio initiated international mailings, primarily to Japan.
Folio has developed a highly productive customer list primarily derived from
Saks' retail stores customer data base and prior customer purchases from Folio.
In addition, Folio utilizes a variety of sources to acquire new names, including
list rentals and exchanges with other catalogs and credit card companies. Names
of the most active of Folio's customers are maintained in a 12-month buyer file
which lists those customers who have purchased from Folio in the past 12 months.
As of February 1996, Saks' 12-month buyer list included 315,000 names, an
increase of approximately 25% over February 1995.
Folio mailed a total of 23 catalogs with a total circulation of 29 million
in fiscal 1995. This compares to a total of 20 catalogs with a total circulation
of 23 million in fiscal 1994. Based upon the success of its initiatives in
fiscal 1995, management plans to add catalogs and increase the circulation of
its new titles and international mailings in fiscal 1996. Folio generated net
sales in fiscal 1995 of $82.8 million, a 42% increase over fiscal 1994.
Orders for merchandise are received by telephone, fax and mail at Folio's
telemarketing and fulfillment facility located within Saks' Yonkers, New York
distribution center. Management expects the recent installation of a dedicated
catalog management information system for use by its telemarketing agents to
improve customer service and increase the productivity of its catalog
operations. Folio's telemarketing and fulfillment capabilities will be
transferred to Saks' new Aberdeen, Maryland facility upon the relocation of
Saks' Yonkers distribution center.
The economies of scale available to Folio through the use of Saks'
merchandising, corporate and logistics infrastructure contribute to Folio's
relatively strong profit margins. In turn, Folio facilitates the testing of new
products and markets, which Saks may then capitalize on through its retail
stores.
SAKS FIFTH AVENUE PROPRIETARY CREDIT CARD
Established over 40 years ago, Saks' proprietary credit card accounted for
approximately half of Saks' net sales in fiscal 1995. As of February 3, 1996,
Saks had approximately 1.4 million credit card customers that had made a
purchase within 24 months.
The proprietary credit card provides Saks with valuable customer information
and an excellent marketing and communications tool for its customers. During
fiscal 1995, Saks mailed approximately 500,000 statements per month to its
credit card holders. Saks is able to analyze its customer data by purchasing
patterns, including frequency, amount spent and merchandise category. Saks uses
this information to more effectively target merchandise information, special
events and promotions to its customers. Folio utilizes the Saks credit card
customer lists to develop new customers for its direct marketing mailings. The
Saks First Program also is linked directly to the credit card. In addition,
management believes that Saks' proprietary credit card promotes customer
affinity and loyalty because these customers on average generate greater sales
per transaction than the average customer.
Saks outsources its credit card operations to a third party, while
maintaining control over credit policy decisions and customer service standards.
Customers who apply for the Saks credit card are approved for credit based on a
satisfactory evaluation of a credit bureau report along with employment and bank
information.
34
<PAGE>
MANAGEMENT INFORMATION SYSTEMS
Saks has made substantial investments in information systems designed to
support its strategies. Saks made capital expenditures of approximately $21
million on information systems in fiscal 1993 through fiscal 1995 and plans to
make additional capital expenditures of approximately $43 million on such
systems over the next three fiscal years. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources".
To increase sales and assist selling personnel, Saks has implemented an
industry-leading automated client book and a merchandise locator. The automated
client book enables sales associates throughout Saks to access from any POS
register a database of the purchasing preferences of their top customers. The
merchandise locator allows a sales associate to locate merchandise on a
real-time basis in any Saks store and arrange for that merchandise to be
promptly shipped to a customer. In addition, Saks' POS terminals utilize bar
code scanning technology to enhance customer service and inventory management.
In support of Saks' merchandising operations and new merchandise planning
processes, Saks continues to invest in further developing existing and new
systems. Saks' newest system is "Merchants Workbench", which provides detailed
information on merchandise sales by store utilizing a relational database and
client server technologies. Saks' inventory management is supported by quick
response electronic data interchange systems and by an automatic replenishment
system that utilizes actual sales, sales forecasts and seasonal selling profiles
down to the SKU level to replenish certain merchandise categories automatically,
resulting in improved assortments, in-stock position and sales. Saks has
implemented the automatic replenishment system in categories such as dress
shirts, hosiery, leather belts and accessories.
STORE PROPERTIES
The following table sets forth the location, mall name or street address,
year opened and gross square footage of each full-line, resort and Off 5th store
open as of February 3, 1996:
FULL-LINE STORES
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
-------------------------------- ---------------------------------- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
NEW YORK CITY
New York, NY................ 611 Fifth Avenue 1924 646
NORTHEAST REGION
Stamford, CT................ Stamford Town Center 1983 78
Boston, MA.................. Prudential Center 1971 110
Chevy Chase, MD............. 555 Wisconsin Avenue 1964 108
Hackensack, NJ.............. Riverside Square 1977 107
Short Hills, NJ............. Short Hills Mall 1994 106
Garden City, NY............. 1300 Franklin Avenue 1962 106
White Plains, NY............ Bloomingdale Road 1954 128
Bala Cynwyd, PA............. No. 2 Decker Square 1969 102
McLean, VA.................. The Galleria at Tyson's II 1988 120
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
-------------------------------- ---------------------------------- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
SOUTHEAST REGION
Boca Raton, FL.............. Town Center 1986 75
Ft. Lauderdale, FL.......... Galleria Mall 1980 74
Bal Harbour, FL............. Bal Harbour Mall 1976 104
Miami, FL................... Dadeland Mall 1984 78
Palm Beach Gardens, FL...... The Gardens 1991 75
Atlanta, GA................. Phipps Plaza 1968 130
MIDWEST REGION
Chicago, IL................. 700 North Michigan, Chicago Place 1990 150
Oakbrook, IL................ Oakbrook Shopping Center 1981 90
Skokie, IL.................. Old Orchard Mall 1978 105
New Orleans, LA............. Canal Place 1983 75
Dearborn, MI................ Fairlane Town Center 1980 91
Troy, MI.................... Somerset Mall 1967 121
Minneapolis, MN............. Nicollett Mall 1989 120
Frontenac, MO............... Plaza Frontenac 1973 123
Kansas City, MO............. Country Club Plaza 1982 73
Beachwood, OH............... Beachwood Place 1978 102
Cincinnati, OH.............. Fifth and Race Streets 1984 76
Tulsa, OK................... Utica Square 1986 62
Pittsburgh, PA.............. 513 Smithfield Street 1977 86
WESTERN REGION
Phoenix, AZ................. Biltmore Fashion Park 1995 90
Beverly Hills, CA........... 9600/9634 Wilshire Blvd 1938/95 175/100
Costa Mesa, CA.............. South Coast Plaza 1979 105
San Diego, CA............... Fashion Valley 1995 80
San Francisco, CA........... Union Square 1981 136
Denver, CO.................. Cherry Creek Mall 1990 90
Las Vegas, NV............... The Fashion Show 1981 68
Portland, OR................ Pioneer Place 1990 60
Dallas, TX.................. Dallas Galleria 1982 117
Houston, TX................. Pavilion/Post Oak 1974 125
San Antonio, TX............. 650 North Star Mall 1985 84
</TABLE>
RESORT STORES
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
-------------------------------- ---------------------------------- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
NORTHEAST REGION
Southampton, NY............. 8-12 Main Street 1987 8
SOUTHEAST REGION
Naples, FL.................. Westside Shops Pelican Bay 1992 30
Palm Beach, FL.............. The Esplanade 1979 37
WESTERN REGION
Carmel-by-the-Sea, CA....... Carmel Plaza 1986/95 24/24
Palm Springs, CA............ Desert Fashion Plaza 1985 50
</TABLE>
36
<PAGE>
OFF 5TH STORES
<TABLE>
<CAPTION>
MALL NAME/ YEAR GROSS
STORE LOCATION STREET ADDRESS OPENED SQUARE FOOTAGE
------------------------------- --------------------------------- ------ --------------
<S> <C> <C> <C>
(IN THOUSANDS)
NORTHEAST REGION
Worcester, MA.............. Worcester Common Fashion Outlets 1994 29
Niagara Falls, NY.......... Factory Outlet Mall 1995 20
Franklin Mills Circle, PA Franklin Mills 1990 28
SOUTHEAST REGION
Orlando, FL................ International Designer Outlet 1994 22
Center
Sunrise, FL................ Sawgrass Mills 1992 46
Myrtle Beach, SC........... Myrtle Beach Factory Stores 1995 15
Nashville, TN.............. Oaks Shopping Center 1995 25
Woodbridge, VA............. Potomac Mills 1992 28
MIDWEST REGION
Gurnee, IL................. Gurnee Mills 1993 29
Aurora, OH................. Aurora Farms 1995 15
Jeffersonville, OH......... Jeffersonville Outlet Mall 1994 15
WESTERN REGION
Phoenix, AZ................ Arizona Factory Stores 1995 16
Camarillo, CA.............. Camarillo Factory Stores 1995 16
Milpitas, CA............... The Great Mall of the Bay Area 1995 25
Petaluma, CA............... Petaluma Village Factory Outlet 1995 15
Honolulu, HI............... Waikele Center 1994 30
Hillsboro, TX.............. Southwest Outlet Center 1995 15
San Marcos, TX............. San Marcos Factory Shops 1995 22
Auburn, WA................. Supermall of the Great Northwest 1995 25
</TABLE>
DISTRIBUTION FACILITIES
Saks operates two distribution centers that service Saks' full-line, resort
and Off 5th stores, as well as Folio. Saks owns a 509,000 square foot
distribution center in Yonkers, New York that serves as Saks' primary
distribution facility and handles 85% of Saks' retail store distribution, all
Folio catalog telemarketing and fulfillment and Off 5th merchandise processing.
Saks also leases an 88,000 square foot distribution center in Ontario,
California that handles the balance of Saks' retail distribution. The
distribution centers employ state-of-the-art bar code scanning and tracing
technology, as well as integrated purchase-order tracking capabilities that
assist in merchandise planning. During fiscal 1995, the two distribution centers
processed approximately 15 million pieces of merchandise.
Saks recently announced plans to relocate the processing activity of its
Yonkers facility to a new, state-of-the-art facility in Aberdeen, Maryland. This
600,000 gross square foot facility, which will be leased by Saks, is expected to
open in early 1997. In order to ensure an effective transition, Saks will
operate both facilities for up to six months following the opening of the
Aberdeen facility, after which period the Yonkers facility will be closed. The
relocation is anticipated to result in lower processing costs as well as more
rapid delivery of merchandise to the sales floor to maximize full-price sales
and improve fulfillment rates for the Folio catalog division.
Saks will receive incentive payments from various government agencies which
are expected to approximate the costs of relocating its processing activities to
the new facility. Saks will occupy the facility pursuant to a lease, with the
net present value of future rental payments equal to $21 million. Saks expects
to sell its Yonkers facility after exiting it in early 1997. Saks recorded a
37
<PAGE>
charge in fiscal 1995 to reduce the carrying value of the Yonkers facility to
its net realizable value. If Saks or a purchaser is successful in obtaining
rezoning for the use of the property, a gain on sale could be realized.
Management is unable to determine if rezoning will occur.
In the area of logistics, Saks has implemented various programs designed to
improve processing productivity in order to speed the flow of merchandise from
vendors through Saks distribution facilities to the selling floor. These include
size and color marking and tracking, increased vendor pre-marking, a variety of
pre-distribution services, integrated universal product code (UPC)
identification methods, radio frequency (RF) scanning and electronic data
interchange (EDI) technologies. Saks uses contract carriage for approximately
80% of its merchandise. Saks uses air cargo for transcontinental merchandise
shipments, as well as for shipping to particular markets during peak demand
periods. When appropriate, Saks arranges for vendors to ship directly to stores.
COMPETITION
All aspects of the retail industry, including attracting customers, securing
merchandise and locating appropriate retail sites, are highly competitive. Saks
competes for customers in this industry with retailers in the following five
categories: large specialty apparel retailers; better department stores;
national specialty apparel chains; designer boutiques; and individual specialty
apparel stores. The type of individual competitor in each of these groups
differs from region to region and from store to store. Many of these competitors
are larger and have greater financial resources than Saks.
LARGE SPECIALTY APPAREL RETAILERS. These retailers usually operate stores in
key regional or national markets and primarily offer apparel, cosmetics and
accessory products. Main competitors in this category are Barneys, Bergdorf
Goodman, Brooks Brothers, Jacobson's, Lord & Taylor, Neiman Marcus and
Nordstrom. Store sizes vary widely.
BETTER DEPARTMENT STORES. This group is best categorized as offering a broad
merchandise assortment, including apparel and accessories, as well as, in some
cases, furniture, electronics and fine china, often in large stores of 200,000
selling square feet or more. This group includes stores operated by Dayton
Hudson Department Stores, Dillard Department Stores, Federated Department
Stores, The May Department Stores Company and Mercantile Stores.
NATIONAL SPECIALTY APPAREL CHAINS. This competitor group is characterized by
a large number of smaller stores nationwide, usually between 5,000 and 10,000
selling square feet, and a limited and focused merchandise assortment. This
group includes AnnTaylor, Banana Republic and Talbots.
DESIGNER BOUTIQUES. These stores are usually between 5,000 and 10,000
selling square feet and frequently are limited to major cities. Merchandise
offered by designer boutiques is highly focused and generally limited to the
product lines of one designer.
INDIVIDUAL SPECIALTY APPAREL STORES. These stores are comparable to designer
boutiques in size but carry product lines of more than one designer.
Off 5th competes with designer factory outlet stores, specialty outlet
stores and other off-price formats and the moderate department store sector.
Folio competes with diversified general merchandise catalogs, department store
catalogs and specialty catalogs.
38
<PAGE>
TRADEMARKS AND SERVICE MARKS
Saks owns its principal trademarks and service marks, including the "Saks
Fifth Avenue", "SFA" and " [S5A] LOGO " marks. Other important trademarks and
service marks include "Off 5th", "Folio", "Real Clothes", "The Works" and "The
Fifth Avenue Club". Saks' trademarks and service marks are registered in the
United States Patent and Trademark Office. The term of these registrations is
generally ten years, and they are renewable for additional ten year periods
indefinitely, so long as the marks are still in use at the time of renewal.
Saks is not aware of any claims of infringement or other challenges to its
right to register or use its marks in the United States.
EMPLOYEES
As of February 3, 1996, Saks employed 750 people at its headquarters and
buying offices and 11,800 in its stores, two distribution centers and data
center. Saks' staffing requirements fluctuate during the year as a result of the
seasonality of the retail apparel industry, adding approximately 1,200 to 1,500
more seasonal employees in the fourth quarter. Approximately 100 of Saks'
employees are covered by collective bargaining agreements. Saks has never been
subject to a strike and believes that its relationship with its employees and
the unions is good.
LITIGATION
Saks is a defendant in a suit pending in the Supreme Court of the State of
New York, County of New York, in which the plaintiff, a former Saks employee,
contends, among other things, that Saks was negligent in hiring a co-worker who
allegedly assaulted the plaintiff. The plaintiff is seeking $10 million in
damages. Saks has moved to dismiss the action. Saks believes that, subject to a
self-insured retention, the claim is covered by Saks' insurance. In connection
with the suit, Saks also is in litigation with one of its insurance providers
regarding the provider's duties and obligations under its insurance contract
with Saks. Saks does not believe that the resolution of these suits will have a
material adverse impact on its financial position or results of operations.
Saks also is from time to time involved in routine litigation incidental to
the conduct of its business. Management believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
financial position or results of operations.
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of Saks Holdings. In March 1996, the executive
officers of Saks were given the same titles at Saks Holdings as they held at
Saks. Each director of Saks Holdings will hold office until the next annual
meeting of stockholders of Saks Holdings or until his or her successor has been
elected and qualified. Officers of Saks Holdings are elected by the Board of
Directors of Saks Holdings and serve at the discretion of such Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Philip B. Miller............... 57 Chairman and Chief Executive Officer and Director
Brian E. Kendrick.............. 42 Vice Chairman and Chief Financial Officer and
Director
Rose Marie Bravo............... 44 President and Director
Owen E. Dorsey................. 45 Executive Vice President
Richard F. Zannino............. 37 Senior Vice President
Savio W. Tung.................. 44 Director
Jon P. Hedley.................. 35 Director
E. Garrett Bewkes III.......... 45 Director
Charles J. Philippin........... 45 Director
</TABLE>
PHILIP B. MILLER became Chairman and Chief Executive Officer of Saks in June
1993. Mr. Miller joined Saks in August 1990 as Vice Chairman and became Chief
Operating Officer in 1992. Mr. Miller became Vice Chairman and a director of
Saks Holdings in August 1990 and a Vice President of Saks Holdings in January
1991. Mr. Miller formerly was Chairman and Chief Executive Officer of Marshall
Field's, joining that company in 1983 from Neiman Marcus, where he had been
President since 1977.
BRIAN E. KENDRICK became Vice Chairman of Saks in November 1994. He joined
Saks as Senior Vice President and Chief Financial Officer in April 1991. Mr.
Kendrick became Vice President of Saks Holdings in April 1993 and a director of
Saks Holdings in February 1994. From 1981 to 1991 Mr. Kendrick was the Chief
Financial Officer of Maison Blanche/Goudchaux, Inc. in Baton Rouge, Louisiana.
In 1987 and 1988 he took a leave of absence to become the Chief Administrative
Officer for the State of Louisiana.
ROSE MARIE BRAVO became President of Saks in September 1992 and a director
of Saks in October 1992. Ms. Bravo became a Vice President and a director of
Saks Holdings in September and October of 1992, respectively. Ms. Bravo formerly
was the Chairman and Chief Executive Officer of I. Magnin, a specialty division
of the R.H. Macy Company, a position she held since 1987. In February 1992 R.H.
Macy & Co., I. Magnin's parent company, entered bankruptcy protection.
OWEN E. DORSEY became an Executive Vice President of Saks in November 1994.
In November 1993 Mr. Dorsey joined Saks as Senior Vice President, Human
Resources. Mr. Dorsey became a Vice President of Saks Holdings in January 1994.
Mr. Dorsey formerly was with the Ritz Carlton Hotel Company, where he held the
position of Vice President, Human Resources from 1988 to 1993.
40
<PAGE>
RICHARD F. ZANNINO became Senior Vice President of Saks in May 1994. Mr.
Zannino joined Saks in January 1993 as Vice President and Treasurer. From March
1992 to November 1992, Mr. Zannino was vice president of finance for JWP Inc., a
multinational technical services company. In December 1993, JWP Inc. entered
bankruptcy protection. From 1986 to 1992 Mr. Zannino was with Peter Kiewit Sons,
Inc., a privately-held, multi-industry company in a finance and business
development role.
SAVIO W. TUNG became a director of Saks Holdings in April 1990. He has been
an executive of Investcorp, its predecessor or one or more of its wholly-owned
subsidiaries since September 1984. Mr. Tung is a director of Star Markets, Inc.
JON P. HEDLEY became a director of Saks in October 1995. Mr. Hedley became
Secretary and Treasurer of Saks Holdings in September 1992 and a director of
Saks Holdings in October 1995. He has been an executive of Investcorp, its
predecessor or one or more of its wholly-owned subsidiaries since April 1990.
E. GARRETT BEWKES III became a director of Saks and Saks Holdings in June
1994. He is co-founder of GarMark Advisors, LLC. He was an executive of
Investcorp, its predecessor or one or more of its wholly-owned subsidiaries from
March 1994 to November 1995. Prior to joining Investcorp, Mr. Bewkes was Vice
Chairman and Co-head of the Investment Banking Department at Bear, Stearns & Co.
Inc. Mr. Bewkes also held the position of Senior Managing Director. He is a
director of The Bear Stearns Companies Inc. and The Circle K Corporation.
CHARLES J. PHILIPPIN became a director of Saks and Saks Holdings in January
1995. He has been an executive of Investcorp, its predecessor or one or more of
its wholly-owned subsidiaries since October 1994. Prior to joining Investcorp,
Mr. Philippin was a partner with Coopers & Lybrand L.L.P. Mr. Philippin is a
director of The Circle K Corporation and Prime Holdings, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
In March 1996, Saks Holdings created a compensation committee, an audit
committee and a stock option and stock purchase plan committee. Messrs. Bewkes,
Tung, Philippin and Hedley were appointed to the compensation committee, Messr.
Bewkes was appointed to the audit committee and Messrs. Bewkes, Tung, Philippin
and Hedley were appointed to the stock option and stock purchase plan committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to March 1996, Saks Holdings did not have a compensation committee.
Messrs. Bewkes, Philippin, Hedley and Tung participated in deliberations
concerning compensation of executive officers of Saks during 1995. None of the
executive officers of Saks Holdings served on the Board of Directors or on the
compensation committee of any other entity, any of whose officers served either
on the Board of Directors or on the compensation committee of Saks Holdings.
NON-EMPLOYEE DIRECTORS COMPENSATION
Directors who are employees of Saks Holdings or executives of Investcorp
receive no separate compensation other than stock options for serving as
directors. Other directors receive an annual retainer of $13,000, stock options
and reimbursement of out-of-pocket expenses incurred in attending meetings of
the Board of Directors and any committees of the Board on which they serve.
41
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Saks Holdings is a holding company which conducts all of its activities
through its main operating subsidiary, Saks, and the subsidiaries of Saks. The
officers of Saks Holdings receive no compensation in their capacities as
officers of Saks Holdings. Accordingly, the following table sets forth
information concerning the annual and long-term compensation earned by Saks'
chief executive officer and each of the four other most highly compensated
executive officers of Saks whose annual salary and bonus during the fiscal years
presented exceeded $100,000 (the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION (1)(2)(3) ------------
------------------------- SECURITIES
NAME AND FISCAL ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION (1)
------------------------ ------ ---------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Philip B. Miller........ 1995 $1,100,000 $360,000 0 $ 59,567(4)
Chairman and Chief
Executive Officer
Brian E. Kendrick....... 1995 666,667 225,000 0 8,347(5)
Vice Chairman and Chief
Financial Officer
Rose Marie Bravo........ 1995 666,667 225,000 0 18,515(6)
President
Owen E. Dorsey.......... 1995 357,500 40,000 0 113,009(7)
Executive Vice President
Richard F. Zannino...... 1995 290,000 90,000 39,110 6,845(8)
Senior Vice President
</TABLE>
------------
(1) The amounts indicated reflect compensation paid by Saks unless otherwise
specified.
(2) Other annual compensation did not exceed $50,000 or 10% of the total salary
and bonus for any of the Named Officers.
(3) Does not include retirement benefits covered under Saks' Pension Plan and
Supplemental Plan. See the pension plan table and "Pension Plans".
(4) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770, $3,359 and $9,940 with respect to supplementary medical benefits,
long-term disability benefits and term life insurance, respectively, for the
benefit of Mr. Miller, (ii) $2,498 of matching benefits paid by Saks under
the Retirement Savings Plan and (iii) $40,000 paid by Saks for
business-related clothing expenses.
(5) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770 and $2,079 with respect to supplementary medical benefits and term
life insurance, respectively, for the benefit of Mr. Kendrick and (ii)
$2,498 of matching benefits paid by Saks under the Retirement Savings Plan.
(6) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770 and $2,079 with respect to supplementary medical benefits and term
life insurance, respectively, for the benefit of Ms. Bravo, (ii) $2,498 of
matching benefits paid by Saks under the Retirement Savings Plan, (iii)
$2,067 paid by Saks with respect to relocation expenses and (iv) $10,168
paid by Saks for business related clothing discounts.
(7) Reflects (i) the value of insurance premiums paid by Saks in the amount of
$3,770 and $1,158 with respect to supplementary medical benefits and term
life insurance, respectively, for the benefit of Mr. Dorsey, (ii) $2,432 of
matching benefits paid by Saks under the Retirement Savings Plan and (iii)
$105,649 paid by Saks with respect to relocation expenses.
(8) Reflects (i) the value of insurance premiums paid by Saks in the amounts of
$3,770 and $940 with respect to supplementary medical benefits and term life
insurance, respectively, for the benefit of Mr. Zannino and (ii) $2,135 of
matching benefits paid by Saks under the Retirement Savings Plan.
42
<PAGE>
The following table contains further information concerning the stock option
grants made to each of the Named Officers during fiscal 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
----------------------------------------------------- OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS FOR OPTION
UNDERLYING GRANTED TO TERM (2)
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION ---------------------
NAME GRANTED (1) FISCAL YEAR BASE PRICE DATE 5% 10%
------------------- ----------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip B. Miller... -- -- -- -- -- --
Brian E. Kendrick.. -- -- -- -- -- --
Rose Marie Bravo... -- -- -- -- -- --
Owen E. Dorsey..... -- -- -- -- -- --
Richard F.
Zannino.......... 39,110 15.4% $ 20(3) 2005 $491,926 $1,246,625
</TABLE>
------------
(1) The option agreements provide that options vest to the extent of one-third
of the options granted as of the closing of the Offerings, one-third on the
first anniversary thereof and one-third on the second anniversary thereof.
In the event of an Approved Sale (as defined in the option agreement), all
options vest in their entirety.
(2) These amounts are based on compounded annual rates of stock price
appreciation of 5% and 10% over the ten-year term of the options, are
mandated by the rules of the Securities and Exchange Commission and are not
indicative of expected stock price performance. Actual gains, if any, on
stock option exercises are dependent on future performance of the Common
Stock, overall market conditions, as well as the option holders' continued
employment throughout the vesting period. The amounts reflected in this
table may not necessarily be achieved or may be exceeded. The indicated
amounts are net of the option exercise price but before taxes that may be
payable upon exercise.
(3) All stock options were granted with exercise prices equal to fair market
value, as determined by the Board of Directors, on the grant date. In
January 1996, the Board of Directors repriced the stock options from $20
(the price paid for shares at the time of the 1990 Acquisition and also in
connection with significant third party purchases of Common Stock in 1993,
which price per share was routinely used in connection with option grants
from the 1990 Acquisition through 1995) to $16 to reflect the estimated fair
market value of the Common Stock. Toward the end of 1995, management of Saks
Holdings decided to evaluate whether a $20 per share price reflected fair
market value and, therefore, whether options granted with a $20 per share
exercise price, which might have been higher than fair value, properly
incentivized management. Based on management's internal analysis, as well as
advice from third party advisors, Saks Holdings determined that as of the
end of fiscal 1995 the fair market value of the Common Stock was $16 per
share and authorized repricing the options at $16 per share.
43
<PAGE>
The following table sets forth certain information regarding options to
purchase Common Stock held as of February 3, 1996 by each of the Named Officers.
None of such Named Officers exercised any options during fiscal 1995.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END (1)
---------------------------- ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE (2) UNEXERCISABLE (2)
------------------------ ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Philip B. Miller........ -- 324,330 -- $ 0
Brian E. Kendrick....... -- 225,050 -- 0
Rose Marie Bravo........ -- 223,750 -- 0
Owen E. Dorsey.......... -- 35,700 -- 0
Richard F. Zannino...... -- 65,060 -- 0
</TABLE>
------------
(1) Calculated on the basis of $16 per share, the fair market value of the
Common Stock at February 3, 1996, as determined by the Board of Directors,
less the exercise price payable for such shares.
(2) On February 23, 1996 the exercise price with respect to the stock options
was reduced from $20 per share to $16 per share.
Saks maintains a pension plan (the "Pension Plan"), which covers
substantially all of the employees of Saks and its affiliates. Saks also
maintains a supplemental pension plan (the "Supplemental Plan") which covers
certain senior executives of Saks. See "Pension Plans". The following table sets
forth estimated annual benefits payable upon retirement with regard to the
Supplemental Plan.
<TABLE>
<CAPTION>
YEARS OF
SERVICE(1)
REMUNERATION(2) 15 20 25 30 35
--------------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
25$0,000...... $ 75,000 $100,000 $125,000 $125,000 $125,000
300,000...... 90,000 120,000 150,000 150,000 150,000
400,000...... 130,000 160,000 200,000 200,000 200,000
500,000...... 150,000 200,000 250,000 250,000 250,000
750,000...... 225,000 300,000 375,000 375,000 375,000
1,000,000.... 300,000 400,000 500,000 500,000 500,000
1,320,000.... 396,000 528,000 660,000 660,000 660,000
</TABLE>
------------
(1) Mr. Miller has an estimated 18 credited years of service (13 of which were
granted to him pursuant to his employment agreement). Mr. Kendrick has an
estimated five credited years of service. Ms. Bravo and Mr. Zannino each
have three years of credited service and Mr. Dorsey has two.
(2) The compensation covered by the Supplemental Plan includes base salary only,
and not bonus or other amounts. For each of the Named Officers, the current
compensation covered by the Supplemental Plan does not differ by more than
10% from the amount listed in the "Salary" column of the Summary
Compensation table. The amount of the supplemental pension to which a
participant is entitled is an annual amount computed in the form of single
life annuity equal to 2% of his or her Average Final Earnings multiplied by
his or her years of credited service up to a maximum of 25 years, reduced by
any amounts received due to the Pension Plan, primary Social Security
benefits or matching amounts under the Retirement Savings Plan. "Average
Final Earnings" for purposes of the Supplemental Plan is the average rate of
the participant's salary for the last 36 calendar months of his or her
credited service.
44
<PAGE>
EMPLOYMENT AGREEMENTS
Saks has employment agreements with each of Mr. Miller, Mr. Kendrick, Ms.
Bravo and Mr. Dorsey. Each agreement requires the executive officer to devote
his or her full time and best efforts to Saks during the term of the agreement.
PHILIP B. MILLER. The employment agreement with Mr. Miller commenced in
March 1996 and continues until terminated by either party as provided therein.
The agreement provides for an annual salary of $1.2 million plus increases based
on the percentage increase, if any, in the Consumer Price Index, or by a greater
amount, at the discretion of the Board of Directors of Saks. In addition, the
agreement provides for the payment of an annual bonus as determined by the Board
of Directors of Saks.
If Saks terminates Mr. Miller's employment for any reason other than for
death, disability, retirement or cause, Mr. Miller shall be entitled to receive
an amount equal to three times his base salary then in effect ($3.6 million at
his current salary) and Standard Termination Amounts. Mr. Miller is entitled to
receive an identical amount if he voluntarily terminates his employment at any
time when he is not a member of the Boards of Directors of both Saks Holdings
and Saks. If Saks terminates Mr. Miller for "cause" (as defined in the
agreement) or if Mr. Miller voluntarily terminates his employment except as
described in the preceding sentence, Mr. Miller is entitled to receive Standard
Termination Amounts. "Standard Termination Amounts" consist of pro-rated earned
but unpaid salary, bonus, deferred compensation, certain expense allowances and
unpaid or unreimbursed benefits under applicable benefits plans and programs.
BRIAN E. KENDRICK, ROSE MARIE BRAVO AND OWEN E. DORSEY. Saks' employment
agreements with Mr. Kendrick, Ms. Bravo and Mr. Dorsey commenced in March 1996
and continue until terminated. The agreements provide for annual salaries of
$750,000, $750,000 and $360,000 respectively, and a bonus of up to 50% of Mr.
Kendrick's, Ms. Bravo's or Mr. Dorsey's salary, as applicable. The agreements
further provide for annual performance and salary reviews, and for participation
in all other bonus and benefit plans applicable to other similarly situated
officers.
If Saks terminates Mr. Kendrick's or Ms. Bravo's employment for any reason
other than for death, disability, retirement or cause, Mr. Kendrick or Ms.
Bravo, as applicable, is entitled to receive an amount equal to two times his or
her base salary then in effect ($1.5 million at their current salaries) and
Standard Termination Amounts. If Saks terminates Mr. Dorsey's employment for any
reason other than for death, disability, retirement or cause, Mr. Dorsey is
entitled to receive an amount in cash equal to his base salary then in effect,
Standard Termination Amounts and benefits for one year following termination. If
Saks terminates Mr. Kendrick's, Ms. Bravo's or Mr. Dorsey's employment for
"cause" (as defined in each agreement) or if such employee voluntarily
terminates his or her employment, such employee shall be entitled to receive
Standard Termination Amounts.
All other officers are appointed by and serve at the discretion of the Board
of Directors of Saks.
STOCK INCENTIVE PLANS
In October 1990, Saks Holdings adopted a Senior Management Stock Incentive
Plan (the "Old Incentive Plan"), and in February 1996, Saks Holdings adopted a
1996 Management Stock Incentive Plan (the "New Incentive Plan", and together
with the Old Incentive Plan, the "Incentive Plans"), for members of senior
management and certain other officers and employees of Saks Holdings and of
Saks. As of April 18, 1996 there were options to purchase 30,095 shares of
Common Stock outstanding under the Old Incentive Plan, all of which will vest
upon the closing of the Offerings, and options to purchase 1,874,160 shares of
Common Stock outstanding under the
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New Incentive Plan. In addition, conditioned upon the closing of the Offerings,
options to purchase 1,199,750 shares of Common Stock will be granted pursuant to
the New Incentive Plan. The vesting of options under the New Incentive Plan is
described below. No additional options will be granted under the Old Incentive
Plan. The maximum number of shares of Common Stock issuable pursuant to the
Incentive Plans is 6,209,045, subject to adjustment to reflect stock splits,
stock dividends and similar stock transactions.
The Incentive Plans provide for the grant of options that qualify as
incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as
amended (the "Code"), as well as options that do not qualify as ISOs
("Non-qualified Options") (collectively referred to as the "Options"), and also
provide for the grant of stock appreciation rights and for the sale or grant of
restricted stock. Options to purchase shares of Common Stock may extend for ten
years for ISOs and ten years and 30 days for Non-qualified Options from the date
of grant. Options may not be granted and restricted stock may not be sold or
granted after October 17, 2000. The granting of Options is conditioned upon
active employment with Saks Holdings, Saks or any of its direct or indirect
subsidiaries. In the event an employee ceases to be employed by Saks Holdings,
Saks or any of its direct or indirect subsidiaries, for any reason, Saks
Holdings may repurchase at fair market value, as determined annually by the
Board of Directors, any shares of Common Stock acquired by such employee
pursuant to the exercise of an Option granted under the Incentive Plans.
The Incentive Plans are administered by the stock option and stock purchase
plan committee (the "Incentive Plans Committee"), each member of which is
required to be "disinterested" within the meaning of Rule 16b-3 under the
Exchange Act. The Incentive Plans Committee has the authority to interpret the
Incentive Plans, to determine the terms and conditions of Options and other
grants under the Incentive Plans and to make all other determinations necessary
or advisable for the administration of the Incentive Plans. The Incentive Plans
Committee may determine the number of shares subject to grants or sales and the
terms thereof. The terms upon which options and stock appreciation rights are
granted and restricted stock is sold or granted are to be evidenced by a written
agreement executed by Saks Holdings and the relevant employee.
Saks Holdings has entered into individual Stock Option Agreements with
members of management with respect to 1,874,160 options outstanding under the
New Incentive Plan, and will grant options to such individuals to purchase an
additional 1,199,750 shares of Common Stock, conditioned upon the closing of the
Offerings, pursuant to which each such employee's right to exercise such Options
vest to the extent of one-third of the Options granted as of the closing of the
Offerings, one-third on the first anniversary thereof and one-third on the
second anniversary thereof. In the event of an Approved Sale (as defined in the
agreement), all options vest in their entirety. The Stock Option Agreements
further provide for the termination of the vested portions of any Options upon
the tenth anniversary of such Stock Option Agreement, and for acceleration of
termination if the employee ceases to be employed by Saks Holdings or a
subsidiary.
RETIREMENT SAVINGS PLAN (401(K))
In July 1990 Saks adopted a Retirement Savings Plan (the "Retirement Savings
Plan"), a savings and investment plan intended to be qualified under Section 401
of the Code. All employees of Saks and its affiliates (including officers and
directors who are employees) who are at least 21 years of age may participate in
the plan after one year of service with Saks or such affiliate. Participating
employees may make pre-tax and after-tax contributions, subject to limitations
under the Code, of a percentage (not to exceed 16%) of their total compensation,
and such amounts (and the earnings thereon) are fully vested at all times. Saks
makes matching contributions in an amount equal to one-fourth of the first 6% of
an employee's contribution. Any such matching contributions (and the investment
earnings thereon) will vest 25% after two years of service and an additional
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25% per year of service thereafter until fully vested after five years of
service, provided that such contributions become 100% vested upon the employee's
death, disability or retirement.
PENSION PLANS
Saks' Pension Plan covers substantially all of the employees of Saks and its
affiliates. Benefits are based primarily on years of service and the employees'
compensation, subject to limitations under the Code. The compensation covered by
the Pension Plan includes base salary only, and not bonus or other amounts.
Saks' policy is to fund the plan to satisfy the requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Generally, an employee is
entitled upon retirement to annual payments for each year of service in the
amount of 1% of his or her covered compensation received for that year of
service. The estimated benefits payable upon retirement at normal retirement age
for each Named Officer is $21,869 (Mr. Miller), $44,369 (Mr. Kendrick), $35,903
(Ms. Bravo), $33,000 (Mr. Dorsey) and $46,910 (Mr. Zannino).
Saks also maintains an unfunded supplemental retirement plan (the
"Supplemental Plan") covering the Chairman, Vice Chairman, President, Executive
Vice Presidents and Senior Vice Presidents of Saks (the "Covered Employees").
The Supplemental Plan is maintained primarily for the purpose of providing
deferred compensation for a select group of management and highly compensated
employees in accordance with the provisions of ERISA. The Covered Employees have
a nonforfeitable right to receive a supplemental pension upon five years of
service in the covered position. Generally, the amount of the supplemental
pension for a Covered Employee is an annual amount computed in the form of a
single life annuity equal to 2% of the Final Average Earnings (as defined in the
Supplemental Plan) multiplied by his or her years of service up to a maximum of
25 years, subject to deduction for Social Security benefits and for amounts
received from Saks or its affiliates under any other qualified or unqualified,
formal or informal plan, including the Pension Plan.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of May 17, 1996, by (i) each person who is
known by Saks Holdings to own beneficially more than 5% of the outstanding
shares of the Common Stock; (ii) each director and Named Officer and (iii) all
executive officers and directors as a group. Unless otherwise indicated, each
person has sole voting power and investment power with respect to the shares
attributed to them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
---------------------------------------------
PRIOR TO THE
OFFERINGS AFTER THE OFFERINGS
-------------------- ---------------------
NUMBER OF NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT SHARES PERCENT
------------------------------------------ --------- ------- ---------- -------
<S> <C> <C> <C> <C>
Investcorp (1)............................ 8,297,715 18.45% 10,547,715 17.30%
SIPCO Limited (2)......................... 8,283,715 18.42 10,533,715 17.28
His Royal Highness Prince Al Waleed Bin
Talal Bin Abdulaziz (3)................. 4,450,000 10.01 4,450,000 7.30
Fifth Avenue Equity Limited (4)........... 2,504,385 5.57 2,504,385 4.11
Trustees of the Estate of Bernice Pauahi
Bishop (5).............................. 2,500,000 5.56 2,500,000 4.10
Works Holdings Limited (6)................ 2,348,740 5.22 2,348,740 3.85
Philip B. Miller (7)...................... 263,382 * 458,693(10) *
Rose Marie Bravo (7)...................... 116,940 * 176,523(10) *
Brian E. Kendrick (7)..................... 105,430 * 152,518(10) *
Owen E. Dorsey (7)........................ 17,053 * 30,172(10) *
Richard F. Zannino (7).................... 29,123 * 41,757(10) *
Savio W. Tung (8)......................... 50,000 * 91,400(10) *
Jon P. Hedley (9)......................... 5,000 * 37,500(10) *
E. Garrett Bewkes III..................... 0 -- 0 --
Charles J. Philippin...................... 0 -- 12,200(10) *
All directors and executive officers as a
group (10 people) (11).................. 601,775 1.33 1,022,576(12) 1.67
</TABLE>
------------
* Less than 1%.
(1) Investcorp does not directly own any shares of Common Stock. The number of
shares shown as owned by Investcorp includes all of the shares owned by SFA
Folio Limited, SFA Label Limited, SFA Collection Limited, SFA Designer
Limited, Saks Fifth Avenue Holdings II Limited, Saks Fifth Avenue
Investments II Limited, Flair Limited, SFA Capital Limited, Ballet Limited,
Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger
Limited, Quill Limited, Radial Limited, Shoreline Limited, Zinnia Limited,
and Chemical Nominees (Guernsey) Limited. Other than Flair Limited and SFA
Capital Limited, which are indirect wholly-owned subsidiaries of
Investcorp, Investcorp owns no stock in such entities. Investcorp may be
deemed to share beneficial ownership of the shares of Common Stock held by
such entities because such entities or their shareholders or principals
have entered into revocable management services or similar agreements with
an affiliate of Investcorp pursuant to which each such entity has granted
such affiliate the authority to direct the voting and disposition of the
stock owned by such entity for so long as such agreement is in effect.
Investcorp is a Luxembourg corporation, with its registered address at 37
rue Notre-Dame, Luxembourg.
(2) SIPCO Limited ("SIPCO") does not directly own any Common Stock. The number
of shares shown as owned by SIPCO consists of the shares Investcorp is
deemed to beneficially own. SIPCO may be deemed to control Investcorp
through its ownership of a majority of the stock
(Footnotes continued on following page)
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(Footnotes continued from preceding page)
of a company which indirectly owns a majority of Investcorp's outstanding
stock. SIPCO is a Cayman Islands corporation with its address at P.O. Box
1111, West Wind Building, George Town, Grand Cayman, Cayman Islands,
British West Indies.
(3) His Royal Highness Prince Al Waleed Bin Talal Bin Abdulaziz does not
directly own any Common Stock. The number of shares shown as owned by him
include all of the shares held by SFA Saudi Holdings Limited, of which he
owns a majority of the outstanding stock. The business address of His Royal
Highness Prince Al Waleed Bin Talal Bin Abdulaziz is c/o Kingdom
Establishment Trading and Contracting, P.O. Box 8653, Riyadh 11492, Saudi
Arabia.
(4) Fifth Avenue Equity Limited is a Cayman Islands corporation with its
address at P.O. Box 1111, West Wind Building, George Town, Grand Cayman,
Cayman Islands, British West Indies.
(5) The Bernice Pauahi Bishop Estate is an educational charitable trust
organized under the laws of the State of Hawaii with its address at 567
South King Street, Suite 200, Honolulu, Hawaii 96813.
(6) Works Holdings Limited is a Cayman Islands corporation with its address at
P.O. Box 1111, West Wind Building, George Town, Grand Cayman, Cayman
Islands, British West Indies.
(7) Includes the following shares of Common Stock, purchasable within 60 days
of May 17, 1996, upon exercise of stock options granted prior to the
closing of the Offerings, by the following individuals: Mr. Miller (139,737
shares), Ms. Bravo (95,690 shares), Mr. Kendrick (96,675 shares), Mr.
Dorsey (15,268 shares) and Mr. Zannino (27,823 shares).
(8) Includes 50,000 shares that Mr. Tung has the right to acquire within 60
days of May 17, 1996.
(9) Includes 5,000 shares that Mr. Hedley has the right to acquire within 60
days of May 17, 1996.
(10) Includes the following shares of Common Stock, purchasable within 60 days
of May 17, 1996, upon exercise of stock options to be granted upon the
closing of the Offerings, by the following individuals: Mr. Miller (71,667
shares), Ms. Bravo (38,333 shares), Mr. Kendrick (38,333 shares), Mr.
Dorsey (11,333 shares) and Mr. Zannino (11,333 shares). Also includes the
purchase of shares in the Offerings by the following individuals: Mr.
Miller (123,645 shares), Ms. Bravo (21,250 shares), Mr. Kendrick (152,518
shares), Mr. Dorsey (1,785 shares), Mr. Zannino (1,300 shares), Mr. Tung
(41,400 shares), Mr. Hedley (32,500 shares) and Mr. Philippin (12,200
shares).
(11) Includes an aggregate of 388,740 shares of Common Stock purchasable within
60 days of May 17, 1996 upon exercise of stock options granted prior to the
closing of the Offerings.
(12) Includes an aggregate of 176,667 shares of Common Stock purchasable within
60 days of May 17, 1996 upon exercise of stock options to be granted upon
the closing of the Offerings. Also includes the purchase of 244,135 shares
in the Offerings.
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CERTAIN TRANSACTIONS
RELATED TRANSACTIONS
Saks incurred fees of $8 million payable to III, an affiliate of Investcorp,
for certain management, consulting and advisory services rendered in fiscal 1995
and the first half of fiscal 1996. Of these expenses, $7 million are reflected
in Saks' operating results for fiscal 1995 and $1 million will be reflected in
Saks' operating results for fiscal 1996. Fees of $2 million also were paid to
III in each of fiscal 1991, 1992, 1993 and 1994. Saks believes that the terms of
its management, advisory and consulting arrangements with III were no less
favorable to Saks than terms that may have been available from independent third
parties. Other than the transactions described above, Saks expects that there
will be no further remuneration for consulting services between Saks or Saks
Holdings and Investcorp or any of its affiliates following the completion of the
Offerings.
Prior to April 3, 1996 Investcorp and its affiliates had an ownership
interest in and controlled a majority of the voting stock of Gucci Group N.V.
and its affiliates ("Gucci"), an Italian designer, manufacturer and distributor
of women's and men's luxury apparel and accessories. Investcorp affiliates
continue to represent a majority of the members of the Supervisory Board of
Gucci. In addition, Investcorp and its affiliates have an ownership interest in,
control a majority of the voting stock of, and have directors serving on the
board of directors of Ebel S.A. ("Ebel"), a Swiss manufacturer and distributor
of watches, and Chaumet International S.A. ("Chaumet"), a French retailer of
jewelry, gems and other luxury products. Saks distributes the products of Gucci,
Ebel and Chaumet through its stores. Saks believes that the terms of these
arrangements are on arms' length bases. Except for these arrangements, upon
completion of the Offerings, Saks will have no business relationships with
Investcorp or any of its affiliates or related parties.
Gucci designs and sells lines of women's and men's apparel that compete with
Saks' private label apparel business. Saks believes that competition with Gucci
is limited because Saks' private label merchandise generally is sold at
different price points and targets different market segments.
Although the agreement for management and advisory services expires in July
1996, Investcorp, as the beneficial owner of 17.28% of the Common Stock of Saks
Holdings after the Offerings and with representatives on the board of directors
of Saks Holdings, may be able to exert influence over the operations of Saks
Holdings and Saks.
LOANS TO CERTAIN OFFICERS AND DIRECTORS
From time to time, Saks extends loans to certain officers and directors in
connection with stock purchase transactions.
In January 1992, Mr. Kendrick executed a note in favor of Saks in the
principal amount of $175,100. The note matures in January 1997, bears interest
at an annual rate of 8% and is secured by a pledge of Common Stock. In March
1996, Mr. Kendrick executed a note in favor of Saks in the principal amount of
$250,000, the proceeds of which were used to refinance an earlier note executed
by Mr. Kendrick. The note matures in March 1999, bears interest at an annual
rate of 8% and is secured by a pledge of Common Stock. At Saks' option, the
principal of, and accrued interest on, each of the notes described above becomes
immediately due upon the occurrence of certain events, including the termination
of Mr. Kendrick's employment by Saks for any reason.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of the Offerings, Saks Holdings' authorized capital stock
will consist of 10 million shares of preferred stock, of which no shares will be
issued and outstanding, and 150 million shares of Common Stock, $.01 par value
per share, of which 60,966,605 shares will be issued and outstanding. The
material terms of Saks Holdings' certificate of incorporation and bylaws are
discussed below.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to vote cumulatively
for the election of directors. Holders of Common Stock have no redemption,
conversion, preemptive or other subscription rights. There are no sinking fund
provisions relating to the Common Stock. In the event of the liquidation,
dissolution or winding up of Saks Holdings, holders of Common Stock are entitled
to share ratably in all of the assets of Saks Holdings, if any, remaining after
satisfaction of the debts and liabilities of Saks Holdings. The outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, upon payment therefor as contemplated herein, validly issued, fully paid and
nonassessable.
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors of Saks Holdings out of funds legally
available therefor. Saks Holdings does not anticipate paying cash dividends on
the Common Stock in the foreseeable future. See "Dividend Policy".
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, to issue the preferred stock in one or more classes or series
and to fix the designations, powers, preferences, rights, qualifications,
limitations or restrictions of any such class or series. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of Saks Holdings. Saks Holdings has no
current plans to issue shares of preferred stock.
CERTAIN PROVISIONS OF DELAWARE LAW
Saks Holdings is incorporated under the Delaware General Corporation Law
(the "DGCL"). Saks Holdings is subject to Section 203 of the DGCL, which
restricts certain transactions and "business combinations" between a Delaware
corporation and an "interested stockholder" (in general, a stockholder owning
15% or more of the corporation's outstanding voting stock) or an affiliate or
associate of an interested stockholder, for a period of three years from the
date the stockholder becomes an interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, unless the
transaction is approved by the Board of Directors and the holders of at least 66
2/3% of the outstanding voting stock of the corporation (excluding shares held
by the interested stockholder), Section 203 prohibits significant business
transactions such as a merger with, disposition of assets to or receipt of
disproportionate financial benefits by the interested stockholder, or any other
transaction that would increase the interested stockholder's proportionate
ownership of any class or series of the corporation's stock. The statutory ban
does not apply if, upon consummation of the transaction in which any person
becomes an interested stockholder, the interested stockholder owns at least 85%
of the outstanding voting stock of the corporation (excluding shares held by
persons who are both directors and officers or by certain employee stock plans).
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Saks Holdings' Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. The Certificate
of Incorporation provides that, to the fullest extent permitted by the DGCL, no
director of Saks Holdings will be liable to Saks Holdings or its stockholders
for monetary damages for breach of fiduciary duty as a director. The Certificate
of Incorporation and Bylaws of Saks Holdings also contain provisions
indemnifying the directors and officers of Saks Holdings to the fullest extent
permitted by the DGCL.
Section 203 and the provisions of Saks Holdings' Certificate of
Incorporation and Bylaws described above may make it more difficult for a third
party to acquire, or discourage acquisition bids for, Saks Holdings. Section 203
and these provisions could have the effect of inhibiting attempts to change the
membership of the Board of Directors of Saks Holdings. In addition, the limited
liability provisions in the Certificate of Incorporation and the indemnification
provisions in the Certificate of Incorporation and Bylaws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty (including breaches resulting from grossly negligent conduct) and
may have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise have benefited Saks Holdings and its stockholders. Furthermore, a
stockholder's investment in Saks Holdings may be adversely affected to the
extent Saks Holdings pays the costs of settlement and damage awards against
directors and officers of Saks Holdings pursuant to the indemnification
provisions in Saks Holdings' Bylaws. The limited liability provisions in the
Certificate of Incorporation will not limit the liability of directors under
federal securities laws.
SHARES RESERVED FOR ISSUANCE
Saks Holdings has 6,209,045 shares of Common Stock reserved for issuance
upon the exercise of options granted or to be granted under the Incentive Plans.
As of April 25, 1996, options for the purchase of 1,904,255 shares have been
granted. In addition, Saks Holdings will grant, conditioned upon the closing of
the Offerings, options for the purchase of 1,199,750 shares of Common Stock.
Upon the closing of the Offerings, options for the purchase of 1,056,189 shares
of Common Stock will be fully vested.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services LLC.
LISTING
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "SKS", subject to official notice of issuance.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The material terms of certain indebtedness of Saks are described below. Each
of the following summaries is subject to and qualified in its entirety by
reference to the detailed provisions of the respective agreements and
instruments to which each summary relates. Copies of such agreements and
instruments have been filed as exhibits to the Registration Statement of which
this Prospectus is a part.
CREDIT AGREEMENT
In July 1993, Saks entered into an Amended and Restated Credit Agreement
with certain lenders (the "Lenders") which provided for $200 million in term
loans ("Term Loans"), $225 million in base revolving credit loans ("Base
Revolving Loans") and $100 million in working capital revolving credit loans
("Working Capital Revolving Loans"). The Term Loans, Base Revolving Loans and
Working Capital Revolving Loans collectively are referred to as the "Credit
Facility". The Term Loans consist of two tranches: the tranche A term loan (the
"Tranche A Loan") and the tranche B term loan (the "Tranche B Loan"), each
initially in the amount of $100 million. In March 1995, Saks and the Lenders
amended the Credit Facility to increase the principal amount of the Tranche B
Loan by $75 million for the primary purpose of financing the acquisition of four
stores previously operated by I. Magnin. In October 1995, Saks and the Lenders
amended the Credit Facility to (a) increase the principal amount of the Tranche
B Loan by $50 million, and (b) permit Saks to retain up to $25 million of net
proceeds from asset sales that otherwise would have been subject to mandatory
prepayment under the Credit Facility, each for the purpose of financing capital
expenditures relating to the remodeling, replacement and construction of retail
stores and a distribution center. For information regarding installment payments
due on the Tranche A Loan and the Tranche B Loan, see Note 5 to Consolidated
Financial Statements. As of February 3, 1996, after giving effect to scheduled
payments and certain mandatory prepayments under the Credit Facility, there were
approximately $59.5 million and $224.1 million outstanding under the Tranche A
and Tranche B Loans, respectively. Saks from time to time has amended covenants
contained in the Credit Facility in anticipation of changes in its results of
operations and in economic conditions generally.
In March 1996, Saks and the Lenders amended the Credit Facility, among other
things, to (i) permit the Offerings provided that the gross proceeds received by
Saks Holdings from the Offerings exceed $200 million and the net proceeds
received by Saks Holdings are immediately contributed to Saks, (ii) exclude up
to $45 million in special charges from the calculation of certain restrictive
financial covenants and (iii) require that (a) at least one-third of the net
proceeds from the Offerings be used to prepay Term Loans and (b) the remainder
of such net proceeds be used to prepay first the Working Capital Revolving Loans
and then the Base Revolving Loans. In April 1996, Saks and the Lenders amended
the Credit Facility, among other things, to (i) allow certain of the proceeds of
the Base Revolving Loans and Working Capital Revolving Loans to be used to make
permitted acquisitions and permitted capital expenditures, (ii) add a covenant
specifying a maximum ratio of outstanding loans to consolidated adjusted
operating profit tested annually and (iii) amend the method of calculating
interest rates under the Credit Facility as set forth below. In April 1996, Saks
and the Lenders amended the Credit Facility to allow Saks to make payments,
dividends or distributions with respect to operating costs incurred by Saks
Holdings in amounts not to exceed $4.0 million per fiscal year.
As of February 3, 1996, an aggregate principal amount of approximately
$117.4 million was available for borrowing under the Working Capital Revolving
Loans and the Base Revolving Loans, which amount is net of approximately $198.1
in borrowings and $6.7 million in standby letters of credit issued and
outstanding under the Credit Facility. The Lenders' commitments to make the
Working Capital Revolving Loans and the Base Revolving Loans expire on the
earlier of June 30, 1998 and the termination of the commitments under the Credit
Facility.
Saks may borrow up to $20 million in aggregate principal amount of swingline
loans which bear interest, as of the closing of the Offerings, at the Alternate
Base Rate (as defined in the Credit
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Facility) plus an applicable margin ranging from 0.0% to 1.0% depending on the
Interest Coverage Ratio (as defined in the Credit Facility). All other loans
under the Credit Facility bear interest, as of the closing of the Offerings, at
a rate equal to, at Saks' option, (a) the Alternate Base Rate plus a percentage
ranging from 0.0% to 1.5% depending on the Interest Coverage Ratio or (b) the
Eurodollar Rate (as defined in the Credit Facility) plus a percentage ranging
from 1.0% to 2.5% depending on the Interest Coverage Ratio. Saks has purchased
three interest rate cap agreements which limit the maximum interest rate on $400
million of borrowings through September 2, 1996 to 5.5%.
The Credit Facility imposes certain covenants and other requirements on Saks
and its subsidiaries. In general, the affirmative covenants include standard
operating covenants requiring Saks, among other things, to: periodically and
upon the occurrence of certain events furnish certain financial information and
certificates to the administrative agent; pay obligations when due; continue to
engage in a business of the same general type as conducted on the date of the
Credit Facility; maintain property in good working order; maintain insurance
coverage on all property; keep proper books and records; promptly give notice
upon the occurrence of certain events; cause each Real Estate Holding Subsidiary
(as defined in the Credit Facility) to make certain distributions to Saks or a
subsidiary; grant a security interest to the administrative agent in certain new
leaseholds; and use reasonable best efforts to cause each such new leasehold to
be mortgageable and assignable. The Credit Facility also contains certain
negative covenants and restrictions that, among other things, restrict: (i) the
incurrence of indebtedness (as described below); (ii) the incurrence of liens or
other encumbrances; (iii) the incurrence of contingent obligations; (iv) the
sale, lease, assignment, transfer or other disposition of assets other than in
the ordinary course of business; (v) fundamental corporate changes including
acquisitions, mergers, consolidations, liquidations or material changes in the
method of conducting business or engaging in any type of business other than the
same general type presently conducted by it; (vi) investments, loans and
advances; (vii) capital expenditures; (viii) certain payments of dividends (see
"Risk Factors--No Dividends"); (ix) transactions with affiliates including
purchases, sales, leases, exchanges of property or rendering of any service with
any affiliate; (x) entering into certain foreign currency exchange contracts
other than for the purpose of hedging payments received in a foreign currency in
the ordinary course of business; (xi) changes in significant credit or
collection policies; (xii) prepayments and amendments of subordinated debt and
debt incurred pursuant to the REMIC Financing; (xiii) certain amendments of
leases of operating properties; and (xiv) waiver of surviving rights and causes
of action under the stock purchase agreement pursuant to which the stock of Saks
was acquired in 1990 and the I. Magnin acquisition agreement in 1994. Financial
covenants in the Credit Facility specify that consolidated net worth tested
quarterly subsequent to the Offerings may not be below the sum of the net
proceeds from the Offerings plus $650 million and that consolidated adjusted
operating profit tested annually may not be below $155 million during fiscal
1996 increasing to $225 million in fiscal 1999. Financial covenants in the
Credit Facility also require maintenance of the Interest Coverage Ratio tested
quarterly with respect to the immediately preceding four quarters which
subsequent to the Offerings increase from 1.90 to 1.00 for the second quarter of
fiscal 1996, to 3.00 to 1.00 for the second quarter of fiscal 2000 and specify
that the ratio of outstanding loans to consolidated adjusted operating profit
tested annually may not exceed a certain level which decreases from 2.75 to 1.00
in fiscal 1996 to 1.75 to 1.00 in fiscal 1999.
Saks and its subsidiaries may not create, incur, assume or suffer to exist
any indebtedness except: (i) indebtedness outstanding on the date of the Credit
Facility that was specifically scheduled, excluding the refinancing of such
indebtedness; (ii) indebtedness arising under the Credit Facility;
(iii) indebtedness incurred after the date of the Credit Facility for industrial
revenue bonds, capitalized lease obligations or the deferred purchase price of
newly acquired property not exceeding an aggregate at any one time outstanding
of $115 million plus amounts outstanding under certain capitalized leases plus
an additional $25 million provided that Saks has received net
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<PAGE>
proceeds of at least $250 million from the Offerings; (iv) intercompany
indebtedness; (v) indebtedness evidenced by the Subordinated Notes, subject to
certain conditions; (vi) indebtedness pursuant to the REMIC Financing;
(vii) unsecured indebtedness not exceeding an aggregate principal amount at any
one time outstanding of $50 million; (viii) indebtedness in respect of foreign
currency exchange contracts otherwise permitted in the Credit Facility;
(ix) indebtedness in respect of the Accounts Receivable Financing (as defined in
the Credit Facility, which includes the transactions described under
"Receivables Securitization"); (x) unsecured indebtedness in respect of letters
of credit issued under other credit facilities, subject to a $25 million limit
in the aggregate; and (xi) indebtedness relating to certain specifically
scheduled store transactions.
Events of default under the Credit Facility include, among other things: (i)
the failure to pay any principal when due or any interest within five days of
being due; (ii) any representation or warranty in documents delivered in
connection with the Credit Facility which is proven to be materially incorrect
as of the date made; (iii) a default by Saks, Saks Holdings or any subsidiary to
comply with or perform certain obligations under the Credit Facility or certain
documents delivered in connection therewith; (iv) a default by Saks or any
subsidiary in the payment when due of certain indebtedness or conditions or
agreements relating to such indebtedness, provided that the aggregate principal
amount of liabilities involved is at least $1 million; (v) certain insolvency
events; (vi) certain prohibited ERISA events; (vii) judgments or decrees entered
against Saks or any subsidiary involving an aggregate of $1 million or more
(excluding amounts covered by insurance) not stayed, discharged, vacated or
bonded within the applicable time for such action; (viii) the ineffectiveness or
unenforceability of documents delivered in connection with the Credit Facility;
(ix) subsequent to an initial public offering of Common Stock of Saks Holdings,
a change of control, which is deemed to occur if any person (other than
Investcorp, any of its Affiliates or subsidiaries, any person who is senior
management of Saks or Saks Holdings, any entity that is majority-owned by such
senior management of Saks or Saks Holdings, or any person acting in the capacity
of an underwriter) directly or indirectly acquires or acquires the power to vote
or direct the voting of 25% or more, on a fully diluted basis, of the
outstanding common stock of Saks or of the Common Stock; and (x) any amendment
or other modification of the Subordinated Note Indenture or Subordinated Notes
made without all required written consents.
The Credit Facility is secured by substantially all of the assets of Saks
and its subsidiaries other than (i) a significant number of the real estate
properties owned or leased by Saks or its subsidiaries which are subject to the
REMIC Financing, (ii) certain accounts receivable of Saks which are subject to
sale under the accounts receivable financing discussed below, (iii) the
inventory of Saks and its subsidiaries and (iv) the capital stock of Saks' real
estate subsidiaries and accounts receivable subsidiaries. Saks Holdings has
guaranteed payment of the obligations of Saks under the Credit Facility and has
secured this guarantee with a pledge of all of the issued and outstanding
capital stock of Saks.
In addition, as of February 3, 1996, approximately $5.3 million in letters
of credit were outstanding under a separate $10 million letter of credit
facility between Saks and The Bank of Tokyo.
SUBORDINATED DEBT
On July 1, 1993, Saks issued and sold in a private placement $50 million
principal amount of 9% Subordinated Notes due 2001 (the "Subordinated Notes").
The Subordinated Notes bear interest at 9% per year, payable semiannually in
arrears on each June 30 and December 31, and mature on May 31, 2001. The
Subordinated Notes are unsecured obligations of Saks and are subordinated in
right of payment to all existing and future Senior Indebtedness (as defined in
the indenture pursuant to which the Subordinated Notes were issued (the
"Subordinated Note Indenture")).
The Subordinated Notes may be redeemed at the option of Saks in whole or in
part at (a) 101.5% of the principal amount redeemed prior to May 31, 1996, (b)
101% of the principal
55
<PAGE>
amount redeemed on or after May 31, 1996 but prior to November 30, 1996, (c)
100.5% of the principal amount redeemed on or after November 30, 1996 but prior
to May 31, 1997 or (d) 100% of the principal amount redeemed on or after May 31,
1997 through maturity, in each case plus accrued and unpaid interest, if any.
Upon a "Change of Control," Saks is obligated to make an offer to repurchase all
outstanding Subordinated Notes at the optional redemption prices set forth
above, plus accrued and unpaid interest, if any, to and including the Change of
Control Payment Date (as defined in the Subordinated Note Indenture). A "Change
of Control" will be deemed to occur if at any time (a) prior to an initial
public offering, Investcorp and its Affiliates cease to own at least 51%
(calculated as set forth in the Subordinated Note Indenture) of the issued and
outstanding voting capital stock of Saks; and (b) subsequent to an initial
public offering, any person (other than Investcorp, an Affiliate of Investcorp,
a person who is senior management of Saks, any entity majority-owned by such
senior management of Saks or any person acting in the capacity of an
underwriter), whether singly or in concert with one or more persons, directly or
indirectly, shall have acquired 20% or more, on a fully diluted basis, of the
common stock of Saks Holdings. The occurrence of the Offerings will not
constitute a "Change of Control" for purposes of the Subordinated Notes.
The Subordinated Note Indenture contains various restrictive covenants that,
among other things, limit: (i) the incurrence of certain additional indebtedness
by Saks or its subsidiaries; (ii) the creation of Senior Indebtedness of Saks
which is, by its terms, subordinated in right of payment to other indebtedness
of Saks; and (iii) the payment of dividends on capital stock of Saks (see "Risk
Factors--No Dividends"). Affirmative covenants include, among others, an
obligation to pay principal, interest and premium, if any, when due, hold funds
for note payments in trust, maintain its corporate existence, maintain its
properties in good condition, pay taxes when due, furnish to the trustee copies
of certain financial information, and certify as to whether Saks is in default
within 90 days after the end of each fiscal quarter of Saks. Events of default
under the Subordinated Note Indenture include, among other things: (i) a default
in the payment of any interest on any Note when due, which default continues for
30 days; (ii) a default in the payment of any principal of or premium, if any,
on any Note when due; (iii) a default in the deposit of any payment when due
pursuant to a Change of Control or redemption of any Note; (iv) the failure by
Saks to comply with any agreement or covenant in the Subordinated Note Indenture
with respect to the payment of dividends on capital stock, which failure
continues for ten business days; (v) the failure by Saks to comply with any
other agreement or covenant in the Subordinated Note Indenture, which failure
continues for 60 days after a Notice of Default (as defined in the Subordinated
Note Indenture) is given; (vi) the rendering of a final judgment in excess of
$20 million (excluding amounts covered by insurance) not discharged, waived or
stayed for 45 days after the date on which the right to final appeal expires,
which default continues for 30 days after a Notice of Default is given; (vii)
certain defaults under a bond, debenture, note or other indebtedness of Saks or
any Significant Subsidiary (as defined in the Subordinated Note Indenture), or
under a mortgage, indenture or other instrument under which there may be issued
or by which there may be secured or evidenced indebtedness for money borrowed by
Saks or such Significant Subsidiary, which indebtedness has a principal amount
of over $20 million; and (viii) certain events of bankruptcy, insolvency or
reorganization of Saks or any Significant Subsidiary.
REMIC FINANCING
In May 1995, Fifth Avenue Capital Trust, a special purpose Delaware business
trust (the "Depositor") of which the primary beneficiary is Saks, made 27
commercial mortgage loans (the "Mortgage Loans") in the aggregate principal
amount of $335 million (the "REMIC Financing") to eight special purpose Delaware
corporations and one special purpose Delaware business trust (the "REMIC
Borrowers") which owned 28 properties operated as Saks stores (including the
Fifth Avenue store) and the Yonkers distribution center (the "REMIC
Properties"). The eight corporate REMIC Borrowers are direct or indirect
wholly-owned subsidiaries of Saks. All of the beneficial interests in the one
REMIC Borrower that is a business trust are owned indirectly by Saks.
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<PAGE>
The Mortgage Loans were deposited by the Depositor in a trust fund (the
"Trust Fund") created by the Depositor pursuant to a trust and servicing
agreement among the Depositor, Bankers Trust Company, as servicer (the
"Servicer"), and Marine Midland Bank, as trustee. Commercial Mortgage
Pass-Through Certificates in the aggregate principal amount of $335 million
representing beneficial ownership interests in the Trust Fund (the "REMIC
Certificates") were offered and sold in transactions exempt from registration
under the Securities Act pursuant to Rule 144A or Regulation S under the
Securities Act. The Depositor holds the REMIC Certificate representing the
residual interest in the Trust Fund. An election was made to treat the Trust
Fund as a REMIC for federal income tax purposes. The Depositor used the proceeds
of the sale of the REMIC Certificates to repay an existing $335 million
financing secured by certain of the REMIC Properties and certain other Saks
stores. For information regarding aggregate principal amounts of the various
series of REMIC Certificates, and the rates of interest payable thereon, see
Note 5 to Consolidated Financial Statements.
There is no scheduled principal amortization on the Mortgage Loans prior to
May 12, 2002. The unpaid principal balance of each Mortgage Loan is due in a
single balloon payment on that date.
Each REMIC Borrower has guaranteed the Mortgage Loans of each other REMIC
Borrower. Each REMIC Borrower has secured its obligations with respect to its
Mortgage Loans and its guaranty of each other REMIC Borrower's Mortgage Loans by
a first priority mortgage lien on each fee or leasehold interest of each REMIC
Borrower in its REMIC Properties and an assignment of leases, rents and lease
guarantees relating to all leases on each such REMIC Property, primarily
consisting of an operating lease (an "Operating Lease") with Saks or a direct or
indirect wholly-owned operating subsidiary of Saks (an "Operating Lessee"). The
Mortgage Loans also contain covenants limiting the ability of each REMIC
Borrower to incur certain additional indebtedness. In addition, a REMIC Borrower
may not renovate a REMIC Property if such renovation would cause the related
store to be closed for ten days or more or if the modification would cost more
than $5 million per REMIC Property or $15 million in the aggregate for all REMIC
Properties, subject to certain specific exceptions for renovation projects
scheduled in the related documents. The REMIC Borrowers are subject to covenants
which require them to maintain their businesses separate and apart from Saks and
restrict their ability to engage in any activity or business not directly
related to the REMIC Properties. Saks guarantees the obligations under all
Operating Leases with Operating Lessees other than Saks. Under the terms of the
Operating Leases, the Operating Lessees are required to pay as additional rent
all taxes, assessments, utility charges and similar fees and charges. The
Operating Lessees are also responsible for paying all operating expenses and
insurance premiums and paying all utilities, and cannot reduce or set off any
rent (except, in certain circumstances, in the case of a condemnation), nor can
they terminate the Operating Leases for any reason, including condemnation,
casualty or structural defects. The Operating Lessees are required to bear the
cost of all repairs (including structural repairs) to the REMIC properties.
Events of default under the Mortgage Loans include the following: (i) a
default in the payment of any portion of the principal of or interest or
premium, if any, on any Mortgage Loan when due; (ii) a default in the payment of
any other amounts due and payable under any REMIC Certificate or related
Mortgage Loan document, which continues for a period of ten days after written
demand; (iii) an "Event of Default" as defined in any document evidencing or
securing the Mortgage Loans which has not been cured within any applicable cure
or grace period; (iv) a default by the REMIC Borrowers under any ground lease,
operating lease or reciprocal easement agreement and such default shall not be
cured prior to the expiration of any applicable grace period; and (v) the
failure of Saks to be the sole direct or indirect owner of any REMIC Borrower
that has not paid in full its REMIC Certificates.
The Mortgage Loans may be prepaid, as described in Note 5 to Consolidated
Financial Statements. In connection with any sale of the Yonkers facility, Saks
must prepay the Mortgage Loan with respect to such facility. The Mortgage Loan
with respect to the Owings Mills, Maryland store was prepaid in January 1996 in
connection with the closing of the store at that location and the disposition of
that REMIC Property. The aggregate outstanding principal amount of the Mortgage
Loans at February 3, 1996 was $330,840,901.
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<PAGE>
RECEIVABLES SECURITIZATION
Since 1991, Saks has sold its proprietary credit card receivables (the
"Receivables") to SFA Finance Company ("Finco"), a Delaware corporation and a
wholly owned subsidiary of Saks established solely for the purpose of purchasing
Receivables from Saks. Finco subsequently transferred the Receivables, in
exchange for cash and subordinated certificates of beneficial interests, to the
SFA Master Trust (the "Original Receivables Trust") established pursuant to a
pooling and servicing agreement among Finco, Saks, as servicer, and Bankers
Trust Company, as trustee (the "Original A/R Trustee"), which is consolidated by
Saks. Saks receives a fee for servicing the Receivables for the Original
Receivables Trust.
The Original Receivables Trust has sold two series of certificates of
beneficial interest in the Original Receivables Trust to third parties. These
certificates represent undivided interests in the receivables generated from
time to time by Saks by a portfolio of accounts meeting the designated
eligibility requirements. Series 1991-2 is a medium term series that matures in
November 1996. Beginning in May 1996, principal collections of Receivables
allocable to Series 1991-2 are required to be accumulated in a bank account
maintained by the Original A/R Trustee in order to make the November 1996
principal repayment and will not be available to pay for new Receivables
transferred by Finco. Class A of Series 1991-2 at February 3, 1996 had an
outstanding principal balance of $200 million and bore interest at LIBOR plus
.45%. The Class A Certificates were sold in transactions exempt from
registration under the Securities Act pursuant to Rule 144A or Regulation S
under the Securities Act.
In April 1996 the Saks Master Trust (the "New Receivables Trust") was formed
pursuant to a pooling and servicing agreement among Finco, Saks, as servicer,
and Bankers Trust Company, as trustee (the "New A/R Trustee"). The assets of the
New Receivables Trust currently consist principally of a certificate evidencing
the entire interest in the Transition Certificate, Series 1996-1 (the
"Transition Certificate"), which is the second outstanding series issued by the
Original Receivables Trust. The Transition Certificate represents the interest
in the assets of the Original Receivables Trust not represented by Series 1991-2
and has a principal amount which will fluctuate from time to time according to
the level of receivables in the Original Receivables Trust in excess of the
amount required to support the Series 1991-2 Certificates. On the date on which
Series 1991-2 has been fully liquidated (the "Existing Trust Termination Date"),
the assets of the Original Receivables Trust will be transferred to the New
Receivables Trust in exchange for the cancellation of the Transition
Certificate. After the Existing Trust Termination Date, Saks will receive a fee
for servicing the Receivables for the New Receivables Trust.
In April 1996 the New Receivable Trust sold two series of certificates of
beneficial interests. These certificates represent undivided interests in the
receivables generated from time to time by Saks by a portfolio of accounts
meeting the designated eligibility requirements. Series 1996-1 is a medium term
series that matures in April 1999. Approximately $297 million of Class A Series
1996-1 Certificates and $53 million of Class B Series 1996-1 Certificates were
sold in transactions exempt from registration under the Securities Act pursuant
to Rule 144A thereunder. Approximately $47 million of subordinated Series 1996-1
Certificates were privately placed at the same time. All such certificates bear
interest at fixed spreads over one-month LIBOR. Finco retains approximately
$16.5 million of subordinated Series 1996-1 Certificates. Series 1996-1 has a
substantial prefunded amount, which will be invested in Receivables (via the
Transition Certificate) as cash allocable to Series 1991-2 is no longer
reinvested in Receivables, but instead is accumulated in order to make the
principal payment due with respect thereto in November 1996.
Series 1996-2 is a series with a variable principal amount. The Class A
Series 1996-1 Certificates have a maximum outstanding principal balance of $100
million and have been privately placed. Subordinated Series 1996-2 Certificates,
with an aggregate maximum outstanding principal balance of approximately $16.0
million, also were privately placed. All Series 1996-2 Certificates
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bear interest at fixed spreads over one-month LIBOR. Finco will retain up to
approximately $5.0 million of subordinated Series 1996-2 Certificates. The
principal balance of Series 1996-2 is currently zero.
Saks is obligated to repurchase Receivables related to customer credits such
as merchandise returns and other receivable defects. Saks has no obligation to
reimburse Finco, the Original Receivables Trust, the New Receivables Trust or
the purchasers of the certificates of beneficial interests for credit losses;
however, the subordinated certificates of beneficial interest in, and deposits
with, the Original Receivables Trust, and the New Receivables Trust which are
assets of Finco, and the discount on the sale of Receivables to Finco, if any,
are available to cover such losses.
Saks continues to provide for losses related to the receivables pursuant to
the recourse provisions of the relevant agreements in determining its allowance
for doubtful accounts.
Finco is subject to covenants which require it to maintain its business
separate and apart from Saks and restrict its ability to engage in any activity
or business not directly related to acquiring the Receivables and transferring
them to the trusts.
For additional information, see Note 4 to Consolidated Financial Statements.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, assuming no exercise of the Underwriters'
over-allotment option, 60,966,605 shares of Common Stock will be outstanding
(63,029,105 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, the 16,000,000 shares of Common Stock sold in the
Offerings (18,062,500 shares if the Underwriters' over-allotment option is
exercised in full) will be available for resale in the public market without
restriction or further registration under the Securities Act, except that the
2,250,000 shares purchased by SFA Capital Limited, which may be deemed to be an
"affiliate" of Saks Holdings (in general, any person who has a control
relationship with Saks Holdings), which shares may be resold only if registered
under the Securities Act or if transferred pursuant to an exemption from
registration, including resales pursuant to Rule 144 promulgated under the
Securities Act ("Rule 144") and Regulation S promulgated under the Securities
Act ("Regulation S"). The remaining 44,966,605 outstanding shares of Common
Stock are deemed to be "restricted securities" as that term is defined in Rule
144, all of which are eligible for sale in the public market in compliance with
Rule 144 and 36,415,650 of which have been held for at least three years by
persons Saks Holdings believes are not affiliates. Certain existing stockholders
of Saks Holdings (who in the aggregate hold 44,966,605 shares of Common Stock)
have agreed, subject to certain exceptions, that they will not offer, sell or
otherwise dispose of any of the shares of Common Stock owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of the representatives of the Underwriters. Additionally, Saks Holdings
has agreed that, during the period of 180 days from the date of this Prospectus,
subject to certain exceptions, that it will not issue, sell, offer or agree to
sell, grant any options for the sale of (other than employee stock options) or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable for Common Stock, other than pursuant
to the Offerings.
In addition, up to 1,904,255 shares of Common Stock may be issued upon
exercise of certain employee stock options that Saks Holdings has granted, of
which options to purchase 656,272 shares of Common Stock will be exercisable
upon the closing of the Offerings. Also, Saks Holdings will grant, conditioned
upon the closing of the Offerings, options for the purchase of 1,199,750 shares
of Common Stock, one-third of which, or 399,917 shares, will be exercisable upon
the closing of the Offerings. Saks Holdings intends to file a registration
statement on Form S-8 under the Securities Act to register the 6,209,045 shares
of Common Stock reserved for issuance under
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the Incentive Plans. As a result, any shares issued upon exercise of stock
options granted under such plans will be available, subject to special rules for
affiliates, for resale in the public market after the effective date of such
registration statement, subject to applicable lock-up arrangements. See
"Underwriting" and "Management--Stock Incentive Plans".
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years is entitled to sell, within any three-month period, a number of restricted
securities which does not exceed the greater of 1% of the then-outstanding
shares of Saks Holdings' Common Stock (609,666 shares immediately after the
Offerings) or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 also may be subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about Saks Holdings. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of Saks Holdings at any
time during the three months preceding a sale, and who has beneficially owned
shares within the definition of "restricted securities" under Rule 144 for at
least three years, is entitled to sell such shares under Rule 144(k) without
regard to the volume limitation, manner of sale provisions, public information
requirements or notice requirements. Regulation S permits the sale by affiliates
and others of shares in an "offshore transaction" (as defined in Regulation S),
subject to certain other conditions including the requirement that the purchaser
not resell the shares to a U.S. person during a 40 day restricted period.
Prior to the Offerings, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock that are restricted securities or the availability of
such shares will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock and could impair Saks Holdings' future ability to
raise capital through an offering of equity securities.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby will be passed
upon for Saks Holdings by Gibson, Dunn & Crutcher LLP, New York, New York and
for the Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated balance sheets of Saks Holdings as of January 28, 1995 and
February 3, 1996 and the consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
3, 1996, included in this Prospectus, have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
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ADDITIONAL INFORMATION
Saks Holdings has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions having been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
Saks Holdings and the Common Stock, reference is hereby made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, although the material terms thereof are
described in this Prospectus, and, in each instance, reference is made to the
copy of such contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified by such reference to such exhibits.
The Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and
copies of all or any part thereof may be obtained from such office upon payment
of the fees prescribed by the Commission.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets at January 28, 1995 and February 3, 1996................ F-3
Consolidated Statements of Operations for the fiscal years ended January 29, 1994,
January 28, 1995 and February 3, 1996............................................. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended
January 29, 1994, January 28, 1995 and February 3, 1996........................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 1994,
January 28, 1995 and February 3, 1996............................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Saks Holdings, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Saks
Holdings, Inc. and Subsidiaries as of January 28, 1995 and February 3, 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended February 3,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Saks Holdings, Inc. and Subsidiaries as of January 28, 1995 and February 3,
1996, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended February 3, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
March 13, 1996 except as to
the information regarding the amendments
to the Credit Facility in April 1996
presented in Note 5 for which the date is
April 18, 1996 and the information presented
in Note 15, for which the date is
April 26, 1996.
F-2
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................................... $ 9,628 $ 6,627
Accounts receivable (net of allowances of $9,313 and
$11,160).................................................... 43,797 37,426
Inventories................................................... 271,875 339,723
Other current assets.......................................... 44,820 55,420
Restricted cash............................................... 5,392 6,118
----------- -----------
Total current assets.................................... 375,512 445,314
----------- -----------
Property and equipment:
Land.......................................................... 192,053 188,157
Buildings and building improvements........................... 385,927 421,693
Furniture, fixtures and equipment............................. 252,694 229,276
Beneficial leasehold interests................................ 54,161 54,161
Construction in progress...................................... 17,156 5,088
Leased property under capital leases.......................... 95,875 107,008
Assets held for sale.......................................... 8,750 --
----------- -----------
1,006,616 1,005,383
Less, Accumulated depreciation and amortization............. (225,380) (225,119)
----------- -----------
781,236 780,264
Goodwill (net of accumulated amortization of
$12,669 and $15,374).......................................... 95,828 93,123
Other intangibles (net of accumulated amortization of
$4,665 and $5,679)............................................ 9,547 8,533
Other noncurrent assets......................................... 27,074 38,953
----------- -----------
Total assets............................................ $1,289,197 $1,366,187
----------- -----------
----------- -----------
LIABILITIES:
Current liabilities:
Accounts payable, trade....................................... $ 96,577 $ 119,399
Accrued liabilities........................................... 92,756 108,491
Taxes other than income taxes................................. 31,561 21,456
Accrued interest.............................................. 5,504 10,821
Current portion of long-term debt............................. 19,825 26,463
Other......................................................... 4,167 4,772
----------- -----------
Total current liabilities............................... 250,390 291,402
Long term debt.................................................. 755,270 840,239
Obligations under capital leases................................ 95,240 104,468
Other noncurrent liabilities.................................... 41,103 46,903
----------- -----------
Total liabilities....................................... 1,142,003 1,283,012
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01 per share, 10,000 shares
authorized, no shares issued and outstanding.................. -- --
Common Stock, $.01 par value per share, 150,000 shares
authorized, 45,089 issued and 44,958 outstanding.............. 450 450
Additional paid-in capital...................................... 923,368 922,424
Accumulated deficit............................................. (775,022) (839,117)
Treasury stock, at cost......................................... (1,602) (582)
----------- -----------
Total stockholders' equity.............................. 147,194 83,175
----------- -----------
Total liabilities and stockholders' equity.............. $1,289,197 $1,366,187
----------- -----------
----------- -----------
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................ $1,395,536 $1,418,163 $1,686,787
Cost of sales, including buying and occupancy........ (975,360) (979,650) (1,168,692)
---------- ---------- ----------
Gross margin....................................... 420,176 438,513 518,095
Selling, general and administrative expenses......... (394,828) (370,441) (438,603)
Management fees...................................... (2,000) (2,000) (7,000)
Impairment and special charges....................... (177,731) -- (36,415)
---------- ---------- ----------
Operating income (loss).......................... (154,383) 66,072 36,077
Interest, net........................................ (73,822) (76,155) (94,181)
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary charge........................... (228,205) (10,083) (58,104)
Income taxes......................................... -- -- --
---------- ---------- ----------
Income (loss) before extraordinary charge........ (228,205) (10,083) (58,104)
Extraordinary charge--loss on early extinguishment of
debt............................................... (27,640) (535) (5,991)
---------- ---------- ----------
Net income (loss)................................ $ (255,845) $ (10,618) $ (64,095)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share before extraordinary
charge......................................... $ (5.07) $ (.22) $ (1.29)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share...................... $ (5.68) $ (.24) $ (1.43)
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding.............. 45,030 45,010 44,955
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
CAPITAL STOCK
------------------- ADDITIONAL TREASURY TOTAL
SHARES PAR PAID-IN ACCUMULATED STOCK, STOCKHOLDERS'
OUTSTANDING VALUE CAPITAL DEFICIT AT COST EQUITY
----------- ----- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 30,
1993...................... 45,025 $450 $919,757 $(508,559) $ (247) $ 411,401
Purchase of treasury
stock..................... (2) (36) (36)
Reissuance of treasury
stock..................... 4 88 88
Payment of stock
subscriptions receivable... 34 34
Earned compensation......... 167 167
Gain on sale to affiliate... 3,250 3,250
1993 net loss............... (255,845) (255,845)
----------- ----- ---------- ----------- -------- -------------
Balance at January 29,
1994...................... 45,027 450 923,208 (764,404) (195) 159,059
----------- ----- ---------- ----------- -------- -------------
Purchase of treasury
stock..................... (70) (1,393) (1,393)
Reissuance of treasury
stock..................... 3 62 62
Employee stock subscriptions
receivable................ (62) (62)
Surrender of unvested stock
grants.................... (3) 76 (76) 0
Earned compensation......... 146 146
1994 net loss............... (10,618) (10,618)
----------- ----- ---------- ----------- -------- -------------
Balance at January 28,
1995..................... 44,957 450 923,368 (775,022) (1,602) 147,194
----------- ----- ---------- ----------- -------- -------------
Purchase of treasury
stock..................... (1) (26) (26)
Reissuance of treasury
stock..................... 2 46 46
Conversion of stock......... (1,000) 1,000 0
Earned compensation......... 56 56
1995 net loss............... (64,095) (64,095)
----------- ----- ---------- ----------- -------- -------------
Balance at February 3,
1996..................... 44,958 $450 $922,424 $(839,117) $ (582) $ 83,175
----------- ----- ---------- ----------- -------- -------------
----------- ----- ---------- ----------- -------- -------------
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SAKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $(255,845) $ (10,618) $ (64,095)
Adjustments to reconcile net loss to cash provided by
operating activities:
Extraordinary charge..................................... 27,640 535 5,991
Impairment and special charges........................... 177,731 -- 36,415
Depreciation and amortization............................ 86,812 67,974 66,766
Amortization of deferred financing costs................. 13,891 12,731 10,009
Non-cash interest, net................................... 738 (946) 462
Other items, net......................................... (15,395) (7,651) (1,045)
--------- --------- ---------
Net cash provided by operating activities before
changes in operating assets and liabilities.......... 35,572 62,025 54,503
Change in operating assets and liabilities:
Accounts receivable...................................... (35,976) (67,705) (62,583)
Proceeds from sale of accounts receivable................ 722,027 739,851 805,158
Origination of accounts receivable....................... (692,364) (673,202) (751,478)
Inventories.............................................. (15,045) (18,006) (70,974)
Accounts payable......................................... 7,363 21,265 27,322
Accrued liabilities...................................... (2,221) (12,634) 12,257
Accrued interest......................................... (690) 1,294 5,317
Taxes other than income taxes............................ 385 1,108 (10,105)
Other assets and liabilities............................. (3,468) (205) (15,522)
--------- --------- ---------
Net cash provided by (used in) operating activities.... 15,583 53,791 (6,105)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale and sale-leaseback of assets............ -- 31,150 12,806
Capital expenditures....................................... (49,752) (71,713) (87,028)
Construction allowances received from third parties........ 15,393 15,990 4,449
Change in restricted cash.................................. 4,105 9,327 (726)
Proceeds from the sale of subordinated certificates........ 13,500 13,427
--------- --------- ---------
Net cash used in investing activities.................. (30,254) (1,746) (57,072)
--------- --------- ---------
Cash flows from financing activities:
Payments under revolving credit loans and notes, net....... (27,500) (832) (13,566)
Proceeds from term loan.................................... 200,000 -- 125,000
Proceeds from commercial mortgage pass-through
certificates............................................. -- -- 335,000
Payment of Euronotes....................................... (11,000) (26,000) (335,000)
Payment of subordinated debt............................... (130,313) -- --
Premiums paid on early retirement of debt.................. (3,606) -- --
Payment of term loans...................................... (5,000) (16,573) (19,826)
Financing costs............................................ (18,087) (571) (27,064)
Proceeds on sale to affiliate.............................. 11,903 -- --
Principal payments under capital leases.................... (1,331) (2,483) (3,739)
Other...................................................... 32 (1,447) (629)
--------- --------- ---------
Net cash provided by (used in) financing activities.... 15,098 (47,906) 60,176
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents... 427 4,139 (3,001)
Cash and cash equivalents, beginning of period.............. 5,062 5,489 9,628
--------- --------- ---------
Cash and cash equivalents, end of period............... $ 5,489 $ 9,628 $ 6,627
--------- --------- ---------
Supplemental disclosure of cash flow information:
Interest paid.............................................. $ 60,582 $ 54,416 $ 69,504
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of non-cash investing and financing
activities:
Capital leases............................................. $ 4,947 $ 28,867 $ 13,626
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
1. BASIS OF PRESENTATION
Saks Holdings, Inc. ("Saks Holdings"), through its wholly-owned subsidiary
Saks & Company, which does business as Saks Fifth Avenue ("Saks", and together
with Saks Holdings, the "Company") is a premier fashion retailer, offering the
finest quality and latest style in women's and men's apparel. The consolidated
financial statements include the accounts of Saks Holdings and its direct and
indirect subsidiaries, and Fifth Avenue Capital Trust, an entity formed to
effect Saks' real estate financing (See Note 5). Saks Holdings' only asset is
its investment in Saks; it has no other operations or cash flows. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR:
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
1995 contains 53 weeks and ended on February 3, 1996. Fiscal 1994 and fiscal
1993 contain 52 weeks and ended on January 28, 1995 and January 29, 1994,
respectively.
NET SALES:
Net sales include sales of merchandise and sales of leased departments, net
of returns. Sales of leased departments were $55,608, $56,416 and $70,940 in
fiscal 1993, fiscal 1994 and fiscal 1995, respectively.
SAKS FIRST PROGRAM:
The Company maintains a customer loyalty program which rewards customers who
spend more than two thousand dollars annually on their Saks credit card. The
rewards range from 2% to 6% of the customers' spending and are in the form of
gift checks redeemable at Saks. The cost associated with future redemptions is
recorded as a charge to cost of goods sold in the period in which the rewards
are earned.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of deposits with banks and financial
institutions which are unrestricted as to withdrawal or use, and have
maturities, when purchased, of three months or less. Cash equivalents are stated
at cost which approximates market. Restricted cash consists of $1.5 million
payable to the Trust under the Company's accounts receivable securitization
program in both fiscal 1994 and fiscal 1995. Additionally, restricted cash
includes, in fiscal 1994 and fiscal 1995, $3.9 and $.4 million, respectively,
required under the Company's real estate financing and, in fiscal 1995, a $4.2
million real estate financing prepayment related to the sale of the Owings Mills
store location.
F-7
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
ACCOUNTS RECEIVABLE AND FINANCE CHARGE INCOME:
In accordance with industry practice, installments on deferred payment
accounts receivable maturing in more than one year have been included in current
assets.
The Company provides credit to its customers and performs ongoing credit
evaluations of its customers. Concentration of credit risk is limited because of
the large number of customers and their dispersion throughout the United States
and other countries. The Company maintains an allowance for potential credit
losses which, when realized, has been within the range of management's
expectations.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Allowance for uncollectable receivables--beginning of
period...................................................... $11,251 $10,892 $ 9,313
Bad debt expense.............................................. 14,444 11,400 20,628
Write-offs, net of recoveries................................. (14,803) (12,979) (18,781)
------- ------- -------
Allowance for uncollectable accounts--end of period........... $10,892 $ 9,313 $11,160
------- ------- -------
------- ------- -------
</TABLE>
The Company has an ongoing program to sell certain of its proprietary credit
card receivables (the "Receivables"). See Note 4. The Company's credit
operations generate finance charge income and service fee income which is
recognized as income when earned. Finance charge income, net of certain costs
associated with the securitization of accounts receivable is included as a
reduction of selling, general and administrative expenses in the consolidated
statements of operations and was $30,414, $34,424 and $37,084 in fiscal 1993,
fiscal 1994 and fiscal 1995, respectively. Service fee income was $5,420, $6,544
and $7,745 in fiscal 1993, fiscal 1994, and fiscal 1995, respectively. As noted
above, the Company's credit operations are an integral part of its business,
accordingly its records are not maintained to report credit as a separate line
of business.
MERCHANDISE INVENTORIES:
Merchandise inventories are stated at the lower of cost or market, as
determined by the retail method. Consignment merchandise on hand of $59,105 and
$72,720 at January 28, 1995 and February 3, 1996, respectively, are not
reflected in the consolidated balance sheets.
ADVERTISING:
Direct response advertising costs are deferred and amortized over the period
of expected benefit. Direct response advertising consists primarily of costs
associated with the production and distribution of the Company's catalogs. Such
costs are amortized within a three-month period following mailing. All other
advertising costs are expensed in the period incurred. Advertising expenses were
$26,842, $30,566 and $42,956, in fiscal 1993, fiscal 1994 and fiscal 1995,
respectively. Direct response advertising amounts included in Other current
assets in the consolidated balance sheets at January 28, 1995 and February 3,
1996 were $3,739 and $6,972, respectively.
STORE PREOPENING COSTS:
Costs associated with the opening of a new store are deferred and amortized
over the 12 months following the store opening.
F-8
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. The cost of property and
equipment placed in service prior to July 1990 was revalued at the acquisition
of Saks in 1990 (the "Acquisition"). Property and equipment are depreciated on a
straight-line basis over their estimated useful lives. In fiscal 1993 the
Company reviewed the carrying value of its store assets. See Note 3.
Leasehold improvements included in buildings and building improvements are
amortized over the shorter of their estimated useful lives or related lease
terms. Beneficial leasehold interests are being amortized on a straight-line
basis over 15 years.
The Company capitalizes both internally developed and purchased computer
software. The cost of such computer software is amortized on a straight-line
basis using its five-year estimated useful life. See Note 3. Capitalized
software costs included in the consolidated balance sheets at January 28, 1995
and February 3, 1996 were $15,095 and $8,062, respectively.
NONCURRENT ASSET IMPAIRMENT:
The Company assesses whether an asset has been impaired whenever factors
indicate that the carrying amount of a store's asset base may not be
recoverable. Significant factors considered include long-term economic downturns
in a market in which a store operates, a reduction of customer traffic due to
the opening of a new mall and the introduction of new competition to the
marketplace. These factors are used to assess whether the store's forecasted
operating results will recover the store's asset base over the remaining
depreciation and amortization periods.
DEFERRED FINANCING COSTS:
Financing costs are amortized over the life of the related debt. Such costs
are included in Other noncurrent assets in the consolidated balance sheets and
amortization is included in interest expense in the consolidated statements of
operations.
DERIVATIVES POLICY:
The Company's policy is to use financial derivatives only to reduce risk in
conjunction with specific business transactions.
The Company purchased interest rate cap agreements to limit its exposure to
adverse movements in interest rates related to the Credit Facility and the real
estate financing (See Note 5). The financial institutions associated with these
agreements are considered to be major, well-known institutions. The premiums
paid were capitalized and are being amortized over the term of the related
agreements.
GOODWILL:
Goodwill is amortized over 40 years by the straight-line method. Goodwill is
allocated to individual stores on the basis of their projected cash flows at
their acquisition date.
OTHER INTANGIBLES:
Other intangibles include computer software and customer lists acquired at
the Acquisition which are being amortized on a straight-line basis over their
useful lives of three and 14 years, respectively. Computer software costs became
fully amortized in July 1993.
F-9
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires recognition of deferred tax assets and liabilities on the basis of the
difference between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect for the years in which the
differences are expected to reverse (See Note 9).
RECENT ACCOUNTING PRONOUNCEMENTS:
In March 1995 and October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets" (SFAS 121), and Statement of Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
respectively. SFAS 121 is effective for fiscal years beginning after December
31, 1995, and addresses the accounting for potential impairment of long-lived
assets. The effect of implementing SFAS 121 is not expected to be material to
the Company's financial position or results of operations. SFAS 123 is effective
for fiscal years beginning after December 15, 1996 and introduces a fair-value
based method of accounting for stock-based compensation. SFAS 123 encourages but
does not require companies to adopt the fair-value based method. Management does
not intend to adopt the recognition provisions of SFAS 123.
3. IMPAIRMENT AND SPECIAL CHARGES
In fiscal 1993 the Company recorded a charge of $177,731 related to asset
impairment and other special charges. The impairment charges which totaled
$118,015 reduced the carrying value of property and equipment, goodwill and
intangible assets of certain stores and an idle service center to their net
realizable values. The Company determined the net realizable values of these
assets by assessing the discounted cash flows it estimated would be generated in
the future. The writedown of property and equipment, goodwill and intangible
assets amounted to $81,481, $33,295, and $3,239 respectively.
The other special charges in fiscal 1993 consisted of $40,166 for store
closings and downsizing and $19,550 related to an early retirement program. The
store closings and downsizing charge related to the closing of five of its
full-line or resort stores and all of its specialty store operations. The
principal components of the charge consisted of reducing certain property and
equipment to net realizable value, lease related costs, cost of inventory
liquidations, and severance.
The non-cash impact of the asset impairment and store closings charges was
$134,671. The cash impact of the change in fiscal 1993 was $19,550. The
remaining items in the store closings and downsizings charge totaling $23,510
were settled in fiscal 1994 and fiscal 1995 in the range of management's
expectations.
In fiscal 1995 the Company recorded special charges totaling $36,415. The
charges recorded consist of exit costs of its Yonkers distribution center, the
integration costs of former I. Magnin locations and writedown of capitalized EDP
software and amounted to $19,015, $8,900 and $8,500, respectively.
Exit costs include the writedown of the Yonkers distribution center to net
realizable value. The writedown was necessary as a result of the Company's
decision to exit this facility in early 1997 and relocate distribution
activities to a facility currently under construction in Aberdeen, Maryland.
This writedown and the costs associated with exiting this facility totaled
$19,015. The costs of
F-10
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
exiting the Yonkers facility include the Company's estimate of the severance
costs, related to vacating the facility, and certain occupancy costs during the
period prior to the sale of the facility. The closing of this facility will
involve the termination of approximately 530 associates. The liability for these
costs is included in accrued liabilities in the consolidated balance sheet at
February 3, 1996. Amounts paid and charged against the liability and other
adjustments to the liability during fiscal 1995 were not material. The
anticipated costs of relocating its distribution activities to the Aberdeen
distribution facility have not been accrued and are not expected to materially
impact future results. Additionally, Saks will receive incentive payments from
various government agencies which are expected to approximate these costs.
Integration costs consist of costs to integrate the former I. Magnin store
locations into the Company's west coast locations. These costs include customer
acquisition costs, training and travel costs and remerchandising and other
costs.
The Company began implementation of a new core retail information processing
system in fiscal 1995. As a result certain of its capitalized software became
obsolete and was written off.
4. ACCOUNTS RECEIVABLE SALE
Saks has entered into agreements to securitize most of its Receivables.
The securitization of receivables involves the sale of Receivables with
limited recourse through a subsidiary to a trust in exchange for cash and
subordinated certificates representing undivided interests in the pool of
Receivables, and the subsequent sale by the trust of certificates of beneficial
interests, also representing undivided interests in the Receivables, to
investors. Saks is obligated to repurchase Receivables related to customer
credits such as merchandise returns and other receivable defects. Saks has no
obligation to reimburse the trust or the purchasers of beneficial interests for
credit losses; however, the subordinated certificates and deposits with the
trust and the discount on the sale of Receivables are available to cover such
losses.
Saks continues to service all receivables for the trust for a normal
servicing fee for similar types of transactions. Saks has agreements with third
parties to provide certain credit card processing and related credit services.
During fiscal 1994 and fiscal 1995, a portion of the subordinated
certificates were sold for $13,500 and $13,427, respectively. The Company
continues to hold the remaining subordinated certificates, which, subject to
approval of the trust, can be placed with third parties.
The reinvestment period of the securitization facility is scheduled to
terminate in May 1996. Upon expiration of the reinvestment period, subsequent
principal collections will be allocated on a pro rata basis to each
certificateholder. The Company expects to replace this facility in April 1996.
The Company's interest in subordinated certificates representing its equity
in the trust totaled $23,437 and $11,182, at January 28, 1995 and February 3,
1996, respectively, and is included in accounts receivable in the consolidated
balance sheets. At January 28, 1995 and February 3, 1996, $344,650 and $398,330,
respectively, of the Receivables sold to the trust on behalf of investors remain
outstanding.
Under the terms of the securitization agreements, the Company provides
enhancements for the protection of purchasers of the certificates of beneficial
interest against loss. A deposit with the trust of $7,602 and $8,447, at January
28, 1995 and February 3, 1996, respectively, is also available for credit loss
and is included in other noncurrent assets in the consolidated balance
F-11
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
sheets. The Company's obligation to repurchase Receivables subject to customer
credit adjustments is collateralized by letters of credit in the amount of
$8,621 and $1,459 at January 28, 1995 and February 3, 1996, respectively. The
Company provides for losses related to the Receivables in determining the
allowance for doubtful accounts.
5. LONG TERM DEBT
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
Total Credit Facility:
Term Loans:
Tranche A.................................. $ 79,300 $ 59,475
Tranche B.................................. 99,127 224,127
Base Revolving Loans......................... 211,668 198,100
----------- -----------
390,095 481,702
----------- -----------
Total Real Estate Financing:
Euronotes.................................... 335,000 --
REMIC Certificates........................... -- 335,000
----------- -----------
335,000 335,000
----------- -----------
Subordinated Notes............................. 50,000 50,000
----------- -----------
775,095 866,702
Less current portion of long term debt......... 19,825 26,463
----------- -----------
$ 755,270 $ 840,239
----------- -----------
----------- -----------
CREDIT FACILITY
In July 1993, Saks entered into a $525,000 amended and restated bank credit
facility (the "Credit Facility") which provided for $200,000 in term loans (the
"Term Loans"), $225,000 in base revolving credit loans (the "Base Revolving
Loans"), and $100,000 in working capital revolving credit loans (the "Working
Capital Revolving Loans"). The principal changes to the previous facility were
the establishment of the Term Loans and the extension of maturity dates on the
revolvers. Proceeds from the Term Loans were principally used to prepay 13%
Subordinated Debt. Deferred financing costs of $7.5 million relating to the
prior senior credit agreement were written off as an extraordinary charge in
fiscal 1993. The Term Loans consist of two tranches: the tranche A term loan
(the "Tranche A Loan") and the Tranche B term loan (the "Tranche B Loan"), each
initially in the amount of $100,000.
In March 1995, Saks and the lenders party to the Credit Facility (the
"Lenders") amended the Credit Facility to increase the principal amount of the
Tranche B Loan by $75,000, primarily for the purpose of financing the
acquisition and conversion of four stores previously operated by I. Magnin. In
October 1995, Saks and the Lenders amended the Credit Facility to (a) increase
the principal amount of the Tranche B Loan by $50,000 and (b) permit Saks to
retain up to $25,000 of net proceeds from asset sales that otherwise would have
been subject to mandatory prepayment under the Credit Facility, each for the
purpose of financing capital expenditures relating to the remodeling,
replacement and construction of retail stores and a distribution center.
F-12
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
In March 1996, Saks and the Lenders amended the Credit Facility to, among
other things, (i) permit the initial public offering of the shares of Common
Stock of Saks Holdings (the "Offerings") (see Note 15) provided that the gross
proceeds received by Saks Holdings from the Offerings exceed $200 million and
the net proceeds received by Saks Holdings from the Offerings are immediately
contributed to Saks, (ii) exclude up to $45 million in special charges from the
calculation of certain restrictive financial covenants and (iii) require that
(a) at least one-third of the net proceeds from the Offerings be used to prepay
Term Loans and (b) the remainder of such net proceeds be used to prepay first
the Working Capital Revolving Loans and then the Base Revolving Loans. In April
1996, Saks and the Lenders amended the Credit Facility to, among other things,
(i) allow certain of the proceeds of the Base Revolving Loans and Working
Capital Revolving Loans to be used to make permitted acquisitions and permitted
capital expenditures, (ii) add a covenant specifying a maximum ratio of
outstanding loans to consolidated adjusted operating profit tested annually and
(iii) amend the method of calculating interest rates under the Credit Facility
as set forth below. In April 1996, Saks and the Lenders amended the Credit
Facility to allow Saks to make payments, dividends or distributions with respect
to operating costs incurred by Saks Holdings in amounts not to exceed $4.0
million per fiscal year.
The Company, from time to time, may request standby or commercial letters of
credit which reduce amounts available under the Working Capital Revolving Loans.
At January 28, 1995 and February 3, 1996, approximately $9,242 and $6,694,
respectively, of letters of credit were outstanding.
The remaining principal amount of the Tranche A Loan is payable in five
consecutive semiannual installments, that increase over time from approximately
$9,900 to $12,400, commencing June 1996. The remaining principal amount of the
Tranche B Loan is payable in six consecutive semiannual installments, commencing
December 1997, ranging from approximately $5,600 for the first two installments
to approximately $56,000 for the last two installments.
Under the terms of the Credit Facility, the maximum borrowings under each
facility are reduced, on a pro rata basis, upon the incurrence of any
indebtedness not specifically permitted under the agreement or the consummation
of a sale, sale-leaseback or other disposition of the Company's property or
assets, as defined in the Credit Facility, except with respect to the REMIC
Financing described below and certain other sales of property or assets. As of
February 3, 1996 the maximum borrowings allowable under the Term Loans, Base
Revolving Loans and Working Capital Revolving Loans were $283,602, $225,000 and
$97,163, respectively.
As of January 28, 1995 and February 3, 1996, total available credit under
the Credit Facility was $101,253 and $117,369, respectively. During fiscal 1994
and fiscal 1995, the weighted average interest rate was approximately 7.33% and
9.0%, respectively, for all debt under the Credit Facility.
Prior to consummation of the Offerings, Saks may borrow up to $20 million in
aggregate principal amount of swingline loans which bear interest at the
Alternate Base Rate (as defined in the Credit Facility) plus 1 1/2%. All other
loans under the Credit Facility bear interest prior to the closing of the
Offerings at a rate equal to, at Saks' option, (a) the Alternate Base Rate plus
2% for the Tranche B Loan or 1 1/2% for all other loans, or (b) the Eurodollar
Rate (as defined in the Credit Facility) plus 3% for the Tranche B Loan or 2
1/2% for all other loans. Following the consummation of the Offerings, Saks may
borrow up to $20 million in aggregate principal amount of swingline loans which
bear interest at the Alternate Base Rate plus an applicable margin ranging from
0.0% to 1.0% depending on the Interest Coverage Ratio (as defined in the Credit
Facility). All other loans under
F-13
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
the Credit Facility following the closing of the Offerings will bear interest at
a rate equal to, at Saks' option, (a) the Alternate Base Rate plus a percentage
ranging from 0.0% to 1.5% depending on the Interest Coverage Ratio or (b) the
Eurodollar Rate plus a percentage ranging from 1.0% to 2.5% depending on the
Interest Coverage Ratio. Eurodollar loans can have maturities of one-, two-,
three- or six-month periods. Interest is payable on these loans at the maturity
dates, except for six-month period loans, which provide for interest to be
payable quarterly. Interest on Alternate Base Rate loans is payable quarterly.
During fiscal 1993 and fiscal 1994, the Company consummated the sale and
sale-leaseback of certain properties. In fiscal 1994, the net proceeds of such
sales were used to reduce the Tranche A, Tranche B and Working Capital Revolving
Loans by $10,700, $873 and $2,837, respectively.
The Credit Facility contains restrictive covenants, which include
limitations on capital expenditures, specified minimum levels of consolidated
net worth and minimum consolidated adjusted operating profit, as well as
maintenance of specified ratios, including an interest coverage ratio, as
defined. In addition, the Credit Facility contains restrictions on Saks' ability
to pay dividends or make other distributions to Saks Holdings. Saks Holdings is
a holding company with no business operations of its own. Saks Holdings
therefore is dependent upon payments, dividends and distributions from Saks for
funds to pay its expenses and to pay future cash dividends or distributions, if
any, to holders of the Common Stock. The Credit Facility provides that Saks may
not declare any dividends or make any other payments or distributions to Saks
Holdings except for amounts necessary (i) to pay Saks Holdings' operating
expenses up to $4 million per fiscal year and (ii) to pay Saks Holdings' taxes.
With respect to the impairment and special charges described in Note 3, the
Company received consent from the banks, in May 1994 and March 1996, which
excluded such charges from the aforementioned restrictive covenants. Amounts
outstanding under the Credit Facility are collateralized by the assets of Saks
and its subsidiaries, except for the real estate properties included in the real
estate financing described below, the accounts receivable described in Note 4,
inventories and the capital stock of Saks' real estate subsidiaries and the
capital stock of the subsidiaries established to effect the accounts receivable
sale. Saks Holdings has guaranteed the payment of principal and interest by Saks
and has collateralized this guarantee with a pledge of the capital stock of
Saks.
The occurrence of the Offerings will not trigger the change of control
provision under the Credit Facility.
REAL ESTATE FINANCING:
In December 1990, the Company issued $500,000 of Euronotes (the "Notes") in
connection with the completion of a major real estate financing. During fiscal
1993 and fiscal 1994, early repayment of Notes, arising from the sale and
closing of certain properties and the reversion of escrow amounts aggregated
$11,000 and $26,000, respectively. The sale of properties resulted in gains of
$3,250 and $2,115 in fiscal 1993 and fiscal 1994, respectively. (See Note 12.)
The Notes accrued interest at .75% over the three-month LIBOR with interest
payable on a quarterly basis. These Notes were refinanced in May 1995.
In May 1995, the Company through a subsidiary trust completed a real estate
financing, aggregating $335,000, through the issuance of mortgage loans
collateralized by intercompany leases. Mortgage certificates in the principal
amount of $175,000 bear interest at variable rates based on three-month LIBOR,
payable quarterly. The remaining $160,000 in certificates, which are
F-14
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
subordinated to the other certificates, bear interest at annual fixed rates
ranging from 8.98% to 12.36%, payable semiannually. All of the mortgage
certificates are scheduled to mature in May 2002. The debt related to individual
properties is prepayable at premiums ranging from stated value to 150% of stated
value. The various properties collateralizing the mortgage certificates are
cross guaranteed. Saks guarantees the obligations under all intercompany leases.
In January 1996, the Company sold one of its stores and prepaid the mortgage
loan associated with this property aggregating $4,159. The proceeds were used to
prepay the related mortgage certificate in February 1996 (see Note 2). The sale
of the Yonkers distribution center (See Notes 3 and 13) would require the
prepayment of mortgage certificates totaling $9,074.
SUBORDINATED NOTES:
In fiscal 1993, the Company issued $50,000 of Subordinated Notes due May
2001. Interest is payable at 9% per annum on a semiannual basis. The notes are
subject to optional redemption from time to time at specified prices ranging
from 104% to 100%. These notes are subordinated to other indebtedness of the
Company.
Proceeds from the issuance of the Term Loans and the 9% Subordinated Notes
were used to prepay the remaining 13% subordinated debt issued at the
Acquisition, which consisted of principal of $180,313, accrued interest of
$11,720, and redemption premiums of $3,606. Deferred financing costs of $16,155
related to the repaid subordinated debt and the aforementioned redemption
premiums are reflected as an extraordinary charge to operations in 1993.
The Subordinated Notes may be redeemed at the option of Saks in whole or in
part at any time before maturity. Upon a "Change of Control," as defined, Saks
is obligated to make an offer to repurchase all outstanding Subordinated Notes
at the optional redemption prices set forth above, plus accrued and unpaid
interest. The occurrence of the Offerings will not trigger a change of control.
The subordinated note indenture provides that Saks may not declare any dividends
or make any other distributions on any shares of its capital stock other than
dividends to Saks Holdings in amounts required for Saks Holdings to pay
franchise taxes and other fees required to maintain its corporate existence and
to pay Federal, state and local income taxes.
The Company has purchased various interest rate caps to minimize its
exposure to interest rate fluctuations (See Note 11).
In addition as of February 3, 1996 approximately $5.3 million in letters of
credit were outstanding under a $10 million letter of credit facility.
The Company's expected aggregate principal payments as of February 3, 1996
for all indebtedness, excluding capital leases (See Note 10), are as follows:
1996............................................................ $ 26,463
1997............................................................ 30,384
1998............................................................ 266,522
1999............................................................ 106,460
2000............................................................ 56,032
Thereafter...................................................... 380,841
--------
$866,702
--------
--------
F-15
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
6. STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNTS)
CAPITALIZATION:
The following is a summary of the capitalization of the Company at January
28, 1995 and February 3, 1996:
<TABLE>
<CAPTION>
<S> <C>
Class A Stock: 37,500 shares authorized, issued and outstanding.
Class B Stock: 2,250 shares authorized, issued and outstanding.
Class C Stock: 25,050 shares authorized; 5,187 and 5,239 shares issued and 5,107 and
5,158 shares outstanding, respectively, at January 28, 1995 and February
3, 1996. Additionally, treasury stock aggregated 80 and 29 shares as of
January 28, 1995 and February 3, 1996, respectively.
Class D Stock: 100 shares authorized and issued at January 28, 1995 and February 3, 1996;
100 and 50 shares outstanding at January 28, 1995 and February 3, 1996,
respectively.
Common Stock: 150,000 shares authorized; none issued and outstanding.
</TABLE>
All of the stock has a $.01 par value per share. The transfer of any shares
of stock is restricted as specified in the Company's Certificate of Designation
(the "Certificate").
Under the Senior Management Stock Incentive Plan and the 1996 Stock
Incentive Plan, an aggregate of, 6,209 shares of Class C Stock have been
reserved. In addition to the options described in Note 7, certain officers and
employees of the Company held 171.3 and 172.3 shares of restricted Class C
Shares as of January 28, 1995 and February 3, 1996, respectively.
CONVERSION OF STOCK:
In the event of an initial public offering or sale of the Company, as
defined in the Certificate, all issued and outstanding shares of Class A, Class
B, Class C and Class D Stock not otherwise redeemed by the Company shall
automatically convert into shares of Common Stock on a one-for-one basis.
VOTING RIGHTS:
Holders of shares of Class D Stock and Common Stock are entitled to one vote
for each share of such stock held. Until a change of control of the Company, as
defined in the Certificate, holders of Class A, Class B and Class C Stock have
no voting rights, except that the holders of these shares shall have the right
to one vote for each share held as to the approval of any change to the
Certificate of Incorporation that would increase or decrease the par value of
such stock, or change the powers, preferences or special rights of such stock so
as to have a material adverse effect on such holders.
Effective upon a change of control, holders of shares of Class A, Class B
and Class C Stock shall be entitled to one vote for each share of stock held.
Currently, affiliates of Investcorp S.A. ("Investcorp") own all of the
outstanding voting stock of the Company. Investcorp owns no voting stock and
less than 10% of the Company's total outstanding stock.
F-16
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
LIQUIDATION RIGHTS:
In the event of liquidation of the Company, each holder of Class A, Class B
and Class C Stock shall be entitled to receive $.001 per share before any
payment or distribution shall be made or set aside for payment on the Class D
Stock or Common Stock. Any remaining assets or proceeds therefrom are to be
distributed to all stockholders on a pro rata basis.
DIVIDEND RIGHTS:
Dividends are payable to all stockholders on a pro rata basis upon
declaration of such dividends by the Board of Directors.
7. STOCK INCENTIVE PLANS (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNT)
In October 1990, Saks Holdings adopted a Senior Management Stock Incentive
Plan (the "Old Incentive Plan"), and in February 1996, Saks Holdings adopted a
1996 Management Stock Incentive Plan (the "New Incentive Plan" and together with
the Old Incentive Plan, the "Incentive Plans"), for members of senior management
and certain other officers and employees of the Company. As of February 3, 1996
there were options to purchase 1,455.2 shares of Common Stock outstanding under
the Old Incentive Plan, and no options outstanding under the New Incentive Plan.
No additional options will be granted under the Old Incentive Plan. The maximum
number of shares of Common Stock issuable pursuant to the Incentive Plans is
6,209, subject to adjustment to reflect stock splits, stock dividends and
similar stock transactions.
The Incentive Plans provide for the grant of options that qualify as
incentive stock options ("ISOs") under the Internal Revenue Code, as amended, as
well as options that do not qualify as ISOs ("Non-qualified Options")
(collectively referred to as the "Options"), and also provide for the grant of
stock appreciation rights and for the sale or grant of restricted stock. Options
to purchase shares of Common Stock may extend for ten years for ISOs and ten
years and 30 days for Non-qualified Options from the date of grant. Options may
not be granted and restricted stock may not be sold or granted under the
Incentive Plans after October 17, 2000. The exercise of Options is conditioned
upon active employment with the Company. In the event an employee ceases to be
employed by the Company, for any reason, the Company may repurchase at fair
market value, as determined annually by the Board of Directors, any shares of
Class C Stock acquired by such employee pursuant to exercise of an Option
granted under the Incentive Plans.
F-17
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
The following table summarizes the activity in Options:
COMPANY-
OTHER PERFORMANCE
OPTIONS OPTIONS
------- -----------
Outstanding at January 29, 1994................... 155.4 1,330.5
Granted......................................... -- 147.2
Canceled........................................ (25.4) (301.1)
------- -----------
Outstanding at January 28, 1995................... 130.0 1,176.6
Granted......................................... 172.1 80.9
Canceled........................................ (16.1) (88.3)
------- -----------
Outstanding at February 3, 1996................... 286.0 1,169.2
------- -----------
------- -----------
The exercise price of all Options granted is $20.00 per share, representing
the estimated fair market value at the time of grant.
In accordance with an exchange approved by the Board of Directors of the
Company on January 19, 1996, on February 28, 1996, Options to acquire 1,620.9
shares of Common Stock issued under the Old Plan were surrendered to the Company
in exchange for the issuance of Options to purchase an identical number of
shares under the New Incentive Plan. The exercise price of the new Options is
$16.00 per share. The individual Stock Option Agreements pursuant to which
Options are granted under the New Incentive Plan provide that Options vest to
the extent of one-third of the shares underlying the Options granted as of the
closing of the Offerings, one-third on the first anniversary thereof and
one-third on the second anniversary thereof. In the event of an Approved Sale
(as defined in the agreement), all options vest in their entirety. The Stock
Option Agreements further provide for the termination of the vested portions of
any Options upon the tenth anniversary of such Stock Option Agreement, and for
acceleration of termination if the employee ceases to be employed by Saks
Holdings or a subsidiary.
8. POSTEMPLOYMENT BENEFITS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time employees. Benefits are based upon years of service
and compensation prior to retirement. As a result of the Company's special
retirement initiative in fiscal 1993 and funding limitations, the plan refunded
the Company $4,574 in fiscal 1994. The Company did not make a contribution in
fiscal 1994 or fiscal 1995. The Company's policy is to fund the plan to satisfy
the requirements of the Employee Retirement Income Security Act of 1974
("ERISA"). Pension Plan assets consist primarily of short term investments,
bonds, various equities and real estate interests.
F-18
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
The net periodic pension expense consisted of the following components:
FISCAL FISCAL FISCAL
1993 1994 1995
------- ------- -------
Service cost.................................. $ 4,815 $ 4,250 $ 3,527
Interest cost................................. 6,137 6,226 5,778
Loss (return) on plan assets.................. (9,450) 3,085 (9,095)
Net (deferral) amortization................... 2,318 (8,600) 4,906
------- ------- -------
Net pension expense....................... $ 3,820 $ 4,961 $ 5,116
------- ------- -------
------- ------- -------
The following table sets forth the Pension Plan's funded status and the
present value of benefit obligations:
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
Accumulated benefit obligation:
Vested....................................... $ (62,169) $ (77,266)
Nonvested.................................... (3,618) (4,838)
----------- -----------
(65,787) (82,104)
Effect of projected future salary increases.... (2,776) (4,562)
----------- -----------
Projected benefit obligation................... (68,563) (86,666)
Plan assets at fair value...................... 48,598 53,058
----------- -----------
Plan assets (less than) projected benefit
obligation............................... (19,965) (33,608)
Unrecognized net (gain) loss................... (4,108) 4,415
Unrecognized prior service cost................ (60) (56)
----------- -----------
(Accrued) pension cost..................... $ (24,133) $ (29,249)
----------- -----------
----------- -----------
The Company also maintains an unfunded supplemental retirement plan which
provides for benefits in addition to those provided by the Pension Plan.
Expenses related to the supplemental plan were $591, $487 and $502 in fiscal
1993, fiscal 1994 and fiscal 1995, respectively. Payments from the supplemental
plan were $336 and $279 for fiscal 1994 and fiscal 1995, respectively. The
accrued liability for this plan at January 28, 1995 and February 3, 1996 was
$7,037 and $7,260, respectively.
The actuarial present value of the projected benefit obligations for both
the Pension Plan and supplemental plan was determined at a weighted-average
assumed discount rate and an assumed rate of increase in future compensation of
9.0% and 3.0%, respectively, for fiscal 1994 and 7.35% and 3.0%, respectively,
for fiscal 1995. The assumed long-term rate of return on plan assets was 9.0%
for both fiscal 1994 and fiscal 1995. A 1% change in the assumed discount rate
would change the accumulated benefit obligation by approximately $10 million.
The Company also maintains a 401(k) Plan which covers substantially all of
its employees. The plan is a defined contribution plan and is subject to the
provisions of ERISA. The assets of the plan can be invested in a fixed income
fund and six mutual funds. Eligible employees may contribute up to 16% of their
compensation, as defined. The Company contributes an amount equal to 1/4 of the
F-19
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
first 6% of an employee's contribution. The Company's expense was $1,914, $1,912
and $2,098, for fiscal 1993, fiscal 1994 and fiscal 1995, respectively.
As of the date of the Acquisition, the Company recorded an actuarially
determined liability representing the present value of certain postemployment
health care and life insurance benefit obligations for certain retirees as well
as active employees. In fiscal 1993, the Board approved changes to such benefits
which substantially reduced these benefits and resulted in aggregate reductions
in the accrued liability and employee benefit expenses of $6,452.
9. INCOME TAXES
The Company has net operating loss carryforwards for tax purposes of
approximately $727,597 at February 3, 1996. The carryforwards begin to expire,
unless utilized, in fiscal 2005 through fiscal 2010. The Company has not
reflected any benefit in the consolidated financial statements with respect to
these carryforwards because it has provided a valuation allowance equivalent to
the net deferred tax assets.
The Company recorded certain assets and liabilities at the date of the
Acquisition for financial reporting purposes which are not similarly recognized
under income tax regulations, aggregating a tax benefit of $34,525. Subsequent
realization of this tax benefit will be accounted for as a reduction of
goodwill.
At January 28, 1995 and February 3, 1996 the Company had net deferred tax
assets of $337,803 and $345,059, respectively. The tax effects of temporary
differences that give rise to the deferred tax assets are as follows:
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforward................................... $ 253,506 $ 289,609
Accrued expenses and reserves................................. 20,962 17,722
Employee benefits............................................. 12,486 14,532
Depreciation/amortization and basis differences............... 39,702 15,575
Allowance for doubtful accounts............................... 3,707 4,442
Deferred lease payments....................................... 2,542 3,133
Other......................................................... 4,898 4,084
----------- -----------
Total deferred tax assets................................... 337,803 349,097
Deferred tax liability
Deferred financing costs...................................... 0 (4,038)
----------- -----------
Total deferred tax liability................................ 0 (4,038)
----------- -----------
Net deferred tax assets....................................... 337,803 345,059
Less valuation allowance...................................... (337,803) (345,059)
----------- -----------
Net deferred tax.............................................. $ 0 $ 0
----------- -----------
----------- -----------
</TABLE>
The reconciliation between the statutory federal income tax rate and the
effective income tax rate for the last three years is as follows:
F-20
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate.................................. 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit........... 4.8 4.8 4.8
------ ------ ------
Effective income tax rate........................................ 39.8 39.8 39.8
Generation of NOL carryforward................................... (39.8 ) (39.8 ) (39.8 )
------ ------ ------
Net effective income tax rate.................................... 0.0% 0.0% 0.0%
------ ------ ------
------ ------ ------
</TABLE>
10. LEASES
The Company leases certain land and buildings under various noncancelable
capital and operating leases. The Company's capital leases have remaining terms
of up to 29 years. Operating leases consist of land leases and land and building
leases with terms from one to 54 years. All of these leases are subject to
renewal options.
Substantially all leases provide for contingent rentals based upon sales and
require the Company to pay taxes, insurance and occupancy costs. Certain rentals
are based solely on a percentage of sales.
The Company also leases certain equipment under operating leases expiring
during the next five fiscal years.
The Company's rent expense consisted of the following:
FISCAL FISCAL FISCAL
1993 1994 1995
------- ------- -------
Land and building rent:
Fixed minimum.............................. $ 8,960 $ 8,787 $11,401
Contingent rentals......................... 5,694 4,516 5,454
------- ------- -------
Total land and building rent............. 14,654 13,303 16,855
Equipment and other.......................... 4,851 4,540 3,956
------- ------- -------
Total rent expense....................... $19,505 $17,843 $20,811
------- ------- -------
------- ------- -------
F-21
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
At February 3, 1996, the future minimum lease commitments under
noncancelable operating and capital leases, including equipment leases, are as
follows:
FISCAL YEARS CAPITAL OPERATING
--------------------------------------------------- -------- ---------
1996............................................... $ 14,311 $ 17,175
1997............................................... 13,898 22,751
1998............................................... 12,131 20,454
1999............................................... 11,851 19,415
2000............................................... 12,281 19,138
Thereafter......................................... 210,198 261,477
-------- ---------
Total minimum payments........................... 274,670 $360,410
---------
---------
Less, Executory costs.............................. 629
--------
Net minimum lease payments....................... 274,041
Less, Interest..................................... 164,801
--------
Present value of net minimum lease payments...... 109,240
Less, current...................................... 4,772
--------
Noncurrent obligations under capital leases...... $104,468
--------
--------
Leased property under capital leases is summarized as follows:
JANUARY 28, FEBRUARY 3,
1995 1996
----------- -----------
Building and equipment......................... $ 95,875 $ 107,008
Less, Accumulated amortization............... (15,269) (20,403)
----------- -----------
$ 80,606 $ 86,605
----------- -----------
----------- -----------
The Company leases certain selling space within its stores to other
specialty retailers under contingent rental agreements. Rental income related to
these agreements was $8,988, $9,038 and $10,209 in fiscal 1993, fiscal 1994 and
fiscal 1995, respectively.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into interest rate cap agreements to reduce the
impact of increases in interest rates on the REMIC Financing and Credit
Facility. The Company is also an indirect beneficiary of interest rate cap
agreements entered into by the Receivables Trust. At February 3, 1996, there
were 18 interest rate cap agreements outstanding. Accordingly, the Company is
entitled to receive from various financial institutions the amount, if any, by
which the Company's interest payments on its debt exceeds the stated interest
rates or strike rates. Payments received as a result of the caps in the
Company's debt are recorded as a reduction of interest expense. Payments
received by the Receivables trust as a result of the caps related to the
securitization are
F-22
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
recorded by the Company as an increase in finance charge income. The following
is a summary of the interest rate cap agreements as of February 3, 1996:
<TABLE>
<CAPTION>
NOTIONAL STRIKE
AMOUNT RATE EFFECTIVE DATE EXPIRATION DATE
-------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
A/R Floating Rate Certificate
Program........................ 150,000 (1) 9.00% December 1991 May 1999
50,000 (1) 9.00% August 1992 May 1999
250,000 7.25-9.00 March 1995 May 1996
A/R Commercial Paper Program..... 191,500 (1) 9.00 October 1993 May 1999
142,000 7.25-9.00 March 1995 November 1996
142,000 7.25 November 1996 February 1997
A/R Series 1991-2 Class C
Certificates................... 8,841 9.00 November 1992 May 1996
A/R Series 1991-2 Class B
Certificates................... 13,500 9.00 September 1994 May 1996
A/R Series 1991-3 Class B1
Certificates................... 10,338 9.00 September 1995 May 1996
A/R Series 1991-3 Class C1
Certificates................... 8,475 9.00 September 1995 May 1996
Senior credit facility........... 100,000 5.00 September 1993 September 1996
100,000 5.00 September 1993 September 1996
200,000 6.00 September 1993 September 1996
50,000 7.25 March 1995 February 1997
400,000 7.25 September 1996 February 1997
Real estate financing............ 175,000 7.25 May 1995 February 1997
87,500 9.70 February 1997 May 2002
87,500 9.70 February 1997 May 2002
</TABLE>
------------
(1) Effective November 1996, the strike rate increases to 10% and the notional
amount begins amortizing each month at a variable rate.
The strike rate related to the senior credit facility and real estate
financing is based on three-month LIBOR contracts. The accounts receivable
strike rate is based on one-month LIBOR contracts.
The aggregate carrying value and fair value of the Company's interest rate
cap agreements was $1,575 and $3,839 at January 28, 1995 and $2,242 and $1,828
at February 3, 1996, respectively. The fair value of interest rate cap
agreements is based on current settlement price of comparable contracts obtained
from interest rate cap providers' quotes. The majority of the Company's
long-term debt bears interest at floating rates; therefore its carrying amount
and fair value are equal.
12. RELATED PARTY TRANSACTIONS
The Company receives various consulting and advisory services from an
affiliate of Investcorp, for which it pays fees. The fees paid or payable for
such services were $2 million, $2 million and $7 million in fiscal 1993, fiscal
1994 and fiscal 1995, respectively. Additionally, the Company purchased
merchandise for sale from Gucci Group N.V., Ebel S.A., and Chaumet International
S.A., all of which also may be deemed to be affiliates of Investcorp during such
fiscal year. The amount of such purchases in fiscal 1995 were $7.3, $.6 and $.5
million, respectively. In fiscal 1993 the
F-23
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
Company sold a closed store location to an affiliate of Investcorp. The net
proceeds and gain on sale were $11.9 million and $3.3 million, respectively. The
gain on sale was recorded as paid-in-capital in the consolidated statement of
stockholder's equity.
13. CONTINGENCIES
Saks is a defendant in a suit pending in the Supreme Court of the State of
New York, County of New York, in which the plaintiff, a former Saks employee,
contends, among other things, that Saks was negligent in hiring a co-worker who
allegedly assaulted the plaintiff. The plaintiff is seeking $10 million in
damages. Saks has moved to dismiss the action. Saks believes that, subject to a
self-insured retention, the claim is covered by Saks' insurance. In connection
with the suit, Saks also is in litigation with one of its insurance providers
regarding the provider's duties and obligations under its insurance contract
with Saks. Saks does not believe that the resolution of these suits will have a
material adverse impact on its financial position or results of operations.
The Company also is involved in various other suits and claims in the
ordinary course of business. Management does not believe that the disposition of
such suits will have a material adverse effect on the financial position or
continuing operations of the Company.
Management has entered into an agreement to sell its current distribution
facility, located in Yonkers, New York. The sale is subject to the successful
rezoning of the property. If rezoned, proceeds associated with the sale would
fall within a range of $20 to $25 million. A sale of the distribution center in
this price range could result in a gain on sale of $8 to $13 million. Management
is unable to determine at this time if this transaction will be completed.
14. QUARTERLY RESULTS (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL 1995
-------------------------------------------- FISCAL
FIRST SECOND THIRD FOURTH 1995
QUARTER QUARTER QUARTER QUARTER FULL YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales......................... $384,564 $353,229 $407,990 $541,004 $1,686,787
Cost of goods sold................ 262,435 262,956 275,092 368,209 1,168,692
Net income (loss) before
extraordinary charge............ (16,553) (34,133) (35,319) 27,901 (58,104)
Net income (loss)................. (16,553) (39,817) (35,319) 27,594 (64,095)
Net income (loss) per share before
extraordinary charge............ (.37) (.76) (.79) .62 (1.29)
Net income (loss) per share....... (.37) (.89) (.79) .61 (1.43)
</TABLE>
F-24
<PAGE>
SAKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except where otherwise indicated)
The Company recorded special charges in the first and third quarters of
$8,900 and $27,515, respectively. (See Note 3).
<TABLE>
<CAPTION>
FISCAL 1994
-------------------------------------------- FISCAL
FIRST SECOND THIRD FOURTH 1994
QUARTER QUARTER QUARTER QUARTER FULL YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales......................... $333,614 $298,455 $343,375 $442,719 $1,418,163
Cost of goods sold................ 229,104 220,920 233,818 295,808 979,650
Net income (loss) before
extraordinary charge............ (9,211) (25,935) (5,426) 30,489 (10,083)
Net income (loss)................. (9,299) (26,341) (5,426) 30,448 (10,618)
Net income (loss) per share before
extraordinary charge............ (.20) (.58) (.12) .68 (.22)
Net income (loss) per share....... (.21) (.59) (.12) .68 (.24)
</TABLE>
15. SUBSEQUENT EVENTS
The Company is in the process of filing an initial public offering for the
issuance of shares of common stock. This offering is expected to be completed
during the second quarter of fiscal 1996.
In April 1996, Saks Holdings effected a five-for-one split in the form of a
400% common stock dividend (the "Stock Split"). Saks Holdings has also increased
the number of authorized shares of its common stock to 150,000 and authorized
10,000 shares of preferred stock. All share and per share information has been
restated to reflect the stock split.
Since February 3, 1996, Saks Holdings has granted to members of management
options for the purchase of 449 shares of Common Stock. In addition, Saks
Holdings will grant, conditioned upon the closing of the Offerings, options for
the purchase of 1,200 shares of Common Stock.
F-25
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Saks
Holdings has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., CS First Boston
Corporation, Morgan Stanley & Co. Incorporated and Salomon Brothers Inc are
acting as representatives, has severally agreed to purchase from Saks Holdings,
the respective number of shares of Common Stock set forth opposite its name
below:
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
--------------------------------------------------------- ------------
Goldman, Sachs & Co......................................
CS First Boston Corporation..............................
Morgan Stanley & Co. Incorporated........................
Salomon Brothers Inc.....................................
------------
Total.................................................. 11,000,000
------------
------------
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and the other selling terms may from time
to time be varied by the representatives.
Saks Holdings has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the international offering
(the "International Underwriters") providing for the concurrent offer and sale
of 2,750,000 shares of Common Stock in an international offering outside the
United States. The offering price and aggregate underwriting discounts and
commissions per share for the two offerings are identical. The closing of the
offering made hereby is a condition to the closing of the international
offering, and vice versa. The representatives of the International Underwriters
are Goldman Sachs International, CS First Boston Limited, Morgan Stanley & Co.
International Limited and Salomon Brothers International Limited.
Pursuant to the Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed or will agree pursuant to the Agreement
Between that, as a part of the distribution of the shares offered as a part of
the international offering, and subject to certain exceptions, it will (i) not,
directly or indirectly, offer, sell or deliver shares of Common Stock (a) in the
United States or to any
U-1
<PAGE>
U.S. persons or (b) to any person who it believes intends to reoffer, resell or
deliver the shares in the United States or to any U.S. persons, and (ii) cause
any dealer to whom it may sell such shares at any concession to agree to observe
a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession. This Prospectus may be used by the Underwriters and dealers in
connection with offers and sales of the Common Stock, including shares initially
sold in the international offering, to persons located in the United States.
Saks Holdings has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
1,650,000 additional shares of Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
11,000,000 shares of Common Stock offered hereby. Saks Holdings has granted the
International Underwriters a similar option exercisable for up to an aggregate
of 412,500 additional shares of Common Stock.
Saks Holdings and certain stockholders who own in the aggregate 44,966,605
shares of Common Stock have agreed that, during the period beginning from the
date of this Prospectus and continuing to and including the date 180 days after
the date of this Prospectus, they will not offer, sell, contract to sell or
otherwise dispose of, except as provided in the U.S. Underwriting Agreement and
the International Underwriting Agreement, any securities of Saks Holdings which
are substantially similar to the shares of the Common Stock or which are
convertible or exchangeable into securities which are substantially similar to
the shares of the Common Stock (other than any sales of Common Stock (i) in
connection with the acquisition of or merger with any other corporation or other
entity or the acquisition of any assets or properties thereof provided that,
prior to the issuance of such securities, such corporation or entity agrees to
be similarly bound or (ii) pursuant to employee stock option, stock purchase or
other employee benefit plans) without the prior written consent of the
representatives.
At the request of Saks Holdings, the Underwriters have reserved up to
450,000 shares of Common Stock for sale, at the initial public offering price
less underwriting discount, to officers and employees of Investcorp and its
subsidiaries and directors, officers and employees of Saks. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same terms as the
other shares offered hereby.
In addition to the 13,750,000 shares of Common Stock offered by the U.S. and
International Underwriters, Saks Holdings is selling 2,250,000 shares of Common
Stock directly to Investcorp S.A. or one or more of its affiliates. The
Underwriters will not participate in, or receive any discount or commission on,
the sale of such shares being sold by Saks Holdings directly.
The representatives of the Underwriters have informed Saks Holdings that
they do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed 5% of the total number of shares of Common
Stock offered by them.
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among Saks
Holdings and the representatives of the U.S. Underwriters and the International
Underwriters. Among the factors to be considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, are Saks Holdings' historical performance, estimates of the business
potential and
U-2
<PAGE>
earnings prospects of Saks Holdings, an assessment of Saks Holdings' management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. In order to meet one of the
requirements for listing the Common Stock on the New York Stock Exchange, the
U.S. Underwriters will undertake to sell lots of 100 or more shares to a minimum
of 2,000 beneficial holders.
Saks Holdings has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
From time to time in the ordinary course of their businesses, affiliates of
certain of the U.S. Underwriters have engaged and may in the future engage in
general financing and banking transactions with Saks and its affiliates.
Furthermore, it is possible that more than 10% of the proceeds of the Offerings,
not including underwriting compensation, will be received by lenders to Saks
under its credit facility and revolving credit facility that are affiliated with
members of the National Association of Securities Dealers, Inc. ("NASD") who are
participating in the Offerings. As a result, the Offerings are being conducted
pursuant to Article III, Section 44(c)(8) of the NASD Rules of Fair Practice. In
accordance with this provision, Goldman, Sachs & Co. has agreed to act as
"qualified independent underwriter" and will recommend a price in compliance
with the requirements of Section 3(c) of Schedule E to the NASD By-Laws.
Goldman, Sachs & Co. will receive compensation from Saks Holdings in the amount
of $10,000 for serving in such role. In connection with the Offerings, Goldman,
Sachs & Co. in its role as qualified independent underwriter has performed due
diligence investigations and reviewed and participated in the preparation of
this Prospectus and the Registration Statement of which this Prospectus forms a
part.
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to Saks Holdings and its
affiliates, for which such Underwriters have received and will receive customary
fees and commissions.
U-3
<PAGE>
[SAKS FIFTH AVENUE LOGO]
------------------------
Back Gatefold
<TABLE>
<S>
"More than a store Saks Fifth Avenue is a Brand translating to Multiple Formats..."
<S> <C> <C>
[Photo of Resort Store] [Photo of Off 5th Store] [Photo of Sales Person]
"5 Resort Stores" "19 Outlet Stores" "40 Full-line Stores"
[Photo of International Marketing Materials] [Photo of Labels]
"International Exploration" "Private Label"
[Photo of Folio Catalogs] [Photo of Web-Site]
"Direct Response" "Technological Exploration"
[Photo of Couple Holding Saks Fifth Avenue Shopping Bag]
". . . and a Patent for the Future"
</TABLE>
<PAGE>
============================================= =================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES 16,000,000 SHARES
OTHER THAN THE SECURITIES TO WHICH IT RELATES
OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY SAKS HOLDINGS, INC.
CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY COMMON STOCK
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN (PAR VALUE $.01 PER SHARE)
THE AFFAIRS OF SAKS HOLDINGS SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
-------------------
TABLE OF CONTENTS
PAGE
---- ------------------------
Prospectus Summary.................... 3
Risk Factors.......................... 9
Dividend Policy....................... 13 [SAKS FIFTH AVENUE LOGO]
Use of Proceeds....................... 13
Capitalization........................ 14
Dilution.............................. 15 ------------------------
Selected Consolidated Financial Data.. 16
Management's Discussion and
Analysis of Financial Condition and
Results of Operations................. 18
Business.............................. 24
Management............................ 40
Principal Stockholders................ 48
Certain Transactions.................. 50
Description of Capital Stock.......... 51
Description of Certain Indebtedness... 53
Shares Eligible for Future Sale....... 59
Validity of Shares.................... 60
Experts............................... 60
Additional Information................ 61 GOLDMAN, SACHS & CO.
Index to Consolidated Financial
Statements.......................... F-1 CS FIRST BOSTON
Underwriting.......................... U-1
MORGAN STANLEY & CO.
INCORPORATED
-------------------
SALOMON BROTHERS INC
UNTIL , 1996 (25 DAYS AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING REPRESENTATIVES OF THE
TRANSACTIONS IN THE REGISTERED SECURITIES, UNDERWRITERS
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
============================================= =================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant's expenses in connection with the Offerings described in this
registration statement are set forth below. All amounts except the Securities
and Exchange Commission registration fee, the NASD filing fee and the NYSE
listing fee are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 155,720
NASD filing fee............................................... 30,500
Printing and engraving expenses............................... 500,000
Accounting fees and expenses.................................. 1,000,000
Legal fees and expenses....................................... 1,000,000
NYSE listing fee.............................................. 123,100
Fees and expenses (including legal fees) for qualifications
under state securities laws................................... 30,000
Transfer agent's fees and expenses............................ 50,000
Miscellaneous................................................. 2,310,680
----------
Total..................................................... $5,200,000
----------
----------
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ---------------------------------------------------------------------------------
<S> <C>
1.01 Form of U.S. Underwriting Agreement
1.02* Form of International Underwriting Agreement
3.01.1* Amended and Restated Certificate of Incorporation of Saks Holdings, as filed with
the Delaware Secretary of State on June 29, 1990
3.01.2* Certificate of Designation of Saks Holdings, as filed with the Delaware Secretary
of State on June 29, 1990
3.01.3* Amendment to the Amended and Restated Certificate of Incorporation of Saks
Holdings, as filed with the Delaware Secretary of State on July 2, 1990
3.01.4* Amendment to the Amended and Restated Certificate of Incorporation of Saks
Holdings, as filed with the Delaware Secretary of State on February 28, 1991
3.01.5* Amendment to the Amended and Restated Certificate of Incorporation of Saks
Holdings, as filed with the Delaware Secretary of State on May 20, 1992
3.01.6* Amendment to the Amended and Restated Certificate of Incorporation of Saks
Holdings, as filed with the Delaware Secretary of State on December 26, 1995
3.01.7* Certificate of Saks Holdings, as filed with the Delaware Secretary of State on
December 27, 1995, relating to the retirement of Class D Shares
3.01.8* Amendment to the Amended and Restated Certificate of Incorporation of Saks
Holdings, as filed with the Delaware Secretary of State on April 16, 1996.
3.01.9* Form of Amended and Restated Certificate of Incorporation of Saks Holdings, as
proposed to be filed with the Delaware Secretary of State upon completion of the
Offerings
3.01.10 Amendment to the Amended and Restated Certificate of Incorporation of Saks
Holdings, as filed with the Delaware Secretary of State on April 26, 1996.
3.02* Bylaws of Saks Holdings, as adopted on August 6, 1990
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ---------------------------------------------------------------------------------
<S> <C>
4.01.1* See Exhibits 3.01.1, 3.01.2, 3.01.3, 3.01.4, 3.01.5, 3.01.6, 3.01.7, 3.01.8 and
3.01.10 as to the rights of holders of Saks Holdings' Class A Shares, Class B
Shares, Class C Shares and Class D Shares prior to the Offerings
4.01.2* See Exhibit 3.01.9 as to the rights of holders of Saks Holdings' Common Stock
upon completion of the Offerings
4.02* Form of Stock Certificate of the Common Stock of Saks Holdings
4.03.1* Amended and Restated Credit Agreement, dated as of July 1, 1993, among Saks,
Chemical Bank and Bankers Trust Company as managing agents, Chemical Bank,
Bankers Trust Company, the CIT Group/Business Credit, Inc. and Barclays Bank PLC
as co-agents, and Chemical Bank as administrative agent (the "Credit Facility")
4.03.2* First Amendment to the Credit Facility, dated as of March 1, 1995
4.03.3* Second Amendment to the Credit Facility, dated as of October 24, 1995
4.03.4* Third Amendment to the Credit Facility, dated as of March 5, 1996
4.03.5* Fourth Amendment to the Credit Facility, dated as of April 10, 1996
4.03.6* Fifth Amendment to the Credit Facility, dated as of April 18, 1996
4.04* Amended and Restated Loan and Security Agreement dated as of
May 12, 1995 between Fifth Avenue Capital Trust ("FACT") and certain direct and
indirect wholly-owned subsidiaries of Saks (the "Borrowers")
4.05* Trust and Servicing Agreement dated as of May 12, 1995 among FACT, Bankers Trust
Company, as servicer, and Marine Midland Bank, as trustee
4.06* Amended and Restated Trust Agreement, dated as of May 12, 1995, among Saks, HNY,
Inc. and Wilmington Company, as owner trustee
4.07* Indenture, dated as of July 1, 1993, between Saks and AIBC Services N.V., as
trustee
4.08* First Supplemental Indenture, dated as of April 22, 1996, between Saks and AIBC
Services N.V., as trustee
5.01* Opinion of Gibson, Dunn & Crutcher LLP
10.01.1* Amended and Restated Pooling & Servicing Agreement, dated as of December 16,
1991, among SFA Finance Company, Saks and Bankers Trust Company, as trustee (the
"1991 P&S")
10.01.2* First Amendment to the 1991 P&S, dated as of November 5, 1992
10.01.3* Second Amendment to the 1991 P&S, dated as of October 26, 1993
10.02.1* Second Amended and Restated Receivables Purchase Agreement, dated as of December
16, 1991, between Saks and SFA Finance Company (the "Receivables Purchase
Agreement")
10.02.2* First Amendment to the 1991 Receivables Purchase Agreement, dated as of November
5, 1992
10.02.3* Second Amendment to the 1991 Receivables Purchase Agreement, dated as of October
26, 1993
10.03.1* Series 1991-2 Supplement, dated as of December 16, 1991, among SFA Finance
Company, Saks, MHTC, as administrative agent, and Bankers Trust Company, as
trustee (the "1991-2 Supplement")
10.03.2* First Amendment to the 1991-2 Supplement, dated as of July 22, 1992
10.03.3* Second Amendment to the 1991-2 Supplement, dated as of August 20, 1992
10.03.4* Third Amendment to the 1991-2 Supplement, dated as of November 5, 1992
10.03.5* Fourth Amendment to the 1991-2 Supplement, dated as of May 20, 1993
10.03.6* Fifth Amendment to the 1991-2 Supplement, dated as of October 28, 1993
10.03.7* Sixth Amendment to the 1991-2 Supplement, dated as of September 30, 1994
10.04.1* Class C Supplement to Series 1991-2 Supplement, dated as of
November 5, 1992, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee (the "1991-2(C) Supplement")
10.04.2* First Amendment to the 1991-2(C) Supplement, dated as of September 30, 1994
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ---------------------------------------------------------------------------------
<S> <C>
10.05* Class B Supplement to Series 1991-2 Supplement, dated as of September 30, 1994,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.06.1* Series 1993-1 Supplement, dated as of October 28, 1993, among SFA Finance
Company, Saks, Swiss Bank Corporation, New York Branch, as administrative agent,
and Bankers Trust Company, as trustee (the "1993-1 Supplement")
10.06.2* First Amendment to the 1993-1 Supplement, dated as of September 13, 1995
10.06.3* Second Amendment to the 1993-1 Supplement, dated as of October 6, 1995
10.07* Class B Supplement to Series 1993-1 Supplement, dated as of September 13, 1995,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.08* Class C Supplement to Series 1993-1 Supplement, dated as of September 13, 1995,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.09* Series 1995-1 Supplement, dated as of November 13, 1995, among SFA Finance
Company, Saks, Swiss Bank Corporation, New York Branch, as administrative agent,
and Bankers Trust Company, as trustee
10.10* Deposit Trust Agreement, dated as of October 26, 1993, between SFA Finance
Company II and Wilmington Trust Company, as trustee
10.11* Collateral Trust Agreement, dated as of October 28, 1993, between Saks Fifth
Avenue Owner Trust 1993-1 and Bankers Trust Company
10.12* Depositary Agreement, dated as of October 27, 1993, between Saks Fifth Avenue
Owner Trust 1993-1 and Chemical Bank
10.13* Purchase Agreement, dated May 4, 1995 among Saks, FACT, the Borrowers, Goldman,
Sachs & Company and Chemical Securities, Inc., with respect to the sale of
Commercial Mortgage Pass-Through Certificates due May 12, 2002
10.14* Saks Fifth Avenue Supplemental Pension Plan, effective July 2, 1990
10.15* Saks Holdings, Inc. Senior Management Stock Incentive Plan, dated as of October
17, 1990 (the "Old Incentive Plan")
10.16* Standard Form of Stock Option Agreement Pursuant to the Old Incentive Plan
10.17.1* Saks Holdings, Inc. 1996 Management Stock Incentive Plan, dated as of February 1,
1996 (the "New Incentive Plan")
10.17.2* Amendment to the New Incentive Plan
10.18* Standard Form of Stock Option Agreement Pursuant to the New Incentive Plan
10.19* Amended and Restated Employment Agreement, dated as of March 1, 1996, between
Saks and Philip B. Miller
10.20* Amended and Restated Employment Agreement, dated as of March 1, 1996, between
Saks and Rose Marie Bravo
10.21* Amended and Restated Employment Agreement, dated as of March 1, 1996, between
Saks and Owen E. Dorsey
10.22* Employment Agreement, dated as of March 1, 1996, between Saks and Brian E.
Kendrick
10.23.1* Agreement for Management Advisory and Consulting Services, dated
July 2, 1990, between Windows Acquisition Corp. and III
10.23.2* Agreement for Management Advisory and Consulting Services, dated as of July 2,
1995, between Saks and III
10.24* Acquisitions Advisory Agreement, dated as of January 29, 1995, between Saks and
III
10.25* Transition Supplement to the 1991 P&S, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee
10.26* Pooling and Servicing Agreement, dated as of April 25, 1996, among SFA Finance
Company, Saks and Bankers Trust Company, as trustee (the "1996 P&S")
10.27* Series 1996-1 Supplement to the 1996 P&S, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee
10.28* Third Amended and Restated Receivables Purchase Agreement, dated as of April 25,
1996, between Saks and SFA Finance Company
10.29* Series 1996-2 Supplement to the 1996 P&S, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ---------------------------------------------------------------------------------
<S> <C>
10.30* Public Company Expenses Agreement, dated as of April 27, 1996, between Saks
Holdings and Saks.
10.31* Form of Common Stock Purchase Agreement between Saks Holdings and Investcorp,
S.A.
21.01* Subsidiaries of Saks Holdings
23.01 Consent of Coopers & Lybrand L.L.P.
23.02* Consent of Gibson, Dunn & Crutcher (contained in Exhibit 5.01)
24.01* Power of Attorney (included on signature page of Registration Statement)
</TABLE>
------------
* Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such labilities (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 Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in The
City of New York, State of New York, on May 17, 1996.
SAKS HOLDINGS, INC.
By /s/ PHILIP B. MILLER
...................................
Philip B. Miller
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the capacity
indicated on May 17, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
---------------------------------------- ------------------------------------------------
<S> <C>
/s/ PHILIP B. MILLER Chairman of the Board and
........................................ Chief Executive Officer
Philip B. Miller (Principal Executive Officer)
/s/ BRIAN E. KENDRICK Vice Chairman of the Board and
........................................ Chief Financial Officer
Brian E. Kendrick (Principal Financial Officer)
* President and Director
........................................
Rose Marie Bravo
* Director
........................................
Savio W. Tung
* Director
........................................
Jon P. Hedley
* Director
........................................
E. Garrett Bewkes III
* Director
........................................
Charles J. Philippin
/s/ MARK E. HOOD Vice President--Finance
........................................ (Principal Accounting Officer)
Mark E. Hood
</TABLE>
*By: /s/ MARK E. HOOD
...................................
Mark E. Hood
Attorney in Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
-------- ------------------------------------------------------------------------- -----
<S> <C> <C>
1.01 Form of U.S. Underwriting Agreement
1.02* Form of International Underwriting Agreement
3.01.1* Amended and Restated Certificate of Incorporation of Saks Holdings, as
filed with the Delaware Secretary of State on June 29, 1990
3.01.2* Certificate of Designation of Saks Holdings, as filed with the Delaware
Secretary of State on June 29, 1990
3.01.3* Amendment to the Amended and Restated Certificate of Incorporation of
Saks Holdings, as filed with the Delaware Secretary of State on July 2,
1990
3.01.4* Amendment to the Amended and Restated Certificate of Incorporation of
Saks Holdings, as filed with the Delaware Secretary of State on February
28, 1991
3.01.5* Amendment to the Amended and Restated Certificate of Incorporation of
Saks Holdings, as filed with the Delaware Secretary of State on May 20,
1992
3.01.6* Amendment to the Amended and Restated Certificate of Incorporation of
Saks Holdings, as filed with the Delaware Secretary of State on December
26, 1995
3.01.7* Certificate of Saks Holdings, as filed with the Delaware Secretary of
State on December 27, 1995, relating to the retirement of Class D Shares
3.01.8* Amendment to the Amended and Restated Certificate of Incorporation of
Saks Holdings, as filed with the Delaware Secretary of State on April 16,
1996.
3.01.9* Form of Amended and Restated Certificate of Incorporation of Saks
Holdings, as proposed to be filed with the Delaware Secretary of State
upon completion of the Offerings
3.01.10 Amendment to the Amended and Restated Certificate of Incorporation of
Saks Holdings, as filed with the Delaware Secretary of State on April 26,
1996.
3.02* Bylaws of Saks Holdings, as adopted on August 6, 1990
4.01.1* See Exhibits 3.01.1, 3.01.2, 3.01.3, 3.01.4, 3.01.5, 3.01.6, 3.01.7,
3.01.8 and 3.01.10 as to the rights of holders of Saks Holdings' Class A
Shares, Class B Shares, Class C Shares and Class D Shares prior to the
Offerings
4.01.2* See Exhibit 3.01.9 as to the rights of holders of Saks Holdings' Common
Stock upon completion of the Offerings
4.02* Form of Stock Certificate of the Common Stock of Saks Holdings
4.03.1* Amended and Restated Credit Agreement, dated as of July 1, 1993, among
Saks, Chemical Bank and Bankers Trust Company as managing agents,
Chemical Bank, Bankers Trust Company, the CIT Group/Business Credit, Inc.
and Barclays Bank PLC as co-agents, and Chemical Bank as administrative
agent (the "Credit Facility")
4.03.2* First Amendment to the Credit Facility, dated as of March 1, 1995
4.03.3* Second Amendment to the Credit Facility, dated as of October 24, 1995
4.03.4* Third Amendment to the Credit Facility, dated as of March 5, 1996
4.03.5* Fourth Amendment to the Credit Facility, dated as of April 10, 1996
4.03.6* Fifth Amendment to the Credit Facility, dated as of April 18, 1996
4.04* Amended and Restated Loan and Security Agreement dated as of
May 12, 1995 between Fifth Avenue Capital Trust ("FACT") and certain
direct and indirect wholly-owned subsidiaries of Saks (the "Borrowers")
4.05* Trust and Servicing Agreement dated as of May 12, 1995 among FACT,
Bankers Trust Company, as servicer, and Marine Midland Bank, as trustee
4.06* Amended and Restated Trust Agreement, dated as of May 12, 1995, among
Saks, HNY, Inc. and Wilmington Company, as owner trustee
4.07* Indenture, dated as of July 1, 1993, between Saks and AIBC Services N.V.,
as trustee
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
-------- ------------------------------------------------------------------------- -----
<S> <C> <C>
4.08* First Supplemental Indenture, dated as of April 22, 1996, between Saks
and AIBC Services N.V., as trustee
5.01* Opinion of Gibson, Dunn & Crutcher LLP
10.01.1* Amended and Restated Pooling & Servicing Agreement, dated as of December
16, 1991, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee (the "1991 P&S")
10.01.2* First Amendment to the 1991 P&S, dated as of November 5, 1992
10.01.3* Second Amendment to the 1991 P&S, dated as of October 26, 1993
10.02.1* Second Amended and Restated Receivables Purchase Agreement, dated as of
December 16, 1991, between Saks and SFA Finance Company (the "Receivables
Purchase Agreement")
10.02.2* First Amendment to the 1991 Receivables Purchase Agreement, dated as of
November 5, 1992
10.02.3* Second Amendment to the 1991 Receivables Purchase Agreement, dated as of
October 26, 1993
10.03.1* Series 1991-2 Supplement, dated as of December 16, 1991, among SFA
Finance Company, Saks, MHTC, as administrative agent, and Bankers Trust
Company, as trustee (the "1991-2 Supplement")
10.03.2* First Amendment to the 1991-2 Supplement, dated as of July 22, 1992
10.03.3* Second Amendment to the 1991-2 Supplement, dated as of August 20, 1992
10.03.4* Third Amendment to the 1991-2 Supplement, dated as of November 5, 1992
10.03.5* Fourth Amendment to the 1991-2 Supplement, dated as of May 20, 1993
10.03.6* Fifth Amendment to the 1991-2 Supplement, dated as of October 28, 1993
10.03.7* Sixth Amendment to the 1991-2 Supplement, dated as of September 30, 1994
10.04.1* Class C Supplement to Series 1991-2 Supplement, dated as of
November 5, 1992, among SFA Finance Company, Saks and Bankers Trust
Company, as trustee (the "1991-2(C) Supplement")
10.04.2* First Amendment to the 1991-2(C) Supplement, dated as of September 30,
1994
10.05* Class B Supplement to Series 1991-2 Supplement, dated as of September 30,
1994, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee
10.06.1* Series 1993-1 Supplement, dated as of October 28, 1993, among SFA Finance
Company, Saks, Swiss Bank Corporation, New York Branch, as administrative
agent, and Bankers Trust Company, as trustee (the "1993-1 Supplement")
10.06.2* First Amendment to the 1993-1 Supplement, dated as of September 13, 1995
10.06.3* Second Amendment to the 1993-1 Supplement, dated as of October 6, 1995
10.07* Class B Supplement to Series 1993-1 Supplement, dated as of September 13,
1995, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee
10.08* Class C Supplement to Series 1993-1 Supplement, dated as of September 13,
1995, among SFA Finance Company, Saks and Bankers Trust Company, as
trustee
10.09* Series 1995-1 Supplement, dated as of November 13, 1995, among SFA
Finance Company, Saks, Swiss Bank Corporation, New York Branch, as
administrative agent, and Bankers Trust Company, as trustee
10.10* Deposit Trust Agreement, dated as of October 26, 1993, between SFA
Finance Company II and Wilmington Trust Company, as trustee
10.11* Collateral Trust Agreement, dated as of October 28, 1993, between Saks
Fifth Avenue Owner Trust 1993-1 and Bankers Trust Company
10.12* Depositary Agreement, dated as of October 27, 1993, between Saks Fifth
Avenue Owner Trust 1993-1 and Chemical Bank
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
-------- ------------------------------------------------------------------------- -----
<S> <C> <C>
10.13* Purchase Agreement, dated May 4, 1995 among Saks, FACT, the Borrowers,
Goldman, Sachs & Company and Chemical Securities, Inc., with respect to
the sale of Commercial Mortgage Pass-Through Certificates due May 12,
2002
10.14* Saks Fifth Avenue Supplemental Pension Plan, effective July 2, 1990
10.15* Saks Holdings, Inc. Senior Management Stock Incentive Plan, dated as of
October 17, 1990 (the "Old Incentive Plan")
10.16* Standard Form of Stock Option Agreement Pursuant to the Old Incentive
Plan
10.17.1* Saks Holdings, Inc. 1996 Management Stock Incentive Plan, dated as of
February 1, 1996 (the "New Incentive Plan")
10.17.2* Amendment to the New Incentive Plan
10.18* Standard Form of Stock Option Agreement Pursuant to the New Incentive
Plan
10.19* Amended and Restated Employment Agreement, dated as of March 1, 1996,
between Saks and Philip B. Miller
10.20* Amended and Restated Employment Agreement, dated as of March 1, 1996,
between Saks and Rose Marie Bravo
10.21* Amended and Restated Employment Agreement, dated as of March 1, 1996,
between Saks and Owen E. Dorsey
10.22* Employment Agreement, dated as of March 1, 1996, between Saks and Brian
E. Kendrick
10.23.1* Agreement for Management Advisory and Consulting Services, dated
July 2, 1990, between Windows Acquisition Corp. and III
10.23.2* Agreement for Management Advisory and Consulting Services, dated as of
July 2, 1995, between Saks and III
10.24* Acquisitions Advisory Agreement, dated as of January 29, 1995, between
Saks and III
10.25* Transition Supplement to the 1991 P&S, dated as of April 25, 1996, among
SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.26* Pooling and Servicing Agreement, dated as of April 25, 1996, among SFA
Finance Company, Saks and Bankers Trust Company, as trustee (the "1996
P&S")
10.27* Series 1996-1 Supplement to the 1996 P&S, dated as of April 25, 1996,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.28* Third Amended and Restated Receivables Purchase Agreement, dated as of
April 25, 1996, between Saks and SFA Finance Company
10.29* Series 1996-2 Supplement to the 1996 P&S, dated as of April 25, 1996,
among SFA Finance Company, Saks and Bankers Trust Company, as trustee
10.30* Public Company Expenses Agreement, dated as of April 27, 1996, between
Saks Holdings and Saks.
10.31* Form of Common Stock Purchase Agreement between Saks Holdings and
Investcorp, S.A.
21.01* Subsidiaries of Saks Holdings
23.01 Consent of Coopers & Lybrand L.L.P.
23.02* Consent of Gibson, Dunn & Crutcher (contained in Exhibit 5.01)
24.01* Power of Attorney (included on signature page of Registration Statement)
</TABLE>
------------
* Previously filed.
Exhibit 1.01
Draft of May 17, 1996
Saks Holdings, Inc.
Common Stock
(par value $0.01 per share)
Underwriting Agreement (U.S. Version)
May _, 1996
Goldman, Sachs & Co.,
CS First Boston Corporation, Morgan Stanley & Co. Incorporated, Salomon
Brothers Inc,
As representatives of the several Underwriters
named in Schedule I hereto, c/o Goldman, Sachs & Co., 85 Broad
Street,
New York, New York 10004.
Ladies and Gentlemen:
Saks Holdings, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and
sell to the Underwriters named in Schedule I hereto (the "Underwriters")
an aggregate of 11,000,000 shares (the "Firm Shares") and, at the
election of the Underwriters, up to 1,650,000 additional shares (the
"Optional Shares") of Common Stock, par value $0.01 per share ("Stock")
of the Company (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof being
collectively called the "Shares"),
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of
3,162,500 shares of Stock (the "International Shares"), including the
overallotment option thereunder, through arrangements with certain
underwriters outside the United States (the "International
Underwriters"), for whom Goldman Sachs International, CS First Boston
Limited, Morgan Stanley & Co, International Limited and Salomon Brothers
International Limited are acting as lead managers. Anything herein or
therein to the contrary notwithstanding, the respective closings under
this Agreement and the International Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the
International Underwriters are simultaneously entering into an Agreement
between U.S. and International Underwriting Syndicates (the "Agreement
between Syndicates") which provides, among other things, for the transfer
of shares of Stock between
<PAGE>
the two syndicates. Two forms of prospectus are to be used in connection
with the offering and sale of shares of Stock contemplated by the
foregoing, one relating to the Shares hereunder and the other relating to
the International Shares. The latter form of prospectus will be identical
to the former except for the front cover page, back cover page, and the
text under the caption "Underwriting" and for the addition of a section
captioned "Certain United States Tax Consequences to Non-U.S. Holders.
Except as used in Sections 2, 3, 4, 9 and 12 herein, and except as the
context may otherwise require, references hereinafter to the Shares shall
include all the shares of Stock which may be sold pursuant to either this
Agreement or the International Underwriting Agreement, and references
herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
1. The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-2426)
(the "Initial Registration Statement") in respect of the Shares has
been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any post-
effective amendment thereto, each in the form heretofore delivered
to you, and, excluding exhibits thereto, to you for each of the
other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended (the "Act"), which became effective upon filing,
no other document with respect to the Initial Registration Statement
has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and, to the knowledge of the
Company, no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement
and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form
of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and
deemed by virtue of Rule 430A under the Act to be part of the
Initial Registration Statement at the time it was declared effective
or such part of the Rule 462(b) Registration Statement, if any,
became or hereafter becomes effective, each as amended at the time
such part became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form
first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and
regulations of the Commission thereunder (except that the
preliminary
-2-
<PAGE>
prospectus dated March 14, 1996 did not include an estimated range of the
maximum offering price and share and per share data), and did not contain
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 the light of the circumstances under which they were made,
not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and
in conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) As of the applicable effective date as to the Registration
Statement and any amendment thereto, and as of the applicable filing date
as to the Prospectus and any amendment or supplement thereto, the
Registration Statement conformed, and the Prospectus and any further
amendments or supplements to the Registration Statement or the Prospectus
will conform, in all material respects to the requirements of the Act and
the rules and regulations of the Commission thereunder and do not and
will not contain 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 in the case of the Prospectus and any amendment or supplement
thereto, not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the
Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries listed on
Schedule 2 hereto (its "Subsidiaries"), which listing includes each of
the Company's "significant subsidiaries" as such term is defined in Rule
405 under the Act, has sustained since the date of the latest audited
financial statements included in the Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, which loss or interference is
material to the financial position or results of operations of the
Company and its subsidiaries taken as a whole otherwise than as set forth
or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock (other
than pursuant to the exercise of existing options and other than as
described in or referred to in the Prospectus) or increase in the long-
term debt (other than pursuant to the Company's accounts receivable sale
program) of the Company or any of its Subsidiaries, any material
revaluation of inventories, or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(e) The Company and its Subsidiaries own all real property and
personal property as set forth in the Prospectus other than as described
in or referred to in the Prospectus in each case free and clear of all
liens, encumbrances and defects except such as are described or referred
to in the Prospectus or such as do not materially
-3-
<PAGE>
affect the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are described or referred to
in the Prospectus or are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of Delaware with corporate
power and authority to own its properties and conduct its business as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, except
where the failure to be so qualified would not result in a material
adverse change to the financial position or results of operations of the
Company and its subsidiaries taken as a whole; and each Subsidiary has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification except where the failure to be so qualified would not
result in a material adverse change to the financial position or results
of operations of the Company and its subsidiaries taken as a whole, or is
subject to no material liability or disability by reason of the failure
to be so qualified in any such jurisdiction;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each
Subsidiary have been duly and validly authorized and issued, are fully
paid and (except, with respect to any Subsidiary incorporated in the
State of New York, as provided in Section 630 of the Business
Corporations Law of the State of New York) non-assessable and (except for
directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims
except as otherwise set forth in or contemplated by the Prospectus;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder and to the International Underwriters under the
International Underwriting Agreement have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein and in the International Underwriting Agreement, will be
duly and validly issued and fully paid and nonoassessable and will
conform to the description of the Stock contained in the Prospectus;
-4-
<PAGE>
(i) The issue and sale of the Shares by the Company hereunder and
under the International Underwriting Agreement and the compliance by the
Company with all of the provisions of this Agreement and the
International Underwriting Agreement and the consummation by the Company
of the transactions to be performed by the Company herein and therein
contemplated will not conflict with or result in a breach or violation of
or constitute a default under, any of the existing terms or provisions
of, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries is bound or
to which any of the property or assets of the Company or any of its
Subsidiaries is subject except for such conflicts, breaches, violations
or defaults that individually or in the aggregate would not result in a
material adverse change to the financial position or results of
operations of the Company and its subsidiaries taken as a whole, nor will
such action result in any violation of the provisions of the Certificate
of Incorporation or By-laws of the Company or any existing United States
federal or state statute (excluding for purposes of this paragraph (i)
United States federal or state securities laws) or any existing order,
rule or regulation of any United States federal or state court or
governmental agency or body having jurisdiction over the Company or any
of its Subsidiaries or any of their properties except for such violations
(other than any relating to the Certificate of Incorporation or By-Laws
of the Company) that individually or in the aggregate would not result in
a material adverse change to the financial position or results of
operations of the Company and its subsidiaries taken as a whole; and no
consent, approval, authorization, order, registration or qualification of
or with any such United States federal or state court or governmental
agency or body is required to be obtained by the Company on the date
hereof or at any Time of Delivery for the issue and sale of the Shares by
the Company to the Underwriters or for the issue and sale of the
International Shares by the Company to the International Underwriters or
the consummation by the Company of the transactions to be performed by
the Company contemplated by this Agreement and the International
Underwriting Agreement, except the registration under the Act of the
Shares and such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters and the International Underwriters;
(j) Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation or By-laws. Neither the Company nor
any of its Subsidiaries is in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in
any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of
its properties may be bound except for such violations and defaults as
would not result in a material adverse change to the financial position
or results of operations of the Company and its subsidiaries taken as a
whole;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to describe the
terms of the Stock and under the caption "Certain United States Tax
Consequences to Non-U.S. Holders" in the International Prospectus,
insofar as they purport to describe the provisions of the laws
-5-
<PAGE>
and documents referred to therein, present in all material respects a
fair description of such provisions and documents;
(I) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which could reasonably
be expected to be determined adversely to the Company and any of its
subsidiaries and, if so determined, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole; and, to
the best of the Company's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others;
(m) The Company and its subsidiaries own, or possess adequate rights
to use, all trademarks, service marks, trade names, copyrights and
licenses (including the names, "Saks Fifth Avenue", "SFA", "Off 5th",
"S5A" and "Folio") necessary to conduct their businesses currently and as
proposed to be conducted, and neither the Company nor its subsidiaries
has received any notice of infringement of or conflict with (or knows of
any such infringement or conflict with) asserted rights of others with
respect to such trademarks, service marks, tradenames, copyrights or
licenses;
(n) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be (i) an "investment company" or (ii) an
entity "controlled" by an "investment company" required to be registered
under the Investment Company Act of 1940, as amended (the "Investment
Company Act") (for purposes of this paragraph (n), "investment company"
and "controlled" shall have the meanings ascribed to such terms in the
Investment Company Act);
(o) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(p) Coopers & Lybrand L.L.P., who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(q) Each of the Company and its Subsidiaries (i) is in compliance
with any and all applicable federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii)has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct
its business and (iii) is in compliance with all terms and conditions of
any such permit, license or approval, except in the case of (i), (ii) or
(iii) where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits,
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licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries taken as
a whole;
(r) The Shares have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance;
(s) There are no contracts, agreements, or understandings
between the Company and any person granting such person the right to
require the Company to include any securities of the Company in the
Registration Statement for sale by such person; and
(t) There are no contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the
Prospectus which are not filed or described as required.
2. (a) Subject to the terms and conditions herein set forth,
(i) the Company agrees to issue and sell to each of the Underwriters, and
each of the Underwriters agrees, severally and not jointly, to purchase
from the Company, at a purchase price per share of $
......................... the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I hereto and (ii) in the event
and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue
and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the
purchase price per share set forth in clause (i) of this Section 2, that
portion of the number of Optional Shares as to which such election shall
have been exercised (to be adjusted by you so as to eliminate fractional
shares) determined by multiplying such number of Optional Shares by a
fraction, the numerator of which is the maximum number of Optional Shares
which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of
which is the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase
at their election up to 1,650,000 Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of
covering overallotments in the sale of the Firm Shares. Any such election
to purchase Optional Shares may be exercised only by written notice from
you to the Company, given within a period of 30 calendar days after the
date of this Agreement, setting forth the aggregate number of Optional
Shares to be purchased and the date on which such Optional Shares are to
be delivered, as determined by you but in no event earlier than the First
Time of Delivery (as defined in Section 4 hereof) or, unless you and the
Company otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice.
(b) The Company hereby confirms its engagement of Goldman, Sachs &
Co. as, and Goldman, Sachs & Co. hereby confirms its agreement with the
Company to render services as, a "qualified independent underwriter"
within the meaning of Section 2(o) of Schedule E to the By-Laws of the
National Association of Securities Dealers, Inc. (the "NASD") with
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respect to the offering and sale of the Underwritten Shares. Goldman,
Sachs & Co., in its capacity as qualified independent underwriter and not
otherwise, is referred to herein as the "QIU". As compensation for the
services of the QIU hereunder, the Company agrees to pay the QIU $10,000
on the Closing Date.
3. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for
sale upon the terms and conditions set forth in the Prospectus.
4. (a) Certificates representing the Shares to be purchased by
each Underwriter hereunder, in definitive form, and in such authorized
denominations and registered in such names as Goldman, Sachs & Co. may
request upon at least forty-eight hours' prior notice to the Company,
shall be delivered by or on behalf of the Company to Goldman, Sachs & Co.
for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of same
day funds payable to the order of the Company. The Company will cause the
certificates representing the Shares to be made available for checking
and packaging at least twenty-four hours prior to the Time of Delivery
(as defined below) with respect thereto at the office of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004 (the "Designated Office").
The time and date of such delivery and payment shall be, with respect to
the Firm Shares, 9:30 a.m., New York City time, on May ...., 1996 or such
other time and date as Goldman, Sachs & Co. and the Company may agree
upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New
York time, on the date specified by Goldman, Sachs & Co. in the written
notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman,
Sachs & Co. and the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not
the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a
"Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or
on behalf of the parties hereto pursuant to Section 7 hereof,
including the cross receipt for the Shares and any additional
documents requested by the Underwriters pursuant to Section 7(k)
hereof, will be delivered at the offices of Sullivan & Cromwell, 125
Broad Street, New York, New York 10004 (the "Closing Location"), and
the Shares will be delivered at the Designated Office, all at such
Time of Delivery. A meeting will be held at the Closing Location at
2:00 p.m., New York City time, on the New York Business Day next
preceding such Time of Delivery, at which meeting the final drafts
of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto. For the purposes
of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
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(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement (or to transmit such Prospectus
by a means reasonably calculated to result in filing with the Commission
by such date), or, if applicable, such earlier time as may be required by
Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus prior to the last
Time of Delivery which shall be disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives
notice thereof, of the time when any amendment to the Registration
Statement has been filed with the Commission or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
with the Commission and to furnish you with copies of any such amendment
or supplement; to advise you, promptly after it receives notice thereof,
of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its reasonable best efforts to obtain the
withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions within the United States as you may
request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in
any jurisdiction;
(c) On the New York Business Day next succeeding the date of this
Agreement and from time to time, to furnish the Underwriters with copies
of the Prospectus in New York City in such quantities as you may
reasonably request, and, if the delivery of a prospectus is required at
any time prior to the expiration of nine months after the time of issue
of the Prospectus in connection with the offering or sale of the Shares
and if at such time any event shall have occurred as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in
order to comply with the Act, to notify you and upon your request to
prepare and furnish without charge to each Underwriter and to any dealer
in securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus which
will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection
with sales of any of
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<PAGE>
the Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to
prepare and deliver to such Underwriter as many copies as you may request
of an amended or supplemented Prospectus complying with Section 10(a)(3)
of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11 (a) of the Act and
the rules and regulations thereunder (including, at the option of the
Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not
to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder and under the International Underwriting Agreement,
any securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right to receive, Stock
or any such substantially similar securities (other than (i)in connection
with the acquisition of or merger with any other corporation or other
entity or the acquisition of any assets or properties thereof or (ii)
pursuant to employee stock option, stock purchase or other employee
benefit plans, provided that in the case of each of (i) and (ii) above,
prior to the issuance of such securities, the Company obtains and
delivers to the Underwriters executed copies of an agreement from any
such corporation or entity substantially to the effort set forth in this
Section 5(e) in form satisfactory to you), without your prior written
consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the
first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) generally furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission pursuant to the Securities Exchange Act of 1934; and (ii) such
additional information, which additional information shall be kept
confidentially by you, concerning the business and financial condition of
the Company as you may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in reports
furnished to its stockholders generally or to the Commission);
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<PAGE>
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement and the International Underwriting
Agreement in substantially the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To use its best efforts to list, subject to notice of
issuance, the Shares on the New York Stock Exchange (the
"Exchange");
(j) To file with the Commission such reports on Form SR as may
be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission
in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time,
on the date of this Agreement, and the Company shall at the time of
filing either pay to the Commission the filing fee for the Rule
462(b) Registration Statement or give irrevocable instructions for
the payment of such fee pursuant to Rule 111 (b) under the Act.
6. The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the following: (i) the
fees, disbursements and expenses of the Company's counsel and accountants
in connection with the registration of the Shares under the Act and all
other expenses in connection with the preparation, printing and filing of
the Registration Statement, any Preliminary Prospectus and the Prospectus
and amendments and supplements thereto and the mailing and delivering of
copies thereof to the Underwriters and dealers; (ii) the cost of printing
or producing any Agreement among Underwriters, this Agreement, the
International Underwriting Agreement, the Agreement between Syndicates,
the Selling Agreement, the Blue Sky Memorandum, closing documents and any
other documents that the Company may request in connection with the
offering, purchase, sale and delivery of the Shares; (iii) all expenses
in connection with the qualification of the Shares for offering and sale
under state securities laws as provided in Section 5(b) hereof, including
the fees and disbursements of counsel for the Underwriters in connection
with such qualification and in connection with the Blue Sky survey; (iv)
all fees and expenses in connection with listing the Shares on the New
York Stock Exchange; (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with,
securing any required review by the National Association of Securities
Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost of
preparing stock certificates; (vii) the cost and charges of any transfer
agent or registrar; and (viii) all other costs and expenses incident to
the performance by the Company of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, and Sections 8 and 12
hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of
any of the Shares by them, and any advertising expenses connected with
any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares
to be delivered at each Time of Delivery, shall be subject, in their
discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company shall have
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<PAGE>
performed all of its obligations hereunder theretofore to be performed,
and the following additional conditions:
(a) The Prospectus shall have been filed, or transmitted by a
means reasonably calculated to result in filing, with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; if the Company has elected to
rely upon Rule 462(b), the Rule 462(b) Registration Statement shall
have become effective by 10:00 p.m., Washington D.C. time, on the
date of this Agreement; no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated
or threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall
have furnished to you such opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of
Delivery, with respect to the matters covered in paragraphs (i),
(ii), (vii), (xi) and (xiii) of subsection (c) below as well as such
other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Gibson, Dunn & Crutcher LLP, special counsel for the Company,
shall have furnished to you their written opinion (a draft of such
opinion is attached as Annex II(b) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect
that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the state of Delaware with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of
capital stock of the Company (including the Shares being
delivered at such Time of Delivery) have been duly authorized
and validly issued and are fully paid and nonassessable; and
the Shares conform to the description of the Stock contained in
the Prospectus;
(iii) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by
the Company;
(iv) The issue and sale of the Shares being delivered to
the Underwriters and the International Underwriters at such
Time of Delivery and the compliance by the Company with all of
the provisions of this Agreement and the International
Underwriting Agreement and the consummation by the Company of
the transactions to be performed by the Company herein and
therein contemplated will not conflict with or result in a
breach or violation of,
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<PAGE>
or constitute a default under, any of the existing terms or
provisions of, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument filed as an exhibit
to the Registration Statement, nor will such action result in
any violation of the provisions of the Certificate of
Incorporation or Bylaws of the Company or any existing statute
or any existing order, rule or regulation (other than foreign
and state securities laws, as to which such counsel expresses
no opinion and other than federal securities laws, as to which
such counsel expresses no opinion except as otherwise set forth
herein) known to such counsel of any United States federal or
state court or governmental agency or body having jurisdiction
over the Company or any of its Subsidiaries;
(v) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required to be obtained by the
Company for the issue and sale by the Company of the Shares to
the Underwriters and the International Underwriters or the
consummation by the Company of the transactions to be performed
by the Company contemplated by this Agreement and the
International Underwriting Agreement, except the registration
under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be
required under state or foreign securities or Blue Sky laws;
(vi) The Company is not, and after giving effect to the
sale of the Shares, will not be (i) an "investment company" or
(ii) an entity "controlled" by an "investment company" required
to be registered under the Investment Company Act (for purposes
of this paragraph (vi),"investment company" and "controlled"
shall have the meanings ascribed to such terms in the
Investment Company Act); and
In addition, such counsel shall state that such counsel has
participated in the preparation of the Registration Statement and the
Prospectus and in conferences with officers and other representatives of
the Company, counsel for the Company, representatives of the independent
auditors of the Company and your representatives at which the contents of
the Registration Statement and Prospectus and related matters were
discussed. Such counsel may also state that because the purpose of their
professional engagement was not to establish or confirm factual matters
and because the scope of their examination of the affairs of the Company
did not permit them to verify the accuracy, completeness or fairness of
the statements set forth in the Registration Statement or Prospectus,
they are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or Prospectus, except to the extent set forth in
the last sentence of this paragraph. Such counsel also shall state that,
on the basis of the foregoing, except for the financial statements and
schedules and other financial data included therein, as to which such
counsel need express no opinion or belief, (a) such counsel is of the
opinion that the Registration Statement at the time it became effective,
and the Prospectus as of the date thereof and as of the date of such
opinion, appeared on their face to be appropriately responsive in all
material respects to the relevant requirements of the Securities Act and
the General Rules and Regulations promulgated thereunder and (b) no facts
have come to such counsel's attention that lead such counsel to believe
that the Registration
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<PAGE>
Statement at the time it became effective contained an untrue statement
of a material fact or omits or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or the Prospectus as of its date and as of the date of such
opinion contained or contains an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such counsel
also shall state that, insofar as the statements contained in the
Registration Statement and the Prospectus under the caption "Description
of Capital Stock" constitute a summary of the documents and legal matters
referred to therein, such counsel is of the opinion that such statements
fairly present the information called for with respect to such documents
and legal matters by the Securities Act and the applicable rules and
regulations of the Commission thereunder relating to registration
statements on Form S-1 and prospectuses, and, insofar as the statements
contained in the Prospectus under the caption "Certain United States Tax
Consequences to Non-U.S. Holders" purport to describe the legal matters
referred to therein, such counsel is of the opinion that such description
of legal matters is accurate in all material respects.
In rendering such opinion, such counsel may state that they express
no opinion as to the laws of any jurisdiction other than the States of
New York and California, the General Corporation Law of the State of
Delaware and the federal law of the United States.
(d) Joan F. Krey, general counsel of the Company, shall have
furnished to you her written opinion (a draft of such opinion is
attached as Annex II(c) hereto), dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each jurisdiction in which it owns
or leases properties or conducts any business so as to require
such qualification, or is subject to no material liability or
disability by reason of failure to be so qualified in any such
jurisdiction (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and
in respect of matters of fact upon certificates of officers of
the Company or State officials);
(ii) Each Subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation
and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any
such jurisdiction; and all of the issued shares of capital
stock of each such Subsidiary have been duly authorized and
validly issued, are fully paid and (except, with respect to any
Subsidiary incorporated in the State of New York, as provided
in Section 630 of the Business Corporations Law of the State of
New York) non-assessable, and (except for directors' qualifying
shares) are owned directly or indirectly by
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the Company, free and clear of all liens, encumbrances, equities or
claims and except .as otherwise described or referred to in the
Prospectus (such counsel being errtitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in respect
to matters of fact upon certificates of officers of the Company or
its subsidiaries and state officials, provided that such counsel
shall state that they believe that both you and they are justified
in relying upon such opinions and certificates);
(iii) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party
or of which any property of the Company or any of its subsidiaries
is the subject which could reasonably be expected to be determined
adversely to the Company and any of its subsidiaries and, if so
determined, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial
position, stockholders' equity or results of operations of the
Company and its subsidiaries; and, to such counsel's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(iv) The issue and sale of the Shares being delivered to the
Underwriters and the International Underwriters at such Time of
Delivery and the compliance by the Company with all of the
provisions of this Agreement and the International Underwriting
Agreement and the consummation by the Company of the transactions to
be performed by the Company herein and therein contemplated will not
conflict with or result in a breach or violation of, or constitute a
default under, any of the existing terms or provisions of, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument filed as an exhibit to the Registration
Statement, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or Bylaws of the
Company or any existing statute or any existing order, rule or
regulation (other than foreign and state securities laws, as to
which such counsel expresses no opinion and other than federal
securities laws, as to which such counsel expresses no opinion
except as otherwise set forth herein) known to such counsel of any
United States federal or state court or governmental agency or body
having jurisdiction over the Company or any of its Subsidiaries; and
(v) Neither the Company nor any of its Subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in
default in any material respect in the performance or observance of
any material obligation, agreement, covenant or condition contained
in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it
or any of its properties may be bound.
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date
of any
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post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Coopers
& Lybrand shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory
to you, to the effect set forth in Annex I hereto (the executed copy of
the letter delivered prior to the execution of this Agreement is attached
as Annex I(a) hereto and a draft of the form of letter to be delivered on
the effective date of any post-effective Amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(f)(i) Neither the Company nor any of its Subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, which loss or interference is material to the financial
position or results of operations of the Company and its Subsidiaries
taken as a whole, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information
is given in the Prospectus there shall not have been any change in the
capital stock (other than pursuant to the exercise of existing options
and other than as described in or referred to in the Prospectus) or
increase in the long-term debt (other than pursuant to the accounts
receivable sale program) of the Company or any of its Subsidiaries, any
material revaluation of inventories, or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole,
otherwise than as set forth or contemplated in the Prospectus, the effect
of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; (ii) a suspension or
material limitation in trading in the Company's securities on the New
York Stock Exchange; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York State authorities; or
(iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency or
war, if the effect of any such event specified in this Clause (iv) in the
judgment of the Representatives makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have been
duly listed, subject to notice of issuance, on the Exchange;
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from the holders of at least _% of the
outstanding Stock,
-16-
<PAGE>
substantially to the effect set forth in Subsection 5(e) hereof in form
and substance satisfactory to you;
(j) The Company shall have complied with the provisions of Section
5(c) hereto with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as
to the performance by the Company of all of its obligations hereunder to
be performed at or prior to such Time of Delivery, as to the matters set
forth in subsections (a) and (f) of this Section and as to such other
matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman,
Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman,
Sachs
-17-
<PAGE>
& Co. expressly for use therein; and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such action or claim as such expenses
are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party (which consent
shall not be unreasonably withheld), be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each
case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. The
indemnifying party shall not be liable for any settlement of an action or
claim for monetary damages which an indemnified party may effect without
the consent of the indemnifying party which consent will not be
unreasonably withheld. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of,
or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified
party is an actual or potential party to such action or claim) unless
such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such
action or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion
as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under subsection
(c) above, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of the Company on the one hand and the
-18-
<PAGE>
Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions
in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Shares purchased under
this Agreement, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company on the one hand or
the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11
(f) of the Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 8 shall be in addition
to any liability which the respective Underwriters may otherwise have and
shall extend, upon the same terms and conditions, to each officer and
director of the Company and to each person, if any, who controls the
Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company
-19-
<PAGE>
shall be entitled to a further period of thirty-six hours within
which to procure another party or other parties satisfactory to you
to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies
you that it has so arranged for the purchase of such Shares, you or
the Company shall have the right to postpone such Time of Delivery
for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments
to the Registration Statement or the Prospectus which in your
opinion may thereby be made necessary. The term "Underwriter" as
used in this Agreement shall include any person substituted under
this Section with like effect as if such person had originally been
a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-
eleventh of the aggregate number of all the Shares to be purchased
at such Time of Delivery, then the Company shall have the right to
require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of
Shares which such Underwriter agreed to purchase hereunder) of the
Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh
of the aggregate number of all the Shares to be purchased at such
Time of Delivery, or if the Company shall not exercise the right
described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase
and of the Company to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non-defaulting
Underwriter or the Company, except for the expenses to be borne by
the Company and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability
for its default.
10. (a) The Company will indemnify and hold harmless Goldman,
Sachs & Co., in its capacity as QIU, against any losses, claims, damages
or liabilities, joint or several, to which the QIU may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement
-20-
<PAGE>
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required. to be stated therein
or necessary to make the statements therein not misleading, and will
reimburse the QIU for any legal or other expenses reasonably incurred by
the QIU in connection with investigating or defending any such action or
claim as such expenses are incurred.
(b) Promptly after receipt by the QIU under subsection (a) above of
notice of the commencement of any action, the QIU shall, if a claim in
respect thereof is to be made against the Company under such subsection,
notify the Company in writing of the commencement thereof; but the
omission so to notify the Company shall not relieve it from any liability
which it may have to the QIU otherwise than under such subsection. In
case any such action shall be brought against the QIU and it shall notify
the Company of the commencement thereof, the Company shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to the QIU (who shall not, except with
the consent of the QIU (which consent shall not be unreasonably
withheld), be counsel to the Company), and, after notice from the
indemnifying party to the QIU of its election so to assume the defense
thereof, the indemnifying party shall not be liable to the QIU under such
subsection for any legal expenses of other counsel or any other expenses,
in each case subsequently incurred by the QIU, in connection with the
defense thereof other than reasonable costs of investigation. The Company
shall not be liable to the QIU for any settlement of an action or claim
for monetary damages which the QIU may effect without the consent of the
Company which consent will not be unreasonably withheld. The Company
shall not, without the written consent of the indemnified party, effect
the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of
which indemnification or contribution may be sought hereunder (whether or
not the QIU is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an
unconditional release of the QIU from all liability arising out of such
action or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of
QIU.
(c) If the indemnification provided for in this Section 10 is
unavailable to or insufficient to hold harmless Goldman, Sachs & Co., in
its capacity as QIU, under subsection (a) above in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred
to therein, then the Company shall contribute to the amount paid or
payable by the QIU as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the QIU on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the QIU failed to give
the notice required under subsection (b) above, then the Company shall
contribute to such amount paid or payable by the QIU in such proportion
as is appropriate to reflect not only such relative benefits but also the
relative fault of the Company on the one hand and the QfU on the other in
connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the QIU on the other
shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received
-21-
<PAGE>
by the Company, as set forth in the table on the cover page of the
Prospectus, bear to the fee payable to the QIU pursuant to Section 2(b)
hereof. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company on the one hand or
the QIU on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement of
omission. The Company and the QIU agree that it would not be just and
equitable if contributions pursuant to this subsection (c) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
above in this subsection (c). The amount paid or payable by the QIU as a
result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (c) shall be deemed
to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11 (f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) The obligations of the Company under this Section 10 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls the QIU within the meaning of the Act.
11. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several
Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation (or any statement as to
the results thereof) made by or on behalf of any Underwriter or any
controlling person of any Underwriter, or the Company, or any officer or
director or controlling person of the Company, and shall survive delivery
of and payment for the Shares.
12. If this Agreement shall be terminated pursuant to Section 9
hereof or as a result of the failure of a condition set forth in Section
7(g) hereof, the Company shall not then be under any liability to any
Underwriter except as provided in Sections 6 and 8 hereof; but, if for
any other reason, any Shares are not delivered by or on behalf of the
Company as provided herein, the Company will reimburse the Underwriters
through you for all out-of-pocket expenses approved in writing by you,
including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery
of the Shares not so delivered, but the Company shall then be under no
further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
13. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely
upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by you jointly or by Goldman, Sachs & Co. on
behalf of you as the representatives.
-22-
<PAGE>
All statements, requests, notices and agreements hereunder shall be
in writing, and if to the Underwriters shall be delivered or sent by
mail, telex or facsimile transmission to you as the representatives in
care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004,
Attention: Registration Department; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address
of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant
to Section 8(c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in
its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take
effect at the time of receipt thereof.
14. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 11 hereof, the officers and directors of the Company and
each person who controls the Company or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and
no other person shall acquire or have any right under or by virtue of
this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
15. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office
in Washington, D.C. is open for business.
16. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
17. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be
an original, but all such counterparts shall together constitute one and
the same instrument.
-23-
<PAGE>
If the foregoing is in accordance with your understanding, please
sign and return to seven counterparts hereof, and upon the acceptance
hereof by you, on behalf of each of the Underwriters, this letter and
such acceptance hereof shall constitute a binding agreement between each
of the Underwriters and the Company. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth in a form of Agreement among
Underwriters (U.S. Version), the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part
as to the authority of the signers thereof.
Very truly yours,
Saks Holdings, Inc.
By:
---------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
By:
----------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-24-
<PAGE>
<TABLE><CAPTION>
SCHEDULE I
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares to Maximum Option
Underwriter be Purchased Exercised
----------- ----------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co .........
CS First Boston Corporation .....
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc .........
------------------ ------------------
Total ............................. ================== ==================
</TABLE>
-25-
<PAGE>
SCHEDULE II
SIGNIFICANT SUBSIDIARIES
------------------------
1. Saks & Company
2. Win Realty Holdings II, Inc.
3. Calwin Realty II, Inc.
4. SFA Folio Collections, Inc.
5. Fifth Win, Inc.
6. SFA Finance Company
-26-
<PAGE>
ANNEX I
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
Pursuant to Section 7(e) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of
the Act and the applicable published rules and regulations
thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if
applicable, financial forecasts and/or pro forma financial
information) examined by them and included in the Prospectus or the
Registration Statement comply as to form in all material respects
with the applicable accounting requirements of the Act and the
related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial
statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial
statements derived from audited financial statements of the Company
for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public
Accountants of the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus as indicated in their reports
thereon copies of which have been separately furnished to the
Representatives and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited
condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations, nothing came to their attention
that caused them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of
the Company for the five most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements
for such five fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter
nothing came to their attention as a result of the
<PAGE>
foregoing procedures that caused them to believe that this information
does not conform in all material respects with the disclosure
requirements of items 301,302, 402 and 503(d), respectively, of
Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible
for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations, or (ii) any
material modifications should be made to the unaudited condensed
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus for
them to be in conformity with generally accepted accounting
principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with
the basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not determined on
a basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements of
the Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise
of options and stock
-2-
<PAGE>
appreciation rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest financial statements included
in the Prospectus) or any increase in the consolidated long-term
debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases
which the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net
revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (vi) above, they have carried out certain specified procedures,
not constituting an examination in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives, which are derived
from the general accounting records of the Company and its subsidiaries,
which appear in the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages
and financial information with the accounting records of the Company and
its subsidiaries and have found them to be in agreement.
-3-
<PAGE>
FORM OF ANNEX II(a) OPINION OF SULLIVAN & CROMWELL
<PAGE>
FORM OF ANNEX II(b) OPINION OF GIBSON, DUNN & CRUTCHER LLP
<PAGE>
FORM OF ANNEX II(c) OPINION OF JOAN F. KREY,
GENERAL COUNSEL OF SAKS HOLDINGS, INC.
Exhibit 3.01.10
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE
OF
INCORPORATION
OF
SAKS HOLDINGS, INC.
SAKS HOLDINGS, INC., a Delaware corporation (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent to action in lieu of a meeting, adopted resolutions proposing
and declaring advisable an amendment to the Restated Certificate of
Incorporation of the Corporation filed by the Corporation on June 29, 1990 (as
amended, the "Restated Certificate of Incorporation"), as amended by the
Certificate of Designation filed by the Corporation on June 29, 1990 (as
amended, the "Certificate of Designation"), including certain revisions to the
Certificate of Designation of the Corporation.
SECOND: That the resolutions so adopted by the Board of Directors provided
for amending the Restated Certificate of Incorporation and the Certificate of
Designation of the Corporation as follows:
(a) Article FOURTH of the Restated Certificate of Incorporation shall be
deleted and replaced in its entirety with the following:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is Two Hundred Twenty Four
Million Eight Hundred Fifty Thousand (224,850,000). Thirty Seven
Million Five Hundred Thousand (37,500,000) of said shares shall be
designated as shares of Class A Stock, all of which shall be of the
same series with $.01 par value per share. Two Million Two Hundred
Fifty Thousand (2,250,000) of said shares shall be designated as
Class B Stock, all of which shall be of the same series with $.01 par
value per share. Twenty Five Million Fifty Thousand (25,050,000) of
said shares shall be designated as Class C Stock, all of which shall
be of the same series with $.01 par value per share. Fifty Thousand
(50,000) of said shares shall be designated as Class D Stock, all of
which shall be of the same series with $.01 par value per share. One
Hundred Fifty Million (150,000,000) of said shares shall be designated
as Common Stock, all of which shall be of the same series with $.01
par value per share. Ten Million (10,000,000) of said shares shall be
designated as Preferred Stock, with $.01 par value per share. The
shares of each class of stock of the Corporation shall be issued as a
class, without separate series, with the exception of the Preferred
Stock, which may be issued in separate series.
<PAGE>
Each such class or series, as the case may be, may have such voting powers,
full or limited, including the right to have more or less than one vote per
share, or no voting powers, and such designations, preferences, dividend
rights and other special rights, qualifications, limitations and
restrictions as shall be stated and expressed in a resolution or
resolutions of the Board of Directors and filed with the Secretary of State
of the State of Delaware in accordance with the Delaware General
Corporation Law."
(b) Section 2 of the Certificate of Designation shall be deleted and
replaced in its entirety with the following:
"2. Designation and Number. As set forth in the Certificate of
Incorporation, the first class of stock of the Corporation shall have
a par value of $0.01 per share and shall be designated as "Class A
Stock" and the number of shares constituting such class shall be
37,500,000. The second class of stock of the Corporation shall have a
par value of $0.01 per share and shall be designated as "Class B
Stock" and the number of shares constituting such class shall be
2,250,000. The third class of stock of the Corporation shall have a
par value of $0.01 per share and shall be designated as "Class C
Stock" and the number of shares constituting such class shall be
25,050,000. The fourth class of stock of the Corporation shall have a
par value of $0.01 per share and shall be designated as "Class D
Stock" and the number of shares constituting such class shall be
50,000. The fifth class of stock of the Corporation shall have a par
value of $0.01 per share and shall be designated as "Common Stock" and
the number of shares constituting such class shall be 150,000,000.
The sixth class of stock of the Corporation shall have a par value of
$0.01 per share and shall be designated as "Preferred Stock" and the
number of shares constituting such class shall be 10,000,000. The
Class A Stock, Class B Stock, Class C Stock, Class D Stock, Common
Stock and Preferred Stock are sometimes referred to collectively
herein as the "Stock." The Corporation may, by an amendment to the
Certificate of Incorporation duly adopted, increase or decrease, at
any time and from time to time (but not below the number of shares of
Class A Stock, Class B Stock, Class C Stock, Class D Stock, Common
Stock or Preferred Stock then outstanding), the number of authorized
shares of Class A Stock, Class B Stock, Class C Stock, Class D Stock,
Common Stock or Preferred Stock, as the case may be. Shares of Stock
redeemed, purchased or otherwise acquired by the Corporation pursuant
to the terms hereof shall be retired and shall revert to authorized
but unissued Class A Stock, Class B Stock, Class C Stock, Class D
Stock, Common Stock or Preferred Stock, as the case may be."
THIRD: That in lieu of a meeting and vote of stockholders, the Class D
stockholders of the Corporation, being the only stockholders of the Corporation
entitled to vote thereon, have given their unanimous written consent to the
amendment in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment to the
Restated Certificate of Incorporation as of this 26th day of April, 1996.
SAKS HOLDINGS, INC.
By: /s/ Brian E. Kendrick
---------------------------
Name:
Title:
By: /s/ Philip B. Miller
-------------------------------
Name:
Title:
3
Exhibit 23.(01)
[LETTERHEAD OF COOPERS & LYBRAND L.L.P.]
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-2426) of our report dated March 13, 1996, except as to the information
regarding the amendments to the Credit Facility in April 1996 presented in Note
5 for which the date is April 18, 1996 and the information presented in Note 15,
for which the date is April 26, 1996, on our audits of the financial statements
of Saks Holdings, Inc. and Subsidiaries. We also consent to the reference to
our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
New York, New York
May 20, 1996
